A franchise is defined as the right or license granted by a company (franchisor) to an individual or group (franchisees) to sell its products or services in a specified territory.
There are three types of franchises:
- Product – The franchisor grants the franchisee permission to sell or distribute a product using the logo, brand and image of their company.
- Manufacturing – The franchisor grants the franchisee permission to manufacture and sell their products using the logo, brand and image of their company.
- Business Format – Probably the most common and popular type of franchise. The franchisor grants the franchisee the trademark license to run a business in a predetermined manner.
When purchasing a franchise, the buyer is required to strictly follow the rules and directions on how to run the business. These rules exist to protect other people in the system as well as to maintain brand quality consistency. Unlike business opportunities, payments to the franchisor do not end with the initial paperwork. The franchisor receives royalty payments for the time specified in the contract. In exchange for these payments, the franchisee receives ongoing training and assistance, such as marketing and advertising assistance.
When buying a franchise, the investor goes through an extensive process to complete the paperwork. In addition to an interview, the investor must complete an application detailing his or her background, work experience, and knowledge to assess how he or she would fit into the franchise system, and provide detailed financial information to find out if he or she is financially capable. to keep the business afloat until the business starts making a profit. Then, assuming that the potential franchisee meets all the requirements, the franchisor will present a franchise agreement. The franchisee is advised to read the contract with a lawyer or legal counsel before signing it.