With the Chartered Professional Accountants of Canada...
The term "franchising" refers to a business model that's been around since the mid-1800's when the manufacturers of the Singer sewing machine first dreamed it up as a way to expand the distribution of their products.
A franchise is a business or establishment owned and run by an independent business operator that is allowed to make use of an existing company's business practices, products, services, or brand name in exchange for payment of fee, royalties earned on product sold, or compliance with other pre-established conditions. Since the 1930's the growth of the franchise has only continued to accelerate by leaps and bounds and shows no signs of stopping anytime soon. As such, franchise businesses are very popular choices among those who are looking to open up their own establishment.
The franchise option has been proven to work best in regards to businesses that fit a certain profile. Businesses with good franchise possibilities are those that are not only unique, but have already been proven to offer products and services that have a wide reach when it comes to mass appeal. A good franchise business is furthermore easy to replicate, as well as relatively simple and inexpensive to operate by the proposed franchisee.
Franchising comes along with many benefits both for the franchisor as well as the franchisee. Franchisors are able to expand their reach, their level of brand recognition, and possibly even their overall marketability by offering a franchise option to independent operators. They are further able to do this without the need to personally oversee every aspect of operations at each new franchise business themselves.
Franchise businesses offer independent operators a chance to open up an establishment based on a business model and product or service that is already proven to work and have mass appeal. The franchise further benefits from the expertise and training of the franchisors themselves, increasing the franchisee's chances of achieving success with the new business.
Of course, there are certain disadvantages to be assessed when considering a franchise system as well. Neither the franchisee nor the franchisor will have the complete control they may want over the newly opened franchise business. Franchisors have no control over who the franchisee chooses to hire or how well they interact with their immediate customer base. As a result, they run the risk of a poor performance on the part of a franchisee hurting the carefully crafted reputation attached to their brand.
Franchisees, on the other hand, are required to run their franchise business using only the pre-established business model, requiring them to let go of a certain level of control as well. Cost can become an especially troublesome issue, as the franchisee does not have the option to consider alternatives in regards to business costs such as uniforms that may help improve the bottom line. They will never be able to claim true ownership over their business or have complete license over what services or products their franchise business offers the public either, which may pose problems of its own over time.
Whether or not a franchise business is the right option for you in regards to your new start-up business plans depends on whether or not you require complete control over your business. Some business owners may find it a relief not to have to worry about making decisions in regards to signage, product, marketing, and so forth and consider any loss of autonomy in regards to their franchise business to be worth it in light of the many benefits. However, others may want to reserve the rights to change or alter their business as they see fit.