Choosing to take advantage of a franchise can either be a good or bad idea. Depending on what franchise you decide to invest in, you may run into a few more problems than usual.
Franchises became very popular in the United States in the 1960s, but the concept was born well over 100 years before. A franchise is defined as a contractual agreement in which the owner of a business concept gives a businessperson the right to own and operate a business based on that concept. As a franchisee, you buy the right to sell a trademarked product or service.
All franchisees are required to pay a franchise fee plus start-up costs, ongoing royalty fees, and operating expenses (rent, build-out, inventory, etc.). It is the franchisors responsibility to provide assistance with establishing a location for the franchise and developing the site.
According to Black Enterprise: Guide to Starting Your Own Business by Wendy Beech, all franchises fall into one of the following three categories:
• Product and trade-name franchise – The distribution of a product through a dealer. The franchisee is limited to selling only the products included in this type of arrangement.
• Affiliate or conversion franchise – This franchise is normally used by a group of independent entrepreneurs who operate in a segmented industry. They are not required to use the franchise name in order to conduct business. Most will take on the name as well as their own.
• Business format franchise – This is the most popular and best known type of franchise. A complete package of tools and materials for operating a business is included.
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