In simple terms, a business franchise is the way a company is able to distribute services or products through independent, third-party operators. The independent operator conducts their business by using the products, methods and name developed by the original company owner.

Significance

The person who sells the business entity to other individuals is called a franchisor. The individual who buys that right is called the franchisee. Both parties have an agreement on how the business will be operated.

Function

The State of Wisconsin Department of Financial Institutions explains that the informal term used to describe a franchise is a "business opportunity." A business opportunity is classified as a franchise when it has three elements: a marketing plan, a trademark association and a franchise fee.

Considerations

There are three reasons companies begin to franchise, according to Entrepreneur Magazine. These reasons include lack of money, people and time.

Benefits

Many companies start to franchise when they want to expand their concept on a nationwide or international level. Franchising is a great way to expand a company rapidly. Businesses can grow faster and larger when they are franchised because the franchisee provides the capital for the expansion.

Features

In order for a company to begin franchising it must have certain basic characteristics. First, the company must be credible. The company must also be unique, provide an adequate financial return to its franchisees, and have a well-documented system in place so new employees can learn to operate the business in three months or less.

Source:

Wisconsin Department of Financial Institutions

Entrepreneur Magazine