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What You Should Know About Franchise

Franchising is essentially a marketing technique used by many companies to expand operations (distribute products and services ) without the owners having to raise more money or capital themselves. 

Business owned as a sole proprietorships, partnerships, and corporations can all decide to franchise their operations. The franchisor supplies the product or service to the franchisee who in turn makes it available to the consumers. A franchise is license granted by a corporation to sell a particular product or a service in a given area and in many cases provides equipment, supplies and expertise to a franchisee in exchange for a fee and royalties on sales. 

Franchising is a two-way street. For a new franchise to succeed, the franchisee must agree to follow all the rules and regulations set out in the agreement. In return, the franchisor often give the franchise help to choose a good location, provide advertising, suggest special promotions, and help to buy equipment and supplies. What's more, a good franchisor will supervise quality control and keep you up-to-date on new products and research. Some franchisors even provide accounting service. However, not all franchises are successful. People who dream of buying a franchise should investigate the parent organization and its rules carefully. They should also talk to other franchisees before making a decision.

Franchising isn't for everyone. If you are too independent and too entrepreneurial to accept rules and regulations which someone else has instituted, then franchising may not be for you. It is a fundamental requirement in franchise system that each unit within that system appears to be similar in almost everything. Although franchising is an attractive alternative to being an entrepreneur it may still be the risk of failure in the process of developing and a full range of support services may not be in place. There is a considerable difference between a mature franchisor with a successful track record in an established market and a new franchise system based on an unproved business concept.

There are many publications which list available franchises, in order to avoid a costly mistake just shop around to find out franchises that best suit your skills and taste. Hire an accountant or financial advisor to evaluate the franchises that interest you. Engage a lawyer who specializes in franchise-related matters to review all of the documents and explain every clause of the franchise agreement.

Request a list of all franchisees with their locations and discuss with a number of them success and profitability of their outlets. In some ways, buying franchise is like starting a business from scratch. In other ways it is like buying an established business with a recognized name and product. The cost of buying a proven franchise is high because the risk is lower. Many people feel that buying a franchise is good way to get started in business.


Public instantly recognizes the franchise name.
Franchisor provides training for franchisee.
Best locations are already researched and selected.
Even if franchisees are inexperienced, they can use the expertise of the parent company to help them succeed and pull in clientele.
All operating decisions are made for the franchisee, living no guesswork when it comes to marketing, decor, pricing etc.
A quick return on the investment.

Entrepreneur gives up the freedom of decision-making.
The risk is still significant.
You may run into problems if the parent company goes bankrupt- even if you running your own franchise business successfully.
Profits are always shared.
Initial capital outlay is large.
Franchise must obtain product and / or supplies from franchisor.
Strict rules must be adhered to.

When a person (called the FRANCHISEE) decides to buy a franchise, he or she enters into a licensing agreement with the parent business (called the FRANCHISOR). The franchisee must supply the money needed to start the franchise and must follow the rules established by the franchisor. These rules are usually very strict and often include details such as:

Where the business may locate.
The type of building that must be used.
The suppliers that must be used.
What equipment must be bought and from whom.
The quality of the products sold.
The quality of the services provided.
Special training courses that the franchisee must attend.
The percentage of profit or revenue that must be paid to the franchisor.


Tips & Traps When Buying a Franchise - Mary E. Tomzack is a noted franchise expert. She is President of FranchiseHelp, Inc., an information and research company which services prospective franchisees, multi-unit franchisees, franchise lending companies, investors and independent businesses seeking to become franchises. Ms. Tomzack is also the author of Going Global: Strategies and Techniques for New Multi Nationals (published by the Economist Intelligence Unit). She has been part-owner of two franchised businesses and previously founded and managed a company which manufactured and marketed women’s fragrances. If you have time to read only one book about franchising, make it this one. Tips & Traps is a fast read with all the information you need to make a good decision. Insider Secrets Revealed · How to select the best franchise for your personal finances and lifestyle · The hottest franchise opportunities to take you into the 21st Century · Sources of financing-- why it’s never been better · How to navigate the legal maze, understand the fine points of the franchise agreement · How to avoid last-minute deal breakers · Why co-branding makes sense · How the franchisor’s financials affect your business · How to build a business empire with franchises · And much, much more...

Franchising 101: The Complete Guide to Evaluating, Buying & Growing Franchise Business - This guide provides clear, concise explanations for finding, buying, operating & growing a successful franchised business from top experts from the ASBDC and the American Association of Franchisees and Dealers (AAFD). Checklists, forms, worksheets, and easy to follow strategies along with a sample franchise business plan and contract allow readers to discover how to: evaluate a franchise opportunity, develop forecasts and budgets, estimate start up costs, and get financing.

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