Buying a Franchise: Overview

Franchising isn't a new concept in the U.S. Indeed, this country has a long history of franchising, dating back to the early part of the 20th century when it first gained popularity among fast-food restaurants. As you consider becoming a franchise owner, think about all the critical details that go into this type of business and choose wisely.

An important step in the small business start-up process is deciding whether or not to go into business at all. Each year, thousands of potential entrepreneurs are faced with this difficult decision. Because of the risk and work involved in starting a new business, many new entrepreneurs choose franchising as an alternative to starting a new, independent business from scratch.

One of the biggest mistakes you can make is to hurry into business, so it's important to understand your reasons for going into business, and to determine if owning a business is right for you. If you are concerned about the risk involved in a new, independent business venture, then franchising may be the best business option for you. But remember that hard work, dedication, and sacrifice are essential to the success of any business venture, including franchising.

What Is Franchising?

When you think of a franchise, perhaps the first thing that comes to mind is McDonalds and Subway, two ubiquitous fast food providers. A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchisor, or that meet the franchisor's quality standards. Franchising is based on mutual trust between the franchisor and franchisee. The franchisor provides the business expertise (marketing plans, management guidance, financing assistance, site location, training, etc.) that otherwise would not be available to the franchisee. The franchisees brings to the franchise operation the entrepreneurial spirit and drive necessary to make the franchise a success.

There are primarily two forms of franchising:

  1. Product/trade name franchising
  2. Business format franchising.

In the simplest form, a franchisor owns the right to the name or trademark and sells that right to a franchisee. This is known as "product/trade name franchising." The more complex form, "business format franchising," involves a broader ongoing relationship between the two parties. Business format franchises often provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing.

Dealing with the Public

If you are considering buying a franchise, ask yourself if you are a "people person." Most franchises involve dealing with the public, and basic retail functions. Will this be enough for you? Will it provide the intellectual stimulation you seek in your life? These are important points to keep in mind when considering the realities of franchise ownership.

Using a Lawyer to Help You Buy a Franchise

Get the facts before buying a business. While it may seem like a dream to own your favorite sandwich shop or coffee house, franchise ownership should never be taken lightly. You'll want a lawyer to review your franchise agreement before signing it. Speak to a skilled business law attorney today to learn about the laws surrounding this business venture.

Next Steps

Contact a qualified business attorney to help you navigate the process of starting a business.

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