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What are Business Franchises?

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  • Written By: Osmand Vitez
  • Edited By: Jenn Walker
  • Last Modified Date: 26 November 2016
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A business franchise is a business model where a parent company allows an individual business owner to use the rights of a business brand and its goods or services. The individual owner operates a separate business in accordance with the franchisor’s guidelines and specifications. Business franchises are a common organizational structure found in the business environment. Common types of franchises include fast food, home style restaurants, retail outlets and various service or repair businesses. Franchise business opportunities usually offer entrepreneurs a variety of benefits when opening up a new business.

Entrepreneurs choosing to start a business franchise often benefit from operating a business that has almost instant business recognition in the business environment. Business franchises often build off of the reputation or customer perception built by the parent company. This reputation allows entrepreneurs to reach consumers in various target markets or demographic groups by offering goods or services that are recognizable and consistent among each franchise in the business environment. Entrepreneurs who start one successful business franchise may also be able to open a second franchise fairly easily, depending on regional location and agreement with the parent company.

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Business franchises also offer entrepreneurs a proven business strategy. The acquisition of economic resources or business inputs, production processes used to produce goods or services, marketing or advertising strategies for reaching consumers and the ability to receive mentor training from the parent company are a few major benefits of business franchises. These business strategies and predetermined business operations allow entrepreneurs the ability to focus on generating sales and earning profits rather than building a business from scratch.

Parent companies offering business franchises to entrepreneurs may also offer hiring practices, employee policies and training programs to new franchises for filling specific jobs. These franchisor services can help companies avoid legal liabilities when starting a new business and ensure that regional employment guidelines are followed when hiring employees. Parent companies may also provide franchises with information for giving employees raises, bonuses or benefits once the franchise begins to earn consistent profits.

While business franchises offer several significant benefits to entrepreneurs, a few major drawbacks are inherent in this business model. Entrepreneurs must be prepared to deal with any negative consumer perception based on the franchisors goods or services. Higher royalty fees, increasing cost of economic resources or the inability for the parent company to remain a going concern can create negative issues for a business franchise as well. Business franchises also may also not be allowed to operate independently of the parent company’s guidelines. Following strict standards may limit the entrepreneur’s ability to think outside the box when growing the business and increasing future profits.

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