Franchising Opening a business of your very own is a big step-probably among the biggest decisions you'll ever make. Some people, much like yourself, have made a successful living in operating a franchised business.Some have made millions of dollars. Of course, there are no true "get-rich-quick schemes," and you, the prospective investor, must realize this. You must be aware that the glitter of some irresistible propositions promising spectacular profits the first year may in reality be fool's gold. If you are planning to go into business for yourself, you face a great adventure, or a great disaster. Which it will be depends a great deal on how well you prepare yourself through knowledge and understanding of the situation you are about to enter. In order to build your future in franchising, there are many important facts that you must know about franchising and owning your own franchise business. Because franchises are available today in such a variety of sizes and shapes, it is necessary to develop a clear understanding of franchising. What is Franchising? To put it simply, a franchise exists where a manufacturer or operating company gives a person the right to sell, distribute, or market the company's product or service using the company's name, reputation, and selling techniques. The company supplying the franchise is known as the franchisor. The person buying and operating the franchise is known as the franchisee. Thus the parties involved are the franchisor, sometimes referred to as the manufacturer, parent company, seller, or licensor-and the franchisee, often identified as a dealer, outlet, associate, licensee, or member. The franchisor provides a going business, a proven system of operation with support from a large and established organization-the image of success. Among the services that franchisors may provide in their "package" are the following: established name and reputation, widely advertised brands, location analysis and counsel, popular store design, initial and continuing franchisee training and management assistance, advertising and merchandising aids and assistance, financial assistance in the establishment of the business, centralized purchasing, and standardized procedures and operations. In return for the franchise package, the franchisee usually pays a "franchise fee", a percentage of gross sales, or agrees to buy the franchisor's supplies and equipment; often the payment involves all three. In addition, the franchisee provides local managerial skill and agrees to deal exclusively with the parent company as it specifies and operate the business according to standardized procedures established by the franchisor. How Franchising Works
Franchising may be explained as a licensing arrangement whereby an organization (the franchisor), which has developed a successful retail product or service, sells to individuals (the franchisees) the right to engage in the business, provided they follow the established pattern. The franchised establishments operating within a particular franchise system are usually identified as members of the group. They operate under a common trade name-for example, MacDonald’s, KFC, Dunkin' Donuts, A & W Root Beer, and so on. Their business operations, their physical appearance, their merchandise-and especially their operating procedures-are standardized to a very high degree. In his efforts to maintain a standardized image, the franchisor generally retains a strong system of control over each individual franchise operation. In order to secure compliance with the prescribed operating standards, the franchise agreement (contract) ordinarily specifies that the franchisee's premises be available for inspection at all reasonable times by the franchisor's representative. There are many types of licensing arrangements that may be classified under the broad heading of franchising. We have described the more conventionally known comprehensive, or operating franchise, whereby the franchisee owns and operates a business in an exclusive territory according to a predetermined pattern developed by the franchisor. For more information on various types of franchises visit the The International Franchise Association web site. See the “An Overview of Franchising" section of our web site for a discussion of the advantages and disadvantages of franchising. For a list of the top 500 franchises visit the Entrepreneur.com web site.
