Franchising is a system of distribution in which independent business people (the franchisees) are granted, in return for a franchise fee or other consideration, the right to market the goods or services of another (the franchisor) in accordance with the established standards and practices of the franchisor, and with its assistance.
For the franchisee, there are several advantages to this relationship. Many franchise systems have already established product or service recognition, like McDonald's™ or Tim Horton's™. The franchisee does not have to build initial customer loyalty or recognition.
These franchise systems will already have manuals setting out management and accounting practices, hiring guidelines, and other business practices. Training in these practices will be provided to the franchisee by the franchisor.
The franchisee will benefit from the province-wide or national advertising campaigns of the franchisor. Consider, for example, the benefits to the franchisee of Tim Horton's™ Roll up the rim to win™ contest, or McDonald's™ Happy Meal™ promotions, both of which encourage return consumer visits.
In addition, the franchisee can benefit from the larger buying power of the franchisor, as well as new products and services introduced by the franchisor, like Tim Horton's™ bagels, or McDonald's™ McFlurries™.
In some cases, however, these advantages can also be disadvantages. The franchisee has less freedom with respect to management and accounting practices. The franchisee can suffer if product or service recognition falters, or new products fail to obtain consumer approval. The arrangement may also limit the franchisee's ability to sell the franchise, or withdraw from personal involvement.
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Copyright © R. William Wray & Associates 1995-2007 All rights reserved.
The comments contained herein provide a brief overview only and should not be regarded or relied upon as legal advice or opinion.
01/2007