The Definition of Franchising is the development of a distribution channel through the replication of a proven operational system.
Franchising has been a viable expansion method for over one hundred years. Companies have employed franchising in practice as an expansion tool through using a defined, successful business model that has been proven in operation for some length of time. For the franchisor, the franchisee's unit is an alternative to developing and opening company owned locations to distribute goods and services. This allows a growing company to avoid the constraints of increased investment and liability that comes with operating company owned locations. The franchisor’s success ultimately is directly influenced by the success of the franchisee’s business. The franchisee has a greater incentive than a direct employee because he or she has a direct stake in the business and therefore will most likely run the business with greater profitability and success.
However, it must be noted that, except in the US, Canada and now in China (2007) where there are explicit Federal and State/Province laws covering franchise expansion, most of the world recognizes the business of offering a ‘franchise’ but rarely makes legal provisions for it.
Where there is no specific law, a franchise model is considered a distribution system, in which case, each country would have a set of rules and regulations that cover marketing processes and guidelines for how a franchise distribution system should be established.
Businesses for which franchising works best have the following characteristics:
- Businesses with a good track record of profitability.
- Companies that have Valuable Intellectual Property.
- Businesses which are easily duplicated.
- Concepts that are Unique in Nature.
- Businesses in which the brand is recognizable.
- Offerings that Provide Economies of Scale to Franchisees.
- Businesses which can be Trained and Taught.
- Industries that have high barriers of Entry.
- Businesses which have an extensive client base.
As practiced in restoration work and other service based businesses, franchising offers franchisees the advantage of starting up quickly based on a proven trademark, and the tooling and infrastructure as opposed to developing them on their own. With a blueprint of the business model and an experienced business coach, franchisees are given much higher chances to build a successful business in a short time period.
The United States is the leader in franchise marketing and franchise market innovations. The U.S. became the global leader in franchising in the 1950’s when the highway system was developed throughout the country. Franchising took to the major markets in the form of fast-food restaurants, car dealers, and motels chains. Franchising is a business model used in more than 70 industries that generates more than $1 trillion in U.S. sales annually. Franchised businesses operated 767,483 establishments in the United States through 2008, counting both establishments owned by franchisees and establishments owned by franchisors.
When Selling or Offering Franchises, it is imperative that you follow the Federal Trade Commission Guidelines and procedurees that are required to legally and correctly offer a franchise for sale. The Federal Trade Commission oversees franchising on a national level, but several of the states also have their own statutes and guidelines for how a franchise may be offered or sold in their state.
Franchising has effectively positioned itself as the most efficient and proven method of independent distribution models around the globe. Every eight seconds of each business day a new franchise opens its doors.