FRANCHISING

Franchising is a method for the sale of products or services, or a combination of both, under a trademark or trade name, using a marketing plan or system which has been developed by the franchisor. The franchisor is the one who has developed the product or service, the trademark and trade name, and the marketing system through which the product or service will be sold.

In 2000 it was estimated that franchising generated approximately $300 billion worth of sales from approximately 350,000 franchise locations. In 2000, franchising generated one out of every three dollars of retail sales in the United States.

In 2000 it was estimated that franchising generated approximately $300 billion worth of sales from approximately 350,000 franchise locations. In 2000, franchising generated one out of every three dollars of retail sales in the United States.

Benefits of Franchising

Although franchising offers many benefits to potential franchisors, the most important of these can be summarized as follows:

1. You can expand your business, and your market penetration, more rapidly through franchising than by using internal, non-franchised, expansion methods. By using franchises, you do not have to personally develop and manage the franchised business locations in a day-to-day basis; you have the franchisee on-site doing that for you, incentivized by his/her own profit motive.





2. Your business expansion can be financed externally rather than internally. A “credit crunch” exists today, and will probably exist for the next few years, which especially hurts small businesses that wish to expand. Franchising allows an existing small business to generate a substantial portion of the financing needed for expansion through the sale of franchises, and the continuing collection of royalties from the franchise network. Therefore, rather than being a financial “drain”, a franchise location used for expansion purposes immediately generates cash flow commensurate with the franchise fee charged. The franchise location also continues to generate cash flow through the payment of continuing royalties based upon a percentage of gross income earned by the franchise location.





3. Your expanding business does not need to increase its employee base significantly. Usually, when a small business wants to grow it must considerably expand its employee base, with all of the expenses and headaches that go along with that expansion. If a small business expands through franchising, although it may add a few employees in order to implement the franchise system itself (e.g. training and supervisory personnel), it is the franchisee rather than the expanding business that hires and supervises the employees who are going to run the franchise location.





4. The franchisee at each franchise location is an entrepreneur with a personal interest in the success of the business, rather than merely a paid manager. This results in closer attention being paid to the success of the new location with an individual on-site who has a personal interest in the efficiency and success of the franchised business, as well as the enthusiasm that goes along with that direct personal interest.

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