According to the United States Small Business Administration, Franchise businesses offer a valuable alternative for prospective business owners. Typically, as opposed to a home business, a franchised business is likely to be situated away from home. As with any business venture, the prospect of starting a franchise involves both risks and rewards. The SBA recommends prospective franchise owners consider a series of important factors prior to investing in a particular franchise, including:
A "franchise" is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. The franchise governs the method of conducting business between the two parties. Generally, a franchise sells goods or services supplied by the franchiser or that meet the franchiser's quality standards.
Franchising is based on mutual trust between the franchiser and franchisee. The franchiser provides the business expertise (marketing plans, management guidance, financing assistance, site location, training, etc.) that otherwise would not be available to the franchisee. The franchisee brings the entrepreneurial spirit and drive necessary to make the franchise a success.
There are primarily two forms of franchising: (1) Product/trade name franchising, and (2) Business format franchising.
In the simplest form, a franchiser owns the right to the name or trademark and sells that right to a franchisee. This is known as product/trade name franchising. The more complex form, business format franchising, involves a broader ongoing relationship between the two parties. Business format franchises often provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing.
[ Source : The United States Small Business Administration ]