By David Gray and Matthew Zuk
Essentially, franchising is a model that allows an existing business?i.e. the franchisor?to license the use of its brand and internal processes to outside entities?i.e. franchisees?for semi-autonomous operation. The franchisees may also gain access to cost savings from group purchasing and assistance from the franchisor with respect to running the business.
In return for these licensed rights, the franchisor typically receives a franchise fee and continuing royalties from each of its franchisees.
The allure of the franchise model is it allows the new owner to immediately enjoy the benefits of an established business, including reputable products and services, a broad customer base and proven systems for supply and distribution. In short, buying the right franchise reduces the risks associated with starting a new business.
Franchises can be costly, however, both initially and on an ongoing basis, through the payment of franchise fees, royalties and contributions to common funds for advertising and marketing. Would-be franchisees must also be prepared for the restrictions that can come hand in hand with licensing an established system.
Perhaps most importantly, franchisees must ensure their expectations are in line with the realities of the business, if they are to avoid disappointment and risk to their investment.
Read the full article: Franchise Basics: What to Look for in a Franchise
Source: http://www.franchiseinfo.ca/fyi/franchise-info/2012/10/franchise-basics-what-is-franchising/
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