From Don Daszkowski,
Your Guide to Franchising.
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The word franchise has become a common word in our modern day vocabularies. Even though we don’t use it as often as the word “business,” “venture,” or “opportunity,” a franchise can be all the above – and more.

I conducted a survey recently asking twenty people what they first thought of when I said the word “franchise.” About half said McDonalds; three said Starbucks; two said Microsoft; one said the Miami Dolphins and the remainder a variety of fast-food restaurants.

All were correct except the three that said Starbucks - which is a corporately-owned chain.

A franchise business has almost become synonymous with the vast array of fast-food chains across the country, the “Golden Arches” leading the pack. But for those wanting to get into business for themselves, patient exploration will reveal more than just fast-food.

Before you go out shopping for the perfect franchise business, you need to have basic understanding of a franchise system and the different types of businesses that use use this model. It is also important to know how to distinguish a company that offers “franchise opportunities” versus a company offering “business opportunities” – they are quite different.

Definition of a Franchise

A franchise is a business model created by someone or a team of people, called the franchisor, that grants the right to someone (you, the franchisee) to sell the business model’s proven or well-recognized goods or services under a pre-defined set of terms and conditions, also known as a “system.”

The relationship between a franchisor and franchisee is held together by a contract called the Franchise Agreement which outlines the privileges, terms, conditions, restrictions and other details of the system.

Businesses that Use a Franchise Model

There are three types of business concepts that use the franchise model. Some of these ventures are difficult to launch because of the costs involved, whereas others are more easily attainable.

Distributorships: these grant the right to sell their parent company’s products such as car dealerships, i.e. General Motors, Ford, Toyota etc. or vending machine routes.

Brand Name Licensing: this gives the licensee the right to use the parent company’s brand in conjunction with the operation of their own business. Here, the product or service is franchised (or licensed) and not the business itself. For example, a sports store in a small town is granted the exclusive rights in that town to sell Nike products. Sports franchises fall into this category as well.

Business Format: The most common franchise format where a Franchisee purchases the right to operate a unique business system (retail, home-based, fast food concept etc.) that has an established history and track record created by the Franchisor. In exchange for a pre-determined royalty structure, the Franchisor provides initial and ongoing training, sales and marketing support, and many other services and assistance to aid in the franchisee's business success.

In your search for a franchise, you will more than likely purchase a business format franchise.