Franchising works. It has made a long and lasting positive impact on the restaurant industry, providing an opportunity to operate a business under a recognized brand name. But it’s not for everybody.
So what exactly is franchising? A franchise is born when a business (the franchisor) licenses its trade name and brand (like McDonald’s or Pizza Hut) to a person (the franchisee) who agrees to operate the restaurant according to the terms of a contract (the franchise agreement) and within the guidelines of company policies and procedures (the operations manual). In exchange for these rights, as well as a certain amount of support and even training and expertise, the franchisee usually pays the franchisor an initial entry fee (franchise fee) and an ongoing fee, usually based on sales volume (known as a royalty fee).
Ideally, the concept of franchising reduces your financial risk by providing you a clear road map to follow toward success. But it also limits your unique concepts and designs and provides less in the way of total creativity and flexibility. You buy a franchise to get a canned process to buying, building, designing, and even operating a restaurant. You are a part of a greater company.
All franchisors are not created equal. They provide significantly different services and have significantly different guidelines and support structures. Study what you’re getting into before jumping into a franchise.
We have probably all heard war stories from people who purchased a franchise expecting more of a support structure than what they got. This usually happens when the franchise agreements are not read thoroughly by the potential franchisee. In today’s legal and franchising community there is so little room left for misinterpretation that most everything is spelled out to the umpteenth degree; however, these things are not as simple to read as the books in The Complete Idiot’s Guide series, so employing the services of reputable legal council is prudent.
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