FRANCHISE

A franchise is a business opportunity arrangement between an established company and an individual, with some shared contractual and financial obligations put in place for the mutual benefit of both parties. It is a method of conducting business by which a franchise licensee is granted the right to use a given trademark and tried and proven products, services, methods, procedures, plans or systems.

When a franchisor sells business rights, his revenue is based on the agreed initial franchise fee, and on-going royalties and ad fees. The franchisee buys a business opportunity, which can be developed to its full profit potential.

From the franchise purchaser's standpoint, the advantages of franchising are many. According to every source consulted, failures are substantially lower among franchisees than among independent business persons. Franchisees generally appear to be better qualified owners and managers from the start than independent businessmen in the initial stages of the same line of business. Financially, a franchisee takes a longer term view than a company manager.

The franchisee, as the licensee of a franchise territory or store,  commands better attention of the company management. The franchising system provides a mechanism for selecting the best among aspiring entrepreneurs.

One big advantage for the franchisee is that his or her personal investment is normally less than it would be to start or buy a comparable business. If a potential franchisee has to secure outside financing, the lending agency is more comfortable with the franchise, assuming the franchise has established itself and is not a new and untried concept.

The franchisor is a continuing source of know-how to the franchisee. The franchisee can expect training, the use of a recognized name and image, a proven method of doing business, management consulting and assistance, new products and services, and a protected territory.

He or she can also expect sales promotion assistance and incentives, standardization of supplies, equipment and signs, co-op advertising and purchasing power, legal and lease assistance, seminars and conventions, continuous exchange of information with other franchisees - and a greater value for the business once it is developed. Not every franchisor provides everything on this list but, except for limiting circumstances, most of the better ones do.

All of the services provided by the franchisor make it possible for an untrained, inexperienced person to go into business and expect to succeed. Finally, to a large extent, the 'continuing assistance' program provided by most reputable franchising companies eliminates, or minimizes, the problem of succession where there is death or disability of the major franchisee.

According to the Bank of America, "Franchising is a chain of small businesses bound by the image and policies of the parent company. The person buying a franchise does not buy his own business. He buys a success package from a company who shows him how to use it."

In summary, the advantages of franchising are actual, everyday, bread-and-­butter working features of the franchise system and the successful franchise.