Franchising refers to the methods of practicing and using another person’s way of doing business. Well known examples include McDonalds, Pizza Hut, Volvo, Nissan and many more household names.

The franchisor grants the franchisee the right to distribute its products, techniques, and trademarks for a percentage of gross monthly sales and or a royalty fee.

Various additional services and support such as national or international advertising, training, business planning, location selection, and marketing are commonly made available by the franchisor.

Franchising has been around for many centuries but did not come to prominence until the 1930s. With the rise and spread of electricity, vehicles, and in the 1950s the Interstate Highway system, modern franchising as we know it became more common place. Most notably initially in the fast food service industry.

According to the International Franchise Association, today approximately 4% of all businesses in the United States are franchises.

There are now many different types of franchises that have evolved to cope with the incredibly wide-spread nature of this business model.

From medical services to fast food, from automobile maintenance to carpet cleaning, from pet care to hotel chains, there is a franchise opportunity in every business niche.

Let us take a look at some of the different ways that a franchise is organized.

Business To Business Services

Sharing many characteristics with the Retail and Management franchise types, this sector is exceptional in that the franchise manages the operations side of the business but does

the selling.

The franchisee is out visiting customers and negotiating contracts, not dealing with walk in or phone in customers or handling the day to day, hands on completion of tasks.

Some examples of this type of franchise are print and copy centers, communication centers, sign writing franchises.

Some franchises in this category require commercial property for production or retail, while others like business or expense reduction consultants only require offices, and some can even be home based.

Retail Franchise

The franchise will occupy walk in retail premises, selling products or services during retail hours. The majority of the turnover is achieved from walk-in consumers.

The premises (often prime high traffic locations) will have to be suitably equipped and staffed. As you can imagine initial in going costs can be very high in this category.

Unlike an Investment Franchise (see below), owner-operators are generally the rule here.

Examples include fast food, restaurant, bars, fashion, printing

and telecommunications.

Investment Franchise

Here the franchisee invests a significant amount of capital in a high cost franchise system.

The franchisee would normally work at arm’s length from the franchise and would likely employ a management team to operate it on his behalf.

Franchisees would normally have experience in managing a large professional team at a senior level.

Examples include the major hotel and restaurant franchises.

Management Franchise

Here, the franchisee will have responsibility for the development of the business and at the same time, manage and co-ordinate a team of operatives.

The franchisee may control several territories or a whole region. The majority of the turnover is generated from Business to Business activities rather than from retail.

Examples include parcel delivery type franchises or other van based service franchises that are run from regional headquarters, depots and hubs.

Single Operator Franchise

Often referred to as Job Franchises, the franchisee buys the right to operate a franchise which normally takes the form of a trade, supplying, selling and delivering products or services. It may be mobile, home-based or require small office premises.

The nature of work may be manual or executive. Franchisees will work on their own initially, but the franchise may later offer the opportunity to employ staff as the business grows.

Examples of business sectors include cleaning, motorist services and repair and security systems.

Executive Franchise

Also known as white collar franchises, franchisees would offer consultancy services in areas such as project management and financial services.

Communication is often at Board level and requires someone with the requisite experience.

Premises are not essential as work can be home based or conducted at client premises.

Examples include cost management, accountancy, IT consulting and stress management consultancy.

Sales & Distribution Franchise

Here the franchisee is effectively on the road, selling and or distributing products throughout their territory.

Franchisees would normally work on their own initially, but the franchise again may later offer the opportunity to employ staff as the business grows.

Examples include drinks suppliers, dairy produce, food suppliers, pet foods and tools.

Master Franchise Licensee

A Master Franchisee duplicates completely all the original functions of a franchisor.

A Master License could cover a region, a whole country or even multi-national regions such as The Middle East or Far East.

A Master License would only be awarded to experienced business professionals capable of producing a comprehensive business plan acceptable to the original franchisor.

They would need to show that they were capable of taking the franchise forward on a very large scale.

Summary

Franchises offer a very low risk way of buying your own business.

There are many different models to chose from and nowadays there really is an opportunity for everyone in some guise or another.

As we have said before and will say again, the choice is normally restricted only by the depth of your pocket and your own personal desires and abilities.

This article was written by Brian K Fitzgibbon CPA.

Brian is an experienced accountant and small business consultant. He runs his own business, lectures extensively on small business topics and has checked out and valued many hundreds of small businesses for buyers.

Brian is also the author of the highly acclaimed and invaluable
"How To Value A Business And Buy It Without Fear"
A do-it-yourself guide for first-time and experienced buyers alike.

To download a FREE Chapter from Brian's book please follow this link: "HowToValueBusiness.com"

June 17th, 2009 | Tags: buy a business, buying a business tips, franchise opportunities | Category: articles | Subscribe to comments | Leave a comment | Trackback URL  |