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.
Although the success
rate for franchise-owned businesses is significantly higher than for
independent businesses, no individual franchise is guaranteed to succeed. 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 bring 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 SBA's "Is Franchising for Me?" Workbook
and the Consumer’s Guide to Buying a Franchise.
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