Over the past 40 years, franchising has proven to be an extremely successful method of growth for successful businesses wishing to expand their operations. Now more than ever, individuals who desire to own their own business are turning to franchising rather than attempting to start a business on their own. The well published success of many franchise concepts has led to a steady increase in the number of people searching for an opportunity. For the right concept, there has never been a better time to franchise a business.
In its simplest form, franchising involves a company (the “Franchisor”) granting a “Franchisee” the right to market goods and/or services in a given territory using the Franchisor’s name and system of operation in exchange for payment of a franchise fee and ongoing royalties. The Franchisor dictates processes and procedures the franchisee must follow in the operation of the franchised business and provides ongoing services and/or support to franchisees. The franchisee is responsible for capitalizing the business, day-to-day operations and ongoing operational expenses. The process of developing a franchise system includes the creation of various operating and policies manuals, which clearly dictate the company’s operational procedures franchisees must follow.
Many established national and international companies have chosen to operate under a franchise system due to the fact that franchising provides the opportunity for maximum market penetration with minimum financial risk to the Franchisor. At the same time, a franchise system permits the Franchisor to maintain strict controls over individual franchise locations thereby protecting the reputation and proprietary system of the Franchisor.
Franchising offers the Franchisor tremendous advantages over the high capital costs associated with internal expansion as well as the infrastructure and employee issues that accompany internal expansion. The problems associated with managing, recruiting, training and retaining a qualified work force as well as the responsibilities for the day-to-day operations of individual locations are dramatically reduced under a franchise system. Additional benefits of franchising include significant cost savings that can be achieved by the Franchisor and franchisees from volume purchasing, and shared advertising and marketing expenses.
Each year, thousands of would-be entrepreneurs choose to purchase a franchise business. They seek to minimize their risk by purchasing a proven system of operation that enables the franchisee to operate a profitable, successful business much soon than with a traditional startup venture. Franchisees benefit tremendously by joining an established and successful operation that has already demonstrated the need in the marketplace for their products and/or services, in addition to providing name recognition and credibility to the new franchisee.
The Franchisor in turn benefits from the fact that the franchisee is a business owner rather than an employee of the company. Consequently, the franchisee is much more motivated than an employee to ensure that the business grows and operates profitably. This solves a major problem experienced by most businesses today related to hiring and retaining qualified and motivated employees when attempting to expand company operations.
Under a franchise system, day-to-day operations of the franchised business are the responsibility of the franchisee. Consequently, the Franchisor is freed to focus on overall business development, including improving processes and procedures, expansion, product and/or service development, infrastructure issues, advertising and marketing, franchise training and support, and to provide administrative and/or technical support and expertise to franchisees.
Franchising a business requires compliance with laws and regulations dictated by the FTC (the "FTC Franchise Rule") and individual states. For companies serious about developing and growing a successful franchise operation, it is advisable to work with qualified professionals who possess the expertise and experience necessary to help ensure that the franchise is properly established. Contact us for additional information.