At its heart, a franchise is a legal contract, with associated commercial transactions, between the entity that owns a trademark for a company and the individuals/entities that would like to open a business associated with that larger entity. Franchises, as legal/commercial structures, have been in use for much of the twentieth and current century with a focus on trade name franchising and business format franchising.
Deciding whether a franchise is right the right investment
A franchise is, in many ways, a secure investment given the right property, but it can present many limitations to those thinking about becoming a franchisee. For those wanting a safer investment, it offers fewer unknown variables for the owner. Here are some of the ways a franchise can make for a smart investment:
- A franchise can take much of the guesswork out of starting a business. A franchise provides equipment lists necessary (and required) for business operations and, with some larger corporations, training in the proper procedures for operating that business.
- Franchises come with established customer bases, who have a prior familiarity with the entity’s products and expectations about how the business operates.
- The support networks of other franchise owners can provide invaluable direction and structure for new business owners.
- The parent company, owning company name rights, can bring many scaled advantages that a small business owner wouldn’t be able to pursue with more limited capital. Large companies can bring an established advertising record, popular products/services and a longstanding customer base.
The internal regulations of franchise structures
The disadvantages of a franchise consist of the many obligations of the franchisee, both legal and commercial, as well as a lack of independence in many crucial business decisions. A franchise package will contain contracts and reporting responsibilities related to corporate oversight, trademarks/copyrights, and operating restrictions. A franchisee is beholden to the franchisor to maintain certain quality standards and uniformity in many aspects of its business. These practices allow the franchise to remain recognizable to consumers familiar with the brand.
Pursuing new business
If you’re considering purchasing and opening a franchise, you must consult an attorney with in-depth knowledge of commercial business transactions to help determine if a franchise is the right investment for you.