What is a Franchise?

What Is A Franchise?

You’re ready to break-out on your own and be your own boss. The question is, should you start your own business or invest in a franchise? You know what you’re good at and what you enjoy doing, but does that automatically translate into a business concept; a business concept that will be successful and profitable? And even if it does, do you have the commitment it takes to develop your own business or would you feel more secure investing in a business with a successful history and years of experience; a business that you can own with out being alone?

If you don’t know the answer to that question, you’re in the same boat as many entrepreneurs out there. As you wade through the questions and challenges of starting your own business, investing in a franchise may be something to consider.

So, you’ve heard about franchises and know that the sandwich shop around the corner, the local gas station and even your dry cleaner are all franchises, but you’re not quite sure what that means. Well, we’ve taken a page out of the International Franchise Association’s (IFA) website resources to help explain the basics of, “What Is a Franchise?”

A franchise is defined as the agreement or license between two legally independent parties which gives:
• A person or group of people (franchisee) the right to market a product or service using the trademark or trade name of another business (franchisor)

• The franchisee the right to market a product or service using the operating methods of the franchisor

• The franchisee the obligation to pay the franchisor fees for these rights

• The franchisor the obligation to provide rights and support to franchisees

Owns trademark or trade name
Provides Support:
-Financing (sometimes)
-Advertising & Marketing
Receives Fees

Uses trademark or trade name
Expands business with franchisors support
Pays fees

There are various types of franchises and business formats. It is important to conduct research on these types and formats to identify those that are of most interest and align with your personal and professional goals.

Business format franchises use a franchisor’s product, service and trademark, but also the complete method to conduct the business itself, such as the marketing plan and operations manuals. Business format franchises are the most common type of franchise.

Types of Franchise Arrangements:
Because so many franchisors, industries and range of investments are possible, there are different types of franchise arrangements available to a business owner.

Single Unit Franchise:
A single-unit franchise is an agreement where the franchisor grants a franchisee the rights to open and operate ONE franchise unit. This is the simplest and most common type of franchise. It is possible, however, for a franchisee to purchase additional single-unit franchises once the original franchise unit begins to prosper. This is then considered a multiple, single-unit relationship.

Multi-Unit Franchise:
• Area development
• Master franchise (sub-franchising)

Area Development Franchise:
Under an area development franchise, a franchisee has the right to open more than one unit during a specific time, within a specified area. For example, a franchisee may agree to open 5 units over a five year period in a specified territory. The franchisor grants the franchisee exclusive rights for the development of that territory.

Master Franchise:
A master franchise agreement gives the franchisee more rights than an area development agreement. In addition to having the right and obligation to open and operate a certain number of units in a defined area, the master franchisee also has the right to sell franchises to other people within the territory, known as sub-franchises. Therefore, the master franchisee takes over many of the tasks, duties and benefits of the franchisor, such as providing support and training, as well as receiving fees and royalties.

For more helpful resources on franchising, visit IFA.

For more information on franchise opportunities with High Touch High Tech – Science Made Fun visit ScienceMadeFunFranchise.net