A franchise is a business model where the owner of a brand, such as McDonald’s, for example, allows independent businesspersons to sign an agreement to operate a location of that brand. Both entities (franchisor and franchisee) are independent but share the same branding and share the goals of providing consistent products and services. When someone becomes a franchise owner, he/she receives the rights to use the brand name, utilize a developed system of business operations, have access to training materials and methods, marketing systems, and technology, as well as other proprietary items, such as uniforms and packaging.

Franchising is a popular business approach with nearly 800,000 locations in more than 120 industries. It is the leading creator of small independently-owned businesses in the United States.

Pros and Cons of Owning a Franchise

The pros of owning a franchise include:

You buy into an already proven system, rather than creating a concept from scratch.
There is existing name recognition, with already defined and protected names and trademarks.
A replicable training program has been developed to help all operating people get up to speed on every business procedure.
You get guidance and assistance with marketing and advertising.
The franchisee has access to increased purchasing power of the entire branded entity, instead of purchasing as one solitary unit.
Franchising offers access to financing.

The cons of owning a franchise include:

Each licensed franchise owner is required to abide by the rules of the franchisor. While there is some autonomy, there are also many rules and regulations designed to achieve consistency.
Franchises can have high startup costs.
There are ongoing royalty and other payments required.
No matter how good your operation is, your franchise is linked to the system. So, your reputation is influenced by how well the system operates.

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