In an increasingly globalized world, franchises are more popular than ever. Businesses often thrive when they are instantly recognized and feel familiar to consumers. This is especially true when it comes the franchised brands such as restaurants, bars, fast-food establishments, and retail stores.
If you are curious about taking advantage of the opportunities that franchising presents as a business person, make sure that you have a good understanding of the different types of franchises available. You should also have a clear overview of how franchises are set up from a legal perspective.
Who owns a franchise business?
A franchise is a type of business structure. It tends to occur when a business owner grants a license to one or more parties to operate under their trademarks. Therefore, there are several owners involved in a franchising structure, and they own the rights to different things.
What are the main types of franchises?
There are two main types of franchises. The first is known as product or trade name franchising. This occurs when the owner holds the name of a trademark and proceeds to sell it to other parties. These parties can then start conducting their own business under the same trademarks.
The other type of business franchise is known as business format franchising. This involves an ongoing relationship between the franchisor and franchisee. The relationship may involve training, marketing plans, supplies of stock and site selection.
What are the advantages and disadvantages of franchises?
Franchises tend to be beneficial because they help a new business owner benefit from an already established brand. Brands take time to build and market, therefore franchises help new business owners to bypass this process.
However, there can also be disadvantages to franchising. Those that involve the mandatory purchase of stock may lead to reduced profit margins for the new business owner and can limit their long-term growth.
Franchise contracts form the basis of all franchises. If you are considering purchasing the rights to a business under a franchise agreement, you must consider this carefully. You must have a good understanding of how the terms of the agreement could affect your profitability in the foreseeable future. This is important to do before committing to moving forward.