Chapter 1: An Introduction To Franchising
WHAT IS A FRANCHISE?
A franchise is the agreement or license between two legally independent parties which gives:
A person or group of people franchisee the right to market a product or service using the trademark or trade name of another business
The franchisee the right to market a product or service using operation methods of the franchisor
The franchisee the obligation to pay the franchisor fees for the rights
The franchisor the obligation to provide rights and support to franchisees
Owns trademark or trade name Uses trademark or trade name
Provides support Expands business
Sometimes financing with franchisors support
Advertising & marketing
Receives Fees Pays Fees
Types of Franchises
There are two main types of franchises
Product Distribution Business Format
Product distribution franchises simply sell the franchisors products and are supplier-dealer relationships. In product distribution franchising, the franchisor licenses its trademark and logo to the franchisees but typically does not provide them with an entire system for running their business.
Some familiar product distribution franchises include:
Ford Motor Company
Business format franchises, on the other hand, not only use a franchisors product, service and trademark, but also the complete method to conduct the business itself, such as the marketing plan and operations manuals.
USA Today reported that the 10 most popular franchising opportunities are in these industries:
Fast food retail
Building and construction retail food
Business services lodging
Types of Franchise Arrangements
Because so many franchisors, industries and range of investments are possible, there are different types of franchise arrangements available to a business owner.
Two types of franchising arrangements:
A single-unit franchise is an agreement where the franchisor grants a franchisee the rights to open and operate ONE franchise unit. A multi-unit franchise is an agreement where the franchisor grants a franchisee the rights to open and operate MORE THAN ONE unit.
A master franchise agreement gives the franchisee more rights than an area development agreement
BUSINESS FORMAT FRANCHISE- this type of franchise includes not only a product, service and trademark, but also the complete method to conduct the business itself, such as marketing plan and operations manuals.
Disclosure Statement- also known as the UFOC, or Uniform Franchise Offering Circular, the disclosure document provides information about the franchisor and franchise system.
Franchise- a license that describes the relationship between the franchisor and franchisee including use of trademark, fees, support and control.
Franchise Agreement- the legal, written contract between the franchisor and franchisee which tells each party what is supposed to do.
Franchisee- the person or company that gets the right from the franchisor to do business under the franchisors trademark or trade name.
Franchisor- the person or company that grants the franchisee the right to do business under the trademark or trade name.
Product Distribution Franchise- a…