Through franchise businesses, consumers can buy nearly every good or service imaginable -- from singing telegrams and computer training to tax services and waste eating microbes.
A new franchise opened somewhere in the United States every eight minutes and somewhere in the world every 6 1/2 minutes. Franchises account for more than 50% of all retail sales, totaling more than one trillion, and they employ more than 8 million people in more than 100 major industries.
Franchising is a method of doing business involving a continuous relationship between a franchisor and a franchisee. A franchisor retains control of the distribution system, whereas the franchisee assumes all the normal daily operation functions of the business.
There are three types of franchising:
- trade name franchising -- the franchisee purchases only the right to use a brand-name
- product distribution franchising -- which involves a license to sell specific products under a brand-name
- pure franchising -- which provides a franchisee with a complete business system
benefits and limitations of buying a franchise
the franchisor has the benefits of expanding his or her business on limited capital in growing without developing key managers internally.
The franchisee also receives many key benefits:
- Management training and counseling
- customer appeal of a brand-name
- standardized quality of goods and services
- national advertising programs
- financial assistance
- proven products and business formats
- centralized buying power
- territorial protection
- greater chances for success
disadvantages involved in buying a franchise:
- franchise fees and profit sharing
- strict adherence to standardized operations
- restrictions on purchasing
- limited product lines
- possibly ineffective training programs
- less freedom
legal aspects of franchising
the FTC's Trade Regulation Rule is designed to help the franchisee evaluate a franchising package. It requires each franchisor to disclose information covering 23 topics at least 10 days before accepting payment from potential franchising. This document, the Uniform Franchise Offering Circular (UFOC) is a valuable source of information for anyone considering investing in a franchise.
To buy a franchise the right way requires that you about the way yourself, researcher market, consider your franchise options, get a copy of the franchisor's UFOC and study it, talk to existing franchisees, asked the franchisor some tough questions, then make your choice.
The franchise contract
the amount of franchisor -- franchisee litigation has risen steadily over the past decade. Three reasons are responsible for most franchisor -- franchisee disputes: termination of the contract, contract renewal, and transfer and buyback provisions.
Trends influencing franchise include:
- international opportunities
- emergence of smaller nontraditional locations
- multiple unit of franchising
- Master franchising
- piggyback franchising or cobranding
- products and services targeting aging baby boomers
