A franchise is a business system in which private entrepreneurs purchase the rights to open and run a location of a larger company. The franchising company, or franchisor, signs a contractual agreement with the franchisee, explaining in detail the company’s rules for operating the franchise. Franchisors provide full disclosure of franchise contracts in advance, to allow franchisees the opportunity to make a good business decision. Franchise businesses come with a number of pros and cons that franchisees must take into account before signing the contract.
When the franchisee signs the franchise agreements, he or she agrees to the terms of operating that franchise. The business owner is required to operate the business according to the franchisor’s requirements. The specifics of these requirements are often dictated by the business itself and the expectations of the parent company. In general, though, the contract will include elements, such as location, advertising, owner and staff training, trademark and copyright obligations, renewal opportunities and termination.
Benefits of owning a franchise include the familiarity of the company name and image and training from the parent company in operating the franchise successfully. Failure rates among franchises tends to lower than among other new businesses, largely because customers generally recognize the company name and know what to expect from the location. What is more, the training usually includes extended support from the parent company: they cannot prevent the franchise from failing completely, but they do provide a support system for the franchise owner.