Licenses vs. Franchises

There are distinct differences between franchising and licensing businesses. The chief one concerns establishment and operation costs, but there are others as well. It is important to know about as many of these differences as possible before deciding which one is best for you.

Let's talk about the difference that has already been mentioned: establishment and operating costs. A franchise requires that a significant amount of money be paid at the very beginning. Additionally, you will continue to pay royalty, advertising, and other fees to the parent company.

On the other hand, you only pay for a licensing fee one time, and the cost is usually lower than that of a franchise fee. Because you are not connected with a franchise, however, you do not have to pay royalty fees or provide financial information on your business. You are pretty much responsible, however, for your own advertising and other business-related expenses that might be covered in a franchise.

Relationships between franchisees and parent companies and licensees and those from whom they obtained the license are different. Franchisees can expect to work a little more closely with the parent company; this may be especially true in the areas of training and support. Further, as a franchisee, you retain certain rights to company trademarks and logos.

Also, as a franchisee, you may be limited in some areas, such as where your branch can be located, which products and services you can offer, and possibly even price amounts.

A licensee, however, may not have much contact with the original license holder at all. Further, the license agreement may not include the use of a brand or trademark; rather, as a licensee, you will be expected to make your own mark in the particular market for which you hold a license. You probably won't get a lot of training or support from the original license holder, either.

Further, as a general rule, you do not have any territorial rights. In other words, the original licensor can sell as many licenses, along with the products and services they offer, as he wishes in the same geographic area.

On the bright side, about the only time you will even be in contact with the licensor is when you're buying his product to sell in your store. However, that's all you'll pay, is the purchase price on the product. You won't have to pay royalty, advertising, or other fees to support the licensor.

Whether you seek to be a licensee or franchisee, an expert FranFinders franchise consultant can assist you with your search.

How Franchising Works

Here is a concise, "pocket-guide" on How Franchising Works.

The Merriam-Webster dictionary defines a "franchise" as "the right or license granted to an individual or group to market a company's goods or services in a particular territory"; also "a business granted such a right or license".

A "franchisor" is defined as "one that grants a franchise", while a "franchisee" is defined as "one granted a franchise". The phonetic pronunciation for franchisor is fran-chi-zor; the phonetic pronunciation for franchisee is fran-chi-zee.

The reader may now be asking himself why, if this is an article on how franchising works, was it necessary for the short lesson in Language Arts? The answer is because for the remainder of this article, we are going to be discussing some fascinating creatures called "Zors" and "Zees", and it's important to know how they got their names.

(Seriously, in the franchise industry, it is common to drop the first seven letters, thus referring to those who sell franchisors as "zors", and those who buy and/or operate franchises as "zees".)
In Franchise World, "Zors" are the people who own businesses that operate as franchises. An example of a franchise in the "real world" would be McDonald's®.
"Zees" are people who live in Franchise World and want to own or operate one of the "Zors" franchises for themselves. In order to do this, a "Zee" enters into a business arrangement, usually by paying a certain amount of money, with a "Zor" which allows him to establish or operate a particular franchise in the "Zee's" desired location.

When "Zors" and "Zees" enter into this business arrangement, both of them reap benefits. "Zors" see a profit from the money that has been paid to operate a franchise. "Zees" have the opportunity to go into business for themselves, thus providing them with steady incomes and employment opportunities.

When you think about it, though, "Zors" and "Zees" actually need each other. Without "Zees" to buy into their franchises, "Zors" may actually start to see a decline in franchise growth.

On the other hand, many times, the purchase of a franchise is a "Zee's" first time to operate a business. And, as is so often the case, the "Zee" is going to need all the help and guidance he can get from his "Zor".

This article may have been written in a light vein, but the fact is that both franchisors and franchisees serve a distinct purpose in their own right. For this reason, it is important that franchisors consider franchisees as partners or equals, affording them all the support and respect they need and deserve. Franchisees need to prove to franchisers that they have earned the respect shown to them, and acknowledge the support by making the franchise as successful as possible.

If you're looking for additional help, there are experts in the industry who work with beginners, they are franchise consultants. Reach out to one today, they can provide the next level of information.

Making the Most Money

You're asking yourself, "What Franchise Makes the Most Money?" Good question.

A person can't really point to a particular franchise and say, "There's the money maker," because the fact is any franchise can be profitable. So, instead of trying to determine which franchise will make you richer faster; look for things that must be present in order for any franchise to be profitable.

• One of the key indicators to a profitable franchise is how well it is managed. As with any business, franchise or otherwise, if it is struggling or otherwise unproductive, often the blame, or at least part of it, is going to rest with management.
  
• The home real estate industry likes to say that the key to a successful home sale is almost always "location, location, location". In the franchise industry, those words could be "market, market, market". There have been instances of franchises succeeding in markets that previously did not seem as though they would support them. However, these are usually the exceptions to the rule: most of the time the success of a franchise will depend on whether or not the services it provides are needed or wanted.
  
• If you want to try to get a clear picture of a franchise's profitability, ask to see the Franchise Disclosure Document (FDD). This is a publication that franchisors—those who offer franchises for sale - are obligated to provide to prospective buyers. If a franchisor is dragging their heels to provide the document, or if there is evidence that certain sections of the document may not be a true reflection of the franchise's profitability, this can be a sign that the franchise is not doing well.
• Consider whether or not the franchise has good investment possibilities. If lenders or other financial backers seem reluctant to provide all or part of the money needed to start a franchise branch, this may indicate that the master franchise itself, or at least a good portion of it, is experiencing profitability difficulties. Keep in mind, however, that a number of factors can affect profitability at any given time, so a little more research may be in order to try to ascertain the reason for the investors' reluctance.
  
• One of the best indications of a successful franchise is sound strategy development. The franchise that combines tactics that are known to be successful with others intended to further growth are often the ones with the highest profitability.

The more of the above key indicators, as well as others, that are present, the more likely it is that a franchise will be successful. By looking for these and other signs of good business practices, you can determine which franchises are indeed the most profitable.

To aid you in evaluation these indicators, one of many franchise consultants can assist you

How to Start a Business | Franchise

People often choose a franchise as a means of starting a small business. This is because much of the "groundwork" - finding a site, stocking the business, and other things, has already been done, making it easy for the franchisee, especially if it is someone who is just starting out, to get things going.

Buying into a franchise as a means of starting a small business also means that the owner can talk to franchise consultants once he has paid the franchise fee. They can provide him with tips for starting a small business, which may include some of these:

1 - Don't do anything until you conducted your own franchise business search. You have to understand how the business operates before you can open your own franchise. Others can offer you suggestions on where to look for information, but you should find and read the information on your own.

2 - Don't be in a hurry. Most businesses that fail do so because the owner tried to expand or grow the business before it was ready. When you get in a hurry, you may lose sight of what's important in running your business. However, even as you are taking your time to do things right, continue to plan for and imagine what you would like to in the way of expansion and growth.

3 - Have your business plan in place before you buy the franchise or as soon after the purchase as possible. Franchise consultants can help you by telling you what they feel you should include in your business plan.

4 - Have a substantial savings account in place before you make the first move towards starting a business. It is this money that will see you through the first few weeks when the business is just getting off the ground and profits may be slow in coming.

5 - Make sure you have all the necessary permits and licenses well before the first official opening day. Nothing is more frustrating than opening your franchise and having it immediately shut down by authorities because the necessary paperwork was not in place.

6 - Do your best to hire the highest quality people you can. And, don't be afraid to hire someone who may demonstrate more knowledge in some aspect of the business than you have. Together, you both can make the business a success.

7 - Make sure your personal assets are protected. If by some unfortunate circumstance the business should fail, protecting your assets means you won't lose everything. Consider registering your business as a Limited Liability Company (LLC). By doing this, you will be able to start over and your personal assets will still be safe.

If starting a small business is a top goal for you, then contact one of FranFinders expert franchise consultants.

Buying the "Right" Franchise

The question of which franchise should you buy is definitely a personal one. Only you know what you do and don't like to do, what you are good at, and what you will honestly admit that you absolutely stink at.


However, by answering the questions below, and of course, any others you may think of, you can get a picture of exactly which franchise you should buy and which ones you shouldn't even consider.

• What do you like to do? What do you think you would like to do?
  When you patronize an establishment, do you find yourself thinking, "If this was my business, I'd...(fill in the blanks)."If so, you might want to conduct your own research into franchises dealing with that particular business, and what exactly is involved in owning one.
  
  Remember, however, that when you into any business as a patron or customer, you are not seeing very much of the behind-the-scenes operation. There is inventory control, State and Municipal rules, regulations, and guidelines to be followed, and other things that come with running a business.
  
  
• How "hands-on" do you want to be?
  Do you want to be the one behind the counter, or do you want someone else greeting and assisting customers? Some franchises require that the owner be just as involved as other employees, while others allow the owner more flexibility in delegating tasks and responsibilities.
  
  
• Why do you want to buy a franchise?
  Has it always been your dream to work in a particular field, and you find yourself in a position, financial and otherwise, to fulfill that dream? If so, buying a franchise in the area where you have always wanted to work can help you realize that dream.
  
  
• What are some of the advantages to starting your own business?
  When you are a franchise business owner, you are literally your own boss, at least in your particular branch. You may have to answer to an area or district manager, but you still own your little piece of the enterprise, and it's yours to run as you please, as long as you follow the master franchise rules and regulations.
  

If the franchise is a success, you never have to worry about being out of work again. As long as your branch is in business, you have a job to go to every day, which will get you out of the house and into the business world.

Consider leaning upon the expert advice of a franchise consultant, many have found the answer to the "Which Franchise Should I Buy?" question by working with one of many franchise consultants.

Franchise Discovery Day Expectations

One of the most popular television shows recently has been "Who Wants to Be a Millionaire?" When it comes to deciding upon your "Final Answer" about your future and your franchise selection you need to study and do your home work. That is, you need to complete your due diligence, a thorough investigative process, as you prepare to take to the stage as a contestant during the initial franchise presentation.

The day that you meet with the prospective franchisor company face-to-face at the company headquarters is often referred to as Franchise Discovery Day. At that point you have the opportunity to learn detailed facts and figures about the firm’s business model, and you have the chance to be the one asking the questions, and by all means, be well-prepared to do so. Ideally, you will have already consulted with a few existing and even former franchise owners with regards to their experiences.

This critical meeting will center around the Franchise Disclosure Document (FDD) which is required by the Federal Trade Commission. The FDD (formerly called the UFOC - Uniform Franchise Offering Circular) is a legal, binding agreement that covers the following topics and must be reviewed at least 14 days before a franchisee ever signs the contract:

• History of the franchise
• Franchise fees and royalty fees
• Information about franchisor executives, directors
• Company litigation history
• Terms of the franchise agreement
• Estimates of initial costs, inventory, insurance
• Renewal options
• Territorial boundaries
• Products and services
• Training program
• Franchisee obligations

The franchisor also must provide information regarding the responsibilities it has to the franchisee:

• Training program
• Territories and locations
• Advertising and marketing support
• Management and operational planning support
• Trademarks, patent and copyright information
• Audited financial statements
• Existing franchise statistical information
• Vendor and product restrictions
• Renewal, termination, dispute terms

Caution: before you sign any Franchise Disclosure Document, it is imperative that you seek legal advice as well as counsel from your financial advisor. Remember the Boy Scout motto: "Be Prepared."

Finally, similar to the "Who Wants to Be a Millionaire" program, know that you have a "lifeline" - the opportunity to collaborate with one of FranFinders franchise consultants whose professional experience can be invaluable.