To what extent does being a franchise present a opportunity to run your own business? What are the advantages and disadvantages of being a franchisee compared to a small business owner?

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To what extent does being a franchise present a opportunity to run your own business? What are the advantages and disadvantages of being a franchisee compared to a small business owner?

The roots of Franchising can be traced back to the middle ages, however it only began to take root in 1950's America, from where it has spread rapidly throughout the developed world. However much confusion surround what is actually meant by the term franchising. This stems in part from the variety of business arrangements that closely resemble franchising proper, and in part from the widespread use of the term in a range of contexts. Varies definition's have been given which covers much of the franchisee relationship but fail to incorporate fails to incorporate the on- going payments made by the franchisee (British Franchise Association, Thompson 1971)

However Mendlesohn's definition of franchising which highlights four basic features common to all franchisees goes someway to filling the void.

"1. The ownership by one person of a trademark, an idea, a secret process, a patent or a specialized piece of equipment and the goodwill and know how associated with it.

2.The grant of a licence by that person to another permitting the exploitation of such trademark, service mark, idea, process, patent or equipment and the goodwill and know- how associated with it.

3. The inclusion in the agreement, granting the licence, of regulations and controls, relating to the operation of the business in the conduct of which the licensee exploits his rights.

4. The payment by the licensee of a royalty or some other consideration in the nature of a continuing fee for the rights which are obtained and for any services with which the licensor will provide the licensee."

Several industry bodies have based their definitions on these four basic elements of a franchise relationship and the most concise and informative of these is that offered by the European Franchise federation:

"Franchising is a system of marketing goods and/or services and /or technology, which is based upon a close and on going collaboration between legally and financially separate and independent undertakings, the franchisor and its individual franchisees, whereby the Franchisor grants its individual franchisees the right, and imposes the obligation, to conduct business in accordance with the franchisors concept. The riht entitles and compels the individual franchisee, in exchange for a direct or indirect financial consideration to use the franchisor's name, and/or trade mark and/or service mark, know how, business and technicalmethods, procedural system, and other industrial and/or intellectual property rights, supported by continuing provision of commercial and technical assistance, within the frame of and for the term of a written franchise agreement, concluded between parties for this purpose."

There are two main types of franchise. The first is known as the product or trademark franchise and this is a situation wherein a manufacturer grants a franchisee a right to sell it s branded products. The second franchise is called the business format franchise and it is the fastest growing segment of franchising with a 155% increase in the 1980's. This type of franchise agreement is usually targeted at aspiring small business owners who have little or no relevant experience in that sector.

Business Format Franchising can be defined as a ongoing contractual relationship between a franchisee and franchisor in which the franchisor agrees to market a product or service in accordance with an overall blueprint devised by the franchisor. The franchisor will transfer all relevant information to the franchisee and will even provide ongoing training and support throughout the relationship. In return the franchisee will usually pay a royalty normally based turnover and/or a mark up on supplies purchased from franchisor. The franchisee provides all the capital requirements of the business and is legally independent from the parent company.
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Franchising had enjoyed extraordinary growth since its inception. Nearly 35% of all US retail sales and 29% of all UK retail sales are attributed to franchisees. Furthermore actual franchise sales grew by nearly 300% between 1975-1990.

Many fgures have been produced which indicat that the risk involved in opening a franchise are much lower than a conventional small business ( 10% failure rate in first five years Vs 70%)The british franchise association has just produced figures in its 2001 survey which indicate that 95% of all UK franchise's made operating profits

Although its current growth ...

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