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A Franchise is a business in which "... the franchisor, the owner and
developer of the franchise system licenses [you] franchisees to use
trademarks, service marks, logos, or advertising owned or developed
by the franchisor." (International Franchising Association, Franchising
basics).
With some franchise programs, the business operates using the
franchisor's brand name only. Other programs are less restrictive
and allow for the usage of both a trade name in addition to the
franchisor's brand name.
Common to all franchise programs, the franchisee[ you] is responsible
to pay the franchisor, advertising fees, initial fees, service fees, and or
royalty fees. You are responsible for payment whether your business
is profitable or not.
On the other hand, many franchisor's provide educational programs
to franchisees before the inception of the business. Often times,
they've done demographic studies and other studies to ensure
that you have greater odds of returning a profit.
Major Franchise Types
· Unit Franchising
Is the most simple type of franchise in which the Franchisor
grants the franchisee the right to operate a single operation
at a specified location or within a particular territory.
· Area Development Franchising
In accordance with a "development schedule", the franchisee
agrees to establish a predetermined number of "unit franchises"
within a particular territory.
· Subfranchising/Master franchizing
Is quite similar to Area Development Franchising with the major
difference being that the franchisor grants the subfranchisor
the option of opening the unit franchises herself or selling the
the franchises to third parties. (Common with International
franchising)
· Affiliate Franchising
This type of set up is typically used by an owner of an established
business who decides to join/affiliate with a franchised chain. This
allows for the benefit of the franchises brand. This is common with
many real estate.
· NonTraditional
This type of set up is customized between the franchisor and the
franchisee.
Franchises are not the same as Dealerships
and distributorships
A dealership or distributorship differs from a franchise in that there is no
FEE involved. Dealers purchase products usually from the manufacturer
at wholesale prices. Note however, that a dealership can become a
franchise IF a FEE is paid to the franchisor AND the distributor is
dependent upon the franchisor's pay structure.
Considerations when buying a franchise
· There's a benefit to purchasing a franchise that is well known
· Will the franchisor provide ongoing education and support?
· Were demographic studies performed?
· How many of the franchises have closed operation? Why?
· Have you STUDIED the franchiser's Comprehensive
Disclosure Statement?
It's required by Law that prospective franchisee's
are provided Comprehensive Disclosure, a copy of
the franchisor's Standard Franchise Agreement,
Audited statements, a list of the names of all of the
franchisees, as well as a copy of all documents that
require the franchisees' signing. By law, each of the
above must be provided at least 2 weeks prior to
purchase date.
· I've heard the saying, "if you buy a McDonald's, be
prepared to eat burger's for breakfast lunch and
dinner." In other words, your business requires
commitment.
Additional Sources of information
·Success Magazine
·International Franchise Association
www.franchise.org
·Franchise Sales Press
*Get this magazine
since it is known for its focus on franchise
opportunities. Further, they perform regular
interviews with both franchisees as well as
with franchisors.
·SBA Small Business Association
sba
·Brokerage firms and analysts
since stock information on a public
company is useful.
·Franchise Lawyer
·Federal Trade Commission
Public Reference Branch
·UFOC "Uniform Franchise Offering
circular -- the material that is provided by
law, by the franchisor to the qualified
franchisee. This is likely the most
telling of all information gathered.
·Attorney General's Office
·BBB located in the city of the Franchisor's
headquarters.
·Your Banker should have access to the
Dunn and Bradstreet Report on the particular
franchisor.
·Contact the franchisor's franchisee's listed in
UFOC. *** Prepare a list of relevant questions
prior to calling.
Purchasing a franchise usually equates to a reduction in
investment risks since the" system" and Franchise name
is established, training and ongoing support is provided,
market research has been conducted... Conversely,
franchise ownership can be costly. Consequently, it is
critical that you investigate the franchise thoroughly
prior to purchasing.
There is a continual rise in the number of franchises.
Obviously, there's a HUGE market for this method of
business ownership.
Be wise and ensure that you conduct
sufficient research prior to committment.
Be certain to visit our site regularly as the content is
constantly changing with more new and exciting Home
Business Opportunities, resources and tools.
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You will notice that we've recently added Small
Business News to our site.
Bridging the Gap between Opportunity and Success,
Shawn Price-Pierce
OwnABizToday.com
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