What is a Franchise?

Dictionary.com defines a franchise as “the right or license granted by a company to an individual or group to market its products or services in a specific territory.” So a franchise, by definition, is “a store, restaurant, or other business operating under such a license.”

Many people, if not most, use the term “franchise” without understanding its meaning. A single franchise may choose to operate under different business models depending on their corporate goals. Some franchised operations (an estimated 70% or more) are independently owned and operated. Others are corporate owned. Yet others operate via multiple layers of ownership whereby a regional license is given to a group that is responsible for opening or selling franchises within a selected territory.

These differences are important to the way franchises choose to operate. Stores owned by a corporate franchise are easier to control because store managers will more easily take direction from a corporate office. Independently owned businesses, however, require that conflicting goals be resolved. Independent operators are directly responsible for business losses and have ownership of all profits. As a result, they tend to scrutinize more closely, and be more critical of, company wide initiatives that they feel do not add to bottom line profitability and/or their own personal success.

Our goal is to improve the communication process between franchisees and franchisors so that conflicts are minimized or eliminated. However, we can only succeed at this with your help. We need store owners and managers to participate in our survey at www.FranchiseFactsUSA.com. The information you provide will allow us to understand what works and what does not work within the franchise community. Only then can we report this information to the benefit of the industry.

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Next posting: Defining success for a franchisee and for a franchisor
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