On behalf of Chandler and Brown, Ltd. posted in business planning on Thursday, March 28, 2019.
Some people in Minnesota who are interested in starting their own business have developed their own product or service that they wish to sell. However, other individuals may be more interested in franchising. Franchising provides a means for establishing a business without having to develop a brand and business model from the ground up. For example, many popular fast-food restaurants are franchises.
Franchises are joint ventures in which franchisors sell their business’s name, goods and services to franchisees who are then permitted to use the franchisor’s business model and trademark. In exchange, franchisors are paid a start-up fee by franchisees, as well as yearly licensee fees and royalties.
When two businesses agree to establish a franchise, a contract will be formed. The contract will give the franchisee the right to purchase the franchisor’s trademark. The contract will also state how much the franchisee will pay the franchisor for training, equipment and business advice. Finally, the contract will include provisions stating that the franchisor will receive a percentage of the franchisee’s sales. In this way, franchise agreements are similar to licensing contracts.
In the end, if an entrepreneur can afford the start-up costs of contracting a franchise, the joint venture between the franchisor and the franchisee can be profitable for both. While there is no guarantee that franchising will be successful, the use of an already-recognized brand and an existing business model can help franchisees attract customers who enjoy that brand’s product, and the original business benefits from having a presence in another geographical area. Those who want further information about franchise agreements and business planning can consult with professionals experienced in this area of law.