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Buying a Franchise
An important step in the small business start-up process is deciding whether or
not to go into business at all. Each year, thousands of potential entrepreneurs
are faced with this difficult decision. Because of the risk and work involved in
starting a new business, many new entrepreneurs choose franchising as an alternative
to starting a new, independent business from scratch.
One of the biggest mistakes you can make is to hurry into business, so it's important
to understand your reasons for going into business, and to determine if owning a
business is right for you.
If you are concerned about the risk involved in a new, independent business venture,
then franchising may be the best business option for you. But remember that hard
work, dedication, and sacrifice are essential to the success of any business venture,
including franchising.
What is Franchising?
A franchise is a legal and commercial relationship between the owner of a trademark,
service mark, trade name, or advertising symbol and an individual or group wishing
to use that identification in a business. The franchise governs the method of conducting
business between the two parties. Generally, a franchisee sells goods or services
supplied by the franchisor or that meet the franchisor's quality standards.
Franchising is based on mutual trust between the franchisor and franchisee. The
franchisor provides the business expertise (marketing plans, management guidance,
financing assistance, site location, training, etc.) that otherwise would not be
available to the franchisee. The franchisees brings to the franchise operation the
entrepreneurial spirit and drive necessary to make the franchise a success.
There are primarily two forms of franchising:
- Product/trade name franchising and
- Business format franchising.
In the simplest form, a franchisor owns the right to the name or trademark and sells
that right to a franchisee. This is known as "product/trade name franchising." The
more complex form, "business format franchising," involves a broader ongoing relationship
between the two parties. Business format franchises often provide a full range of
services, including site selection, training, product supply, marketing plans, and
even assistance in obtaining financing.
To learn more about:
- The advantages and disadvantages of franchising,
- The franchisor's responsibilities,
- What is contained in a franchise packet, and
- Understanding the franchise contract,
Read "Is Franchising
for Me?" provided by the Small Business Administration (.pdf file)