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Why buy a franchise?
Franchising offers individuals an excellent shot at attaining the American dream of owning a business-but with much of the risk removed. In effect, the franchisee is able to launch a new business without any of the usual growing pains. Someone else has already made-and corrected-the most important mistakes, ironed out most of the wrinkles, and invented a working system. There is that additional comfort level that franchisees derive from the availability of ongoing support services-the knowledge that while they are in business for themselves, they never are in business by themselves. It also means being able to benefit from collective purchasing power and advertising programs. What is franchising, and how does it work? Franchising is a broad term that describes a relationship between two or more parties. In general, the purpose of the relationship is to distribute goods and/or services. The two primary types of franchise systems in the United States are product or tradename franchising and business-format franchising. Product or tradename franchising is franchising in its most limited form: A manufacturer grants another party a license to sell goods produced by the manufacturer. Principal examples of this form of franchising include sales of cars through dealerships, gasoline through service stations, and soft drinks through local bottlers.With business-format franchising, a business owner, the franchisor, allows someone to market products or services using the business name and trademark and prescribed business format (thus the name business-format franchising). In return for use of the name and system, the individual, or franchisee, pays a fee and, usually, an ongoing royalty (in the form of a percentage of sales). Moreover, the franchisee pays all the costs of going into business. An additional type of franchising is called conversion franchising. This is an adaptation of business-format franchising designed to bring formerly independent businesspeople the collective power of a national name and national advertising. A well-known and very successful example of a conversion franchise is Century 21, an affiliation of previously established real estate agents who have become the leader in their industry through the collective power of franchising. |
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