Franchise Ownership Information

Franchising can decrease the risk of starting a new business.

A franchise is a relationship between the owner of a piece of intellectual property (trademark, service mark, trade name, or advertising symbol) and a business owner who wants to use that identification for their business. The franchise agreement itself governs the actions taken by the two entities. The primary industries involved in franchising include automobile sales, real estate agencies, fast food locations, and tax preparation sites, among others.

History of Franchising

Franchising is a form of business that has existed in various ways since the civil war. However, the vast majority of growth in franchising has occurred recently. By 1990, there were more than 500,000 franchised business across the U.S., in 60 industries. In addition, more than 7 million workers were employed generating gross revenue of over $700 billion dollars.

Forms of Franchising

There are two primary forms of franchising. The simpler form is known as product or trade name franchising, in which the franchiser owns the right to a name/trademark/advertising symbol and sells is to a franchisee. In business format franchising, the franchiser provides site selection, training, standardized product supply, marketing plans, and financing to the franchisee, as well as taking more of the profit.

Benefits of Franchising

Franchising is an attractive prospect to many starting business owners. Due to access to a consistent product quality and a well known brand name, sales take off at a much faster rate than with independent startups. In fact, the failure rate is much lower than most new business. According to U.S. Small Business Administration and U.S. Department of Commerce, franchised business have lower failure rates than any other business. While having access to a franchise does not guarantee success, it does guarantee an organization to help you through the worse growing pains of starting a business.

Evaluating A Franchise

Before purchasing franchise rights, examine all sides of the issue. Some questions you may want to ask yourself include whether or not it is what you want, whether or not you would want to start an independent business instead, and what your other options are. Visit the franchiser's head and regional offices as well as getting in touch with other local franchisees to get a better feel for the company. Read the SEC mandated disclosure document to gain and understanding of the financials. Finally, evaluate how you feel about the opportunity in light of the information before making your final decision.

Legal Assistance

Talk to a franchise attorney, business advisor, or accountant before you make your decision. Go over the disclosure document and franchising agreement with them before signing, and take their advice into account to try to avoid any legal pitfalls. While this may cost money, it will save you time, money and effort in the long run.

References

• Small Business Administration: Franchising