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What Is Franchising?
Franchising is a business strategy where private entrepreneurs sell the rights to their business logo, name, and model to third-party outlets.
A franchise is beneficial to small businesses that cannot afford much finance and capital investment to operate a business startup.
Franchises often have a higher success rate compared to startup businesses.
Franchising Key Takeaways
- The franchise agreement is a legal agreement that creates the franchise relationship between the franchisor and the franchisee.
- According to federal law, the franchise agreement must include the fee schedule, and the use of trademark or trade name to be considered a proper franchise agreement before the money is exchanged.
- Before entering into a franchise agreement, franchisors must disclose to the franchisees the transfer conditions.
- Franchise agreements explicitly award franchisees the rights to use logos and trademarks in a particular way.
- Anything outside the explicit parameters or anything not explicitly mentioned in the agreement is not allowed.
- Franchisors and franchisees should aim to reach an agreement that is fair to both parties
- Before entering a franchise agreement, utilize legal help so you fully understand the obligations applying to both parties
Understanding How Franchising Works
Franchising simply expands the business and distribution of goods and services.
The success of a franchise is based on the relationship between the brand owner and the local operator.
While the franchisor and the franchisees share a common brand, each is in a different business, legal and practical sense.
The franchisor's responsibility is expanding its business, and supporting the franchisees, while the franchisee's job is to manage and operate the business as per the terms and the agreements.
In the US, a license becomes a franchise when:
- Franchisee business is substantially associated with the trademark of the franchisor
- The franchisee pays an initial and/or continuing fee for the right to enter and remain in the business
- The franchisor exercises control or provides assistance to the franchisee
Examples of Startups That Entered Franchising
1. Mr. Handyman
Mr. Handyman, part of the services Brands International franchise system, is our first example of startups that have thrived after successful franchising.
The company was founded in Chelmsford, Massachusetts in June 1996 by David Lavalle under the corporate name Mr. Handyman, Inc.
In the year 2000, the business entered into a franchise agreement with Service Brands International. Today, Mr. Handyman International, LLC is a franchise business providing handyman, commercial, and home remodeling services.
2. Kisses From Italy
Kisses From Italy, a US-based food restaurant chain focused on fast-casual and traditional Italian delicacies, is a good example of emerging brands entering franchising.
The company announced the launch of strategic franchising with Fransmart, a global leader in franchise developments. Fransmart will work to expand Kisses From Italy’s footprint in both national and international markets.
Kisses from Italy is seeking qualified single-unit and multi-unit owners looking to invest with an emerging brand.
Getting Started With Franchising
- Determine if franchising is right for your business
- Prepare a Franchise Disclosure Document As per the Federal and State franchise laws
- Provide the confidential operations manual to your franchisees
- Register your trademark with United States Patent and Trademark Office
- Establish the Franchise Company
- Register and file the franchise disclosure document
- Create the franchise sales strategy and set a budget
The business franchising process may be overwhelming especially for startups. Engage an experienced Franchise Attorney near you, to help you through the complicated processes.
Contributors to this article:
- David Gitonga, Writer @ Starter Story
- Samantha Walls, Head Of Content @ Starter Story
- Pat Walls, Founder @ Starter Story
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