Franchising is an easier way to start a business.
Franchises are relationships between an entrepreneuer who wants to use an existing intellectual property or identification, and the owner of that intellectual property. The franchise agreement is the contract between the two parties. Franchise agreements are used in many industries, including automobile dealerships, real estate agencies, tax preparation and fast food.
History and Current Usage
Franchising's earliest form began near the time of the Civil War. However, it became used on a regular basis only within the last fifty years. In 1990 there were 7 million workers generating $700 billion dollars in more than 500,000 franchised businesses and 60 industries in the United States, according to the U.S. Department of Commerce and the Small Business Association.
Forms of Franchises
There are two main forms of franchise agreements. The more complex and more common agreement is called business format franchising, in which the franchiser provides training, site selection, marketing and business plans, product supply, and financing to the franchisee. This sort of agreement often involves the franchiser taking more of the profit.
The less common agreement is simply called product or trade-name franchising. The franchiser owns the right to a piece of intellectual property and the franchisee buys the rights to use it.
Reasons to Franchise
Because business franchising provides a consistent product quality and style, as well as a well-known brand, franchises become successful faster, and with more consistency, than independent start-ups do. Franchised businesses have lower failure rates than other business, the U.S. Small Business Association and the Department of Commerce have stated.
Deciding to Start a Franchise
Deciding whether to franchise is a decision that shouldn't be rushed into. There are a number of questions to examine. Among these might be whether the franchise is your true goal, or whether you would be happier starting an independent business or some other option.
Try to visit the franchise's national office as well as regional centers and local franchisees, to get a feel for how the franchise treats its contractors. Read the franchiser's financial statements to understand the path it is taking. With this information, re-evaluate your initial decision to figure out whether or not you want to start a franchise.
Legal Issues
Before signing any agreement, speak with a franchise attorney or a specialized business adviser or accountant. Show them the agreement and any associated contracts or disclosure documents, and consider their advice. The cost is worth your long-term time, money, and effort.
Tags: intellectual property, Business Association, common agreement, Department Commerce, Small Business, Small Business Association, whether franchise