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What Is a Franchise? And How Does It Work?

By Jeff Bevis

Franchising has emerged as a powerful business model, reshaping entrepreneurship in America. But, the term franchise often deters would-be business owners because they mistake a franchise for a massive corporate entity. But most franchises are locally owned and operated by individuals.

Let's learn more about franchising and what it could mean for aspiring entrepreneurs.

What Is a Franchise?

A franchise is a type of business structure. It gives an individual license to access tools, processes, and trademarks to sell products or services under the parent brand's name. The parent brand is referred to as the franchisor. The individual selling the franchisor's products or services is the franchisee.

Of course, the franchisor does not grant the rights to sell their goods or services to others for free. A franchisee pays an initial fee and pays royalties to the franchisor as long as they are in business.

For many, this fee is often well worth it to achieve successful business ownership. The franchisor guides the franchisee by offering training, cooperative advertising and marketing, and business support. And the franchisor expands its reach without taking on the risk and personal liability of individual locations.

It's important to remember that a franchise is not an industry. Rather, franchise businesses can exist in all types of industries — from fast food to retail and home care to pet sitting.

Some might incorrectly think that a franchisee works for a large corporation. But that's not the case at all! Franchisees are small business owners in their community. They are responsible for daily operations and ultimately accountable for their success or failure. However, franchising is a delicate balance between independence and a structured framework.

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How Franchising Works

For those considering running a business through franchising, it represents a unique entrepreneurial journey. It that combines the thrill of running one's own business with the reassurance of having a well-defined framework.

Here's a glimpse into how a franchise opportunity could work for you:

  1. Investment: As mentioned, becoming a franchisee requires an initial investment, which includes the franchise fee, operational setup costs, and working capital. This entry barrier may deter some potential entrepreneurs. But it also acts as a filter to ensure committed and financially capable individuals are selected as franchisees. This information will be outlined clearly in your franchise agreement.
  2. Training and Support: Franchisees receive extensive training from the franchisor, covering aspects such as business operations, marketing, and customer service. Franchisors provide ongoing support to help franchisees navigate challenges and adapt to changing market dynamics.
  3. Brand Loyalty and Recognition: Don't underestimate the power of an established brand. As a franchisee, you inherit the reputation and loyalty of the franchisor, which can significantly impact the success of your business.
  4. Operational Autonomy with Boundaries: While franchisees enjoy operational autonomy, they must adhere to the guidelines set by the franchisor. This helps maintain consistency across all locations and preserves the brand's identity.
  5. Shared Success and Risk: Franchisees share both the successes and challenges of the franchisor. As the brand flourishes, so does the franchisee's business, but economic downturns or negative brand perception can also impact franchisees.
  6. Community and Networking: Franchisees become part of a wider community of like-minded entrepreneurs who share experiences, ideas, and support. This network can be invaluable in overcoming obstacles and finding solutions to common issues.

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Perception of Franchises in America

Over the years, franchises have evolved from being perceived as cookie-cutter establishments to thriving entrepreneurial ventures. Their impact on the American economy and society has transformed public perception. Here's how franchises are viewed in America today:

  • Economic Engine: Overall, franchises do so much to support local economies. They create local jobs, support community members, and put money right back into the local market. In fact, data reported by Franchise Direct indicates that 90% of franchise-generated income stays within their community.
  • Employment Opportunities: You can impact your community by creating local jobs through franchising. The International Franchise Association reported that franchise employment could reach 8.7 million in 2023.
  • Proven Success: The success stories of renowned franchises have bolstered the image of franchising. Brands like McDonald's, Subway, and Marriott have demonstrated the potential for exponential growth and global expansion through franchising.
  • Accessibility to Entrepreneurship: Franchising offers a pathway to entrepreneurship for individuals who lack prior business experience or fear the uncertainties of starting a business from scratch. The franchise model provides a safety net in the form of an established system and ongoing support.
  • Standardization and Consistency: Consumers appreciate the consistency and quality of products and services offered by franchises. The standardized processes ensure that customers can expect the same experience regardless of the location.
  • Adaptability and Innovation: Franchises have shown their ability to adapt to changing consumer preferences and market trends. Many have embraced technology and innovation to stay competitive in the digital era.

Overall, as a franchisee, you will receive much support from your local community and your franchise community. And as more franchises prove successful, the reputation of the franchise system as a whole will only continue to improve.

Is Franchising the Right Fit For You?

While franchising has proven successful for hundreds of entrepreneurs, is it the right fit for you? If you think owning your own franchise might be a good fit for you, contact our team. We are happy to answer any questions you might have about how a Caring franchise works and how Caring operates successful small businesses in so many local communities across the United States.

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Tags: Franchise Ownership