What Is a Franchise?

What Is a Franchise?

Franchising is a form of business in which the owner, or franchiser, gives license to distribute products, services or methods of business to affiliated dealers, franchisees. In many cases franchisees are given exclusive access to a particular geographical area. The franchiser usually mandates uniform symbols, trademarks and standardized services.

Thirty years ago franchising was a revolutionary new technology - a new and better way - a new and better way to retail goods, food products and services to the consumers. How was it greeted? The media called it a scam. Headlines were everywhere about how some little old lady lost her life savings to some flim flam franchise. Major fortune 500 companies were getting involved in franchising but these companies insisted that their names not be used in ads or magazine stories.

Today franchising has turned into an $800 billion a year business. Experts estimate that today as much as one third of the goods and services in the U.S. are moved through franchising. It's hard to believe but franchising actually came within 11 votes of being outlawed by Congress of the United Sates of America.

Essentially a franchise provides a tested formula for starting a business that has worked for others. It can save you from making costly errors, shorten your learning curve and help you make a profit more quickly.

However, start-up costs are high and you are required to follow the company's specific procedures.

The average franchise costs $85,000 to get started! -- and that normally does not include the costs of leasing your space, remodeling it, buying the equipment, paying for inventory. For many people franchising has been the opportunity to make really big money, however, for the majority it is simply a license to work seven days a week, 12 to 14 hours a day managing a crew of minimum wage employees.

And after all that, according to Bryant Quinn, business writer for Newsweek, "One third of all franchisees lose their shirts, one third break-even and one third make a profit." Many people feel that buying a franchise is buying a job. Others who have had bad experiences with franchising suggest that the third that loses, often ends up losing their shirts.

In general 80% of all small businesses fail in their first two years, 80% of those that