A Primer On Buying A Franchise

Inc.com:

There are a number of ways to grow a business using what I like to call Other People’s Money (OPM) or Other People’s Resources (OPR). One of the most popular is franchising.

Happily, you get to use OPM or OPR regardless of which side of the franchise relationship you’re on. A franchisee – an operator of individual retail locations – gets the business know-how, systems, and intellectual property needed to run a successful enterprise without having to spend the time and energy to develop them yourself. A franchisor – the creator of a franchise concept who, in exchange for fees and royalties, grants franchise rights to individual operators–gets other people to grow his business using their own capital.

Franchisors have generally built a successful business, identified the reasons the business was successful, and “bottled” the formula by establishing exclusive rights to the intellectual property that made the business a success. That intellectual property typically includes know-how, business systems, trademarks and patents. The franchisor grants the franchisee a license to replicate the business and provides everything that’s needed to replicate the business model.

Some franchisors, however, go farther than others in this respect. A good one will provide training on topics like site selection, store design, construction, and staffing; ongoing mentoring and support; access to the economies of scale of a large operation, including cooperative advertising and supply purchasing; and systems and software for streamlining management processes, inventory, supplies, accounting, budgets and accounting.

So what are the negatives? Read on…