Franchise Law Newsroom

Potential Small Business Owners Choose Franchising As An Alternative To Starting A New, Independent Business

Deciding whether or not to go into business is a very important step in the business start-up process for new and potential small business owners. Each year, thousands of entrepreneurs and potential entrepreneurs are faced with this difficult decision. Because of the risk and the amount of work involved in starting a new business, many new and potential small business owners choose franchising as an alternative to starting a new, independent business. Although the success rate for franchise-owned businesses is significantly better than the success rate for many independent businesses, there is no formula to guarantee success. One of the biggest mistakes you can make is to be in a hurry to get into business. That's why 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. Remember, however, that hard work, dedication and sacrifice are key elements in the
success of any business venture, including franchising.

WHAT IS FRANCHISING?

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 seeking the right 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 sells goods or services that meet the franchisor's quality standards. Franchising is based on mutual trust between the franchisor and franchisee. The franchisor provides the business expertise (i.e., marketing plans, management guidance, financing assistance, site location, training, etc.) that otherwise would not be available to the franchisee. The franchisee brings to the franchise operation the entrepreneurial spirit and drive necessary to make the franchise a success. While forms of franchising have been in use since the Civil War, enormous growth has occurred in franchising only recently. By the end of 1985, 500,000 establishments in 50 industries achieved gross sales of over half a trillion dollars and employed 5.6 million full and part-time employees. Franchising created 18,500 new businesses in 1991 and approximately 108,000 new jobs to the economy. Business format franchises experienced sales growth of 8.9 percent from $213.2 billion in 1990 to 232.2 billion in 1991. Industries that rely on franchised businesses to distribute their products and services touch every aspect of life from automobile sales and real estate to fast foods and tax preparation. Thus, we can see that franchising can be is a viable, lucrative business alternative. There are primarily two forms of franchising:
* product/trade name franchising and
* 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." In the more complex form, "business format franchising," a broader
and ongoing relationship exists 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.