What Is Franchising?
You may be asking what exactly is franchising? Well, the Federal Trade Commission defines it as:
Franchising is a method of doing business by which the franchisee is granted the right to engage in the business of offering, selling or distributing good or services under a marketing plan or system prescribed in substantial part by a franchisor an which is substantially associated with the franchisor’s trademark, name, logo or advertising.
To restate this in easier terms, a franchise exists when the following three elements are in place:
1. You permit someone to use your name.
2. You permit someone to use your system of operation or marketing program.
3. You receive payment or a fee, either initially or on an on-going basis.
If only two of these three elements are present, your business is not a franchise.
In fact, many businesses avoid the compliance requirements that are attached to franchising by eliminating either use of the name or use of the system.
Some businesses will sell licenses instead of franchises. (Every franchise involves a license, but not every licensor is a franchisor)
The licensee pays an initial fee and price for each licensed product or service sold.
The main disadvantage of licensing compared with franchising is that the licensor has minimal control over the people that he/she grants the license.
What you have to look at is what is best for the business expansion that is being considered. If it is important to 1) create brand awareness by having people use your name and your system of operation, 2) ensure quality control, and 3) obtain ongoing income from the continued use of your name and system, then franchising is the way to go.
Interested in learning more about franchising? Download the free e-book “Franchising Your Business” http://francorp.com/about-us/download-free-ebooks/and take the franchise quiz today! For immediate assistance call 800-FRANCHISE (800-372-6244).