What is a Franchise?
A franchise is a business model that involves one business owner licenses a business model and/or trademarks to an independent owner. There are two forms of franchising, trademark franchising and business model franchising. Trademark franchising is where the franchisor owns the trademark or naming rights and sells some of those rights to a franchisee. Business format franchising occurs when the franchisee buys into an existing business model where the franchisor and franchisee have an ongoing relationship and the franchisor often provides a full range of services to assist. Franchises are a very common way to start or own a business. Some well known franchise businesses include: McDonald’s, Subway, UPS, and H&R Block.
Franchisees generally have an advantage over their non-franchisee competitors since they have the ability to use the franchisor’s trademarks, names, logos, and sometimes even storefronts. While a business owner may lose some control they can benefit from taking advantage of an established model or trademark. To invest in a franchise, generally the franchisee must pay an initial fee for the rights, training, and equipment required of the franchise. After the franchise is operational a form of royalty is paid, this can vary from monthly to annual and can be based on many things from flat fees to percentage of sales. The franchisor usually requires that franchisees all use the same business model. This means you may be required to use the same uniforms, signs, logos, policies, and even prices.
Before you decide to invest in a franchise due diligence and research is still required. Investing in a franchise is not a guaranty of success, it has advantages but is never a substitute for full business diligence and planning. To understand whether franchising is right for you, consider the following questions: How much are you willing/able to invest? What are you abilities? and What are your goals? Developing a strategy before investing in a franchise will help you have a solid understanding of what to expect and the risks involved with each franchise. This will help find the right franchise for your risk tolerance level. Get a Uniform Franchise Offering Circular (UFOC) during your due diligence stage with any potential franchise relationship. This will have the franchise’s historical, financial, and legal details. As in any business, the details are important. Take the time to understand the franchise agreement and your business strategy.
This week, Reidel Law Firm is celebrating franchise week. We will be in attendance at the Franchise Expo South in Houston at NRG Arena on February 5th, 6th, & 7th. Be sure to come and see the fantastic franchising opportunities available to you, locally and around the country. Click Here to register. Reidel Law Firm can help you start your franchise, efficiently and cost effectively with our flat fee rates. Contact us today for your free consultation at (832) 510-3292 or by using the contact form below.