What Are the Features of a Franchise Business?

Franchising is a partnership between a business owner and an established company.

Franchising involves purchasing or operating a business based on an established model, trademark or product. The franchisee, person operating the franchise, pays the franchisor for the opportunity to operate or sell under the franchise agreement.

Types

Franchises include turnkey businesses such as restaurants or retail chain stores that follow a specific business model. A product-only franchise offers franchise owners the right to use a trademark or sell a product.

Benefits

Franchises allow entrepreneurs the opportunity to start a business or sell products under a name already known to consumers. In addition, the franchisor may offer business education, advertising support and legal help.

Disadvantages

Franchise operators may be required to pay royalty fees in addition to start-up costs. Franchise agreements often include restrictions on product sales, pricing, location and business methods.

Considerations

The Federal Trade Commission recommends investigating potential franchise opportunities thoroughly before investing. Investigations should include company background checks, earnings reports, growth trends and detailed reports on the company's other franchises.

References

• International Franchise Association: An Introduction to Franchising
• Federal Trade Commission: Buying a Franchise: A Consumer Guide
• U.S. Small Business Administration: Franchising Overview

Resources

• Wisconsin Department of Financial Institutions: Brief History of Franchising