As a business owner, especially one with a successful business plan and execution, the possibility of franchising will always present itself. Deciding to go into a franchise agreement does not work out the same for everyone. Franchise agreements grant a franchisee the right, for a fee, to operate a single franchised business, pursuant to the terms as set forth in the franchise agreement.
Heading into a franchise agreement, there is a need to consider the pros and cons of franchising in general and then identifying the type of franchise agreement that works for you. There are several benefits of entering into a franchise agreement; however, we will focus on what are considered to be three of the major pros. These include: easy expansion capital, a minimized risk of growth and access to better talent.
If you are interested in expansion but do not have the requisite capital, franchising is a good way to get around this. Franchisees are the ones who pay for the outlets and so as an owner, you are able to grow your locations without the added expense. Similarly, the risks associated with growth are reduced and depending on the quality of the business model, earnings in royalties from the outlets are sure to surpass what could have been made if you had opened your own outlet.
In contrast, entering into a franchise agreement gives you; less control over the business operations as franchisees are independent businesses and as such, you cannot tell them what to do. There are also challenges where innovation is concerned as negotiations with these independent owners become more difficult.
Keeping this in mind, if you decide that you are interested in franchising your business, keep in mind that there is additional research needed to determine the type of agreement that works for you.There are 4 basic types of franchise agreements: Single-unit, multi-unit, area development and master franchising.
The single unit franchise is where a franchisor grants a franchisee rights to open and operate one single franchise unit. The multi-unit franchise is where a franchisor grants a franchisee rights to open more than one franchise unit. Meanwhile, an area development agreement allows a franchisee the rights to open multiple units over an agreed amount of time within a specified geographic location and a master franchise agreement, also referred to as sub-franchising, gives a franchisee the same rights as an area development agreement but also gives that franchisee rights to sell franchises to other people within its territory.
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