Overall, there is merit in buying an on-going business concern because it is a much safer and faster route to profitability than starting from scratch. Another route to owning a business is by buying a franchise. This involves a contractual relationship between a company (franchiser) which offers its trade name or trademark and its operating system and procedure to another called the franchisee in return for an initial payment and subsequent royalties.
The relationship is defined by an agreement that spells out the responsibilities and limitations of each party. Usually such an agreement would require the franchiser to train the staff of the franchisee and to provide national advertisement for the product or service. The franchisee, on the other hand, will be expected to operate to the franchiser's specifications and to meet agreed sales targets.
As a form of business ownership, franchising has several advantages including the following:
Risk reduction: It reduces the risk of business ownership because it makes it possible for the new entrepreneur to buy into a business whose concepts, ideas, image, operating process, and goodwill have already been developed.
Financial Support: The franchiser is understandably interested in the franchisee's business success because therein lies his own success. It is not uncommon, therefore, to find franchisers offering some form of financial support to their franchisees. It should be noted, however, that financial support is not a standard requirement in franchise arrangements.
Training support: The franchisee is buying into an existing goodwill and positive brand image. It is therefore in the interest of both parties that quality and performance standards are maintained. A sure way of doing so is by training the franchisee and his personnel. This explains why training is a regular provision in franchise contracts.
Location: Most franchise chains are very particular about where their outlets are located and are often involved in the franchisee's selection of an appropriate location. By using the franchiser's repertoire of knowledge, the franchisee is less likely to choose a wrong location.
Profitablity: Much as franchising is not a guarantee for the profitablity of a business, it could facilitate it because the franchise is dealing in a product or service whose name is already known and well received in the market.