The moment you decide to go to a drive-thru and pick up something to eat, chances are, you’re supporting a franchise. From fast-food to fitness gyms, franchising has made it easier than ever for anyone to start a business. It’s a huge part of the economy and directs many of our daily routines.
What is franchising?
In short, franchising starts when a company decides that it’s doing well and wants to expand. Expansion is important for growing your business, but it can be a pain to try and run all these new locations. Rather than running all these locations themselves, businesses will essentially lease their business model and name to someone based in the new location. The person on the other side of the coin is called the franchisee. They dream of starting a business, understand the local market, and has access to capital to start a business or can be approved for a loan. Many of these people also may be new to the industry, thus lacking intimate knowledge of it. In other words, a franchisee may not want to risk going into the business world by themselves, without a proven product or system.
Franchising allows these individuals to make a deal with a company that is recognizable to consumers and already has a proven track record. The franchise supplies the franchisee with the tools necessary to set up an extension of their business, and in return, the franchisee takes a training course, pays an initial franchise fee, and come to an agreement. This agreement, especially when franchising with a food chain such as McDonald’s, usually has strict guidelines the franchisee must follow. Sometimes even as stringent as determining what type of toilet paper must be used in the bathroom. There’s also a royalty fee that the franchisee pays, which is usually about five to ten percent of the profits. Always have a franchise lawyer NYC review your agreement before you sign any agreement or contract with a franchise.
So, is franchising for you?
The answer is complicated. If you’re an entrepreneur who is new to the business world and want to learn from some of the most successful companies in the world, franchising may be for you. A franchise, however, doesn’t guarantee success. But if you’re risk adverse and don’t want to spend the time and money creating a business from scratch, franchising may be a good option. But in the end, you don’t own the business and you have to adhere to the company’s stipulations. If you do decide that franchising is right for you, be sure to hire a franchise lawyer NYC to help you understand what’s in your agreement and how it will impact your bottom line.