A franchise is a business you don't have to start from scratch. Someone else has developed the brand, product, service and methodology. As a franchisee, you get to marshal these assets in pursuit of your entrepreneurial dreams, but you're also an ambassador of another company and caretaker of its name. This means, whatever form your franchise takes, you must be able to heed and satisfy the parent company's standards for performance and quality.
Selling a Product or Representing a Brand
In a product or trademark franchise, you sell merchandise using the manufacturer's brand or trademark. Examples are household appliances and cars. As a dealer, you can take advantage of the manufacturer's national advertising and recognition. Depending on your franchise agreement though, you are likely limited in your product lines and may be prohibited from carrying other brands. As a result, you need to gauge the popularity of the brand and its wares in your market. Further, manufacturers can control how you sell the product and even set standards for cleanliness and operating hours.
Running an Established Business Model
Restaurants, hotels and oil change establishments are examples of business development franchises. As noted in Forbes magazine, the way of running the business has been paved for you by someone else. You get not only the company's brand but also its business blueprint, which includes:
- Site selection assistance
- Advertising and marketing
- Pricing suggestions
- Computer software
- Group purchasing power
- Standard decor and layout
You pay the costs for the parent company's support, and these costs vary widely depending on the brand and type of business. For example, according to Franchising.com, starting a hotel franchise can run you about $5 million. The U.S. Small Business Administration reports that restaurant franchise fees can range from $150,000 to $1 million. Also, you'll have little, if any, opportunity to create or innovate as a franchisee.
Manufacturing Branded Goods
As a manufacturing franchisee, you make and distribute products under a franchisor's brand or trademark. You use the company's ingredients, materials and manufacturing process -- which may include trade secrets or be protected by a patent -- so that you don't have to create the recipe or invent the product. For instance, soft drink bottlers take syrup developed or formulated by the franchisor. Unlike a product franchise, in which you sell the finished product, you'll need equipment and considerable space to produce the merchandise. Your investment will also include vehicles to distribute the products.
Operating as an Affiliate
According to Franchise.org, independent businesses such as insurance agents, real estate brokers, dry cleaners and home renovators can affiliate with widely known brands. Turning your sole enterprise into a franchise gains you the identity that comes from national brands and trademarks. As an affiliate, you have little, if any, start-up costs for items such as equipment, staff and office space because you're already in business. You must, though, relinquish some of the autonomy you enjoyed as an independent business. Franchising World magazine points out that, in rebranding your venture, you risk customers believing that owners or employees will be gone and that your business is no longer a local one.
Christopher Raines enjoys sharing his knowledge of business, financial matters and the law. He earned his business administration and law degrees from the University of North Carolina at Chapel Hill. As a lawyer since August 1996, Raines has handled cases involving business, consumer and other areas of the law.