Multi-Unit Franchise Experts

How Do Franchises Work

How to Hedge Business Risks with Franchising

Franchising is a tried and true method for entrepreneurs and aspiring business owners to build a lasting enterprise while reducing the risk of starting from scratch. By partnering with an existing franchise, business owners can leverage the proven processes, marketing materials, and established customer base to create a strong foundation for their entrepreneurial venture. Most importantly, franchising offers the flexibility and freedom of running one’s own business without the lengthy development process.

For Husband and Wife seeking time freedom and flexibility, franchising can be an attractive alternative to starting a business from the ground up. From fast-food restaurants to pet grooming, there is an array of attractive franchise opportunities that can make for a rewarding venture. In this article, we’ll answer some of the Frequently Asked Questions about franchising so that aspiring business owners can make an informed decision.

Who is a Franchisee and What Types of Businesses You Can Franchise?

A franchisee is a business owner who purchases the rights to operate a business from the company. The company (also known as the franchisor) provides their franchisees with a product, brand, marketing techniques, operational support and other services to help manage the business.

Businesses that fall under the franchising model can range from restaurants and convenience stores to tutoring services and home health care. With such a wide variety comes different levels of investing required and regulatory compliance — so it is important to be well informed of the particular franchise model you are considering.

What Role Does the Franchisee Play?

The franchisee is the primary decision-maker in that company and is in charge of setting how the business runs. They have the authority to manage the budget, hire and train employees, design the store front, and work on expanding the brand.

At the same time, working with a franchise does have its advantages. The parent company provides guidelines and materials to help franchisees get their business up and running, market the brand, and maintain the standard of operations that’s established by the franchisor.

What are the Benefits of Franchising?

There are numerous benefits that come with the franchising model compared to starting your own business, such as lower risks of failure, shorter start-up time, cost savings, established brand identity, and ongoing guidance (such as training, technical support, management support, and financial analysis).

Franchising provides the Husband and Wife entrepreneurs the possibility of running a business with the comfort and security of a proven business model. On the financial side, it significantly reduces costs related to starting and managing a business because the franchisee has access to shared resources such as advertising, marketing, training, accounting, and legal services. Furthermore, established franchise brands have an existing customer base and effective strategies for bringing in more.

What are the Different Types of Franchising?

There are two primary types of franchising: Business Format Franchising and Product and/or Trade Name Licensing.

Business Format Franchising is the most common type of franchising. This type of franchise requires a business agreement and lasts for a predetermined period of time. It requires the franchisee to strictly adhere to the franchisor’s established guidelines and rules and allows the franchisee to obtain the right to use the business’s trademarks, location, and business operations/activities.

Product and/or Trade Name Licensing is when a franchisor grants the franchisee permission to use a particular product and/or trademark, typically for the length of a specified contract. The franchisee is responsible for product development and marketing, while the franchisor provides the brand, logo, and other related trademarks.

What are the Tax Considerations for a Franchisee?

One of the most important aspects of becoming a franchisee is understanding tax obligations and opportunities that may require detailed knowledge. Franchisees must familiarize themselves with both the federal and state tax laws for businesses, as this will impact how profits and losses are reported and estimated, as well as other deductions.

Tax advisors can help franchisees understand the many tax implications that owning a franchise can bring. Franchisees should also be aware of special deductions for small businesses, such as start-up expenses, as well as any special incentives franchisees may qualify for — such as energy-efficiency rebates, credits, and other incentives.

Topics:

Franchising,

Business Operations,

Tax Considerations

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