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What are Franchises?

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  • Written By: Diana Bocco
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 November 2016
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Franchises, also known as chain stores, are businesses operated under a special arrangement. Franchises are moderated industries that follow a set business model, which includes a name, an image, and a set of support services. In exchange for a set-up price and a monthly royalty payment, the franchiser, who owns the trademark of a company, licenses the brand to somebody. The buyer then opens the business and operates it, but the franchises always belong to the original creator. Examples of successful franchises include Gold's Gym® and Dunkin' Donuts®. For somebody considering franchises as a business investment, there are many advantages and disadvantages that should be kept in mind.

The main advantage of franchises is that the businesses being operated already have a proven track record of success. Opening a McDonald's, for example, requires no market research, as the owner of the trademark will provide all necessary training and support to the franchisee. This includes site selection, help with leasing, and even business mentoring. Franchises are great choices for people who know little about business ownership and want to get started as soon as possible. They also carry a powerful image that helps push the business off the ground faster than the same business without a famous trademark would.

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On the other hand, franchises do present some disadvantages. For starters, they are expensive. Set-up fees can run over $50,000 US Dollars, and the franchiser will also take a good monthly percentage of the earnings. Because franchises must preserve the company image, new business owners often need to spend large sums of money to comply with the look of the place, the uniform design, and even the interior fitting of the place. Some franchises require periodical updates or reforms that must be paid for by the franchisee.

Another disadvantage of franchises is the loss of control. A franchisee has little freedom of choices about how to run his or her business, as changes must be approved by the owner of the trademark. Many franchise owners complain about feeling more like employees than as entrepreneurs. Franchises may be great options for people considering their own business and looking for support to get started, but as with everything, it is a good idea to research all available options before making a decision.

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chomito
Post 2

Is it OK for a business owner to lease permits to other people to operate the business without registering his company as an underground franchise?

anon17807
Post 1

I'm working for a place that is a franchise of a large company and the director of my place wants to share me (the employee) with another place that is another franchise to that same company. It says in my contract I am to only work for my "employer" and no one else. Can you advise?

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