Savvy entrepreneurs can attest to the vigor of today's franchising system. A study from the International Franchise Association indicates these types of businesses will grow at rates exceeding all industries located near franchise clusters nationwide. In fact, the 1.7 percent growth forecast for this year will boost the total number of U.S. franchises to 795,932.
Essentially, a franchise is an agreement allowing a franchisee the right to market a trademarked business in exchange for fees and/or support from the franchisor. While the most recognized franchises today are in the retail and food service industries, nearly any proven business formula could work inside this concept.
As an entrepreneur who’s thinking of growing the company via a franchise arrangement, do not move ahead until you ask yourself the key question: Is my company a good candidate for this mode of expansion?
Those firms that have successfully adopted this model typically share four traits:
The three standard types of franchises are the product distribution arrangement, the business format model and the management franchise.
The product distribution franchise is basically a supplier-dealer relationship and does not mandate a standard operating configuration across locations. Soft-drink distributors, automobile dealers and gas stations typically are product distribution franchises.
Besides using the franchisor's products, services and trademarks, business format franchises also follow corporate protocols, with common marketing plans and operation manuals. Members of this genre include some of the most popular franchise opportunities, such as fast food chains, retail and grocery stores, hotels and motels, and restaurants.
In a management franchise, the franchisee delivers expertise, as well as format/operational policies and procedures. Major hotel brands can use this model.
Franchising is a great way to grow a business for some entrepreneurs; for others, it may not be the right fit. Before deciding whether to go this route, consider the following:
Because of federal government regulation and individual state requirements, franchising a business involves considerable legal groundwork. This is critical, because following the letter of the law also lays the foundation for strong relationships between franchisors and franchisees.
Experts advise hiring an attorney experienced in franchise law prior to starting the paperwork. Two main documents are pertinent to the franchise process:
Specific details of the franchise process fluctuate from industry to industry and from business to business – but commonalities do exist. Here are a few basic steps in expanding your business through franchising:
The information provided is not intended to be legal, tax, or financial advice or recommendations for any specific individual, business, or circumstance. TowneBank cannot guarantee that it is accurate, up to date, or appropriate for your situation. Financial calculators are provided for illustrative purposes only. You are encouraged to consult with a qualified attorney or financial advisor to understand how the law applies to your particular circumstances or for financial information specific to your personal or business situation.