When you hear the word "franchise" you probably think of fast food restaurants like McDonald's, Burger King and Wendy's. But there are many more types of franchise businesses. One out of every three dollars spent by Americans for goods and services is spent in a franchised business. Homes are bought and sold through franchised real estate companies. These same homes can be cleaned, painted and carpeted through a franchised business. Cars can be purchased, tuned and washed through franchises. We can have our hair cut, clothes cleaned, pets cared for--all in franchised businesses. We can travel from one area of the world to another through franchised businesses.
Franchising is a method of doing business. It is a method of marketing a product and/or service which has been adopted and used in a wide variety of industries and businesses. The word "franchise" literally means to be free. In this sense, franchising offers people the freedom to own, manage and direct their own business. However, as with any freedom, there are responsibilities. In franchising, these responsibilities have to do with the franchisee's commitments and obligations--usually spelled out in a franchise agreement or contract--to the franchisor. The franchisor is the one who owns the right to the name or trademark of the business. The franchisee is the one who purchases the right to use the trademark and system of business.
There are two different types of franchise arrangements:
· product distribution arrangements in which the dealer is to some degree, but not entirely, identified with the manufacturer/supplier; and
· business format franchises in which there is complete identification of the dealer with the buyer.
Business format franchises offer the franchisee not only a trademark and logo but a complete system of doing business. Indeed, the word "system" is the key concept to franchising. A franchisee receives assistance with site selection of the business, personnel training, business set-up, advertising, and product supply. For these services the franchisee pays an up-front fee and an on-going royalty which enables the franchisor to provide training, research and development, and support for the entire business. In a nutshell, the franchisee purchases someone else's expertise, experience and method of doing business.
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