Starting a new business in Kentucky is an exciting endeavor. However, not every potential business owner wants to start a business on their own from the ground up. For these individuals, franchising may be an attractive option.
How does franchising differ from buying an existing business?
The primary way a franchise differs from buying an existing business is how much control the business owner has over the business. In a franchise, the business owner (franchisor) sells their logo, name and business model to an independent entrepreneur (the franchisee). Many franchises, such as restaurants and hotels, are household names.
What are two common types of franchises?
One common type of franchise is product/trade name franchising. Under this type of franchising, the franchisor retains ownership rights to the business name and trademarks. The franchisor sells the right to the use of the franchise’s name and trademark to the franchisee. Generally, the franchisor will supply the franchisee with products manufactured by the franchisor. The franchisee then has the right to sell these products.
Another common type of franchising is business format franchising. Under this type of franchising, the franchisor and franchisee have an ongoing relationship with one another. In general, the franchisor will provide the franchisee with services such as choosing a business site, training workers, supplying products to sell, providing existing marketing plans and assistance in obtaining funding.
Benefits of franchising
Franchising can be beneficial because the franchisee has access to the name, logo and products of the franchisor’s larger, more well-known brand. Brand recognition and marketing also benefits the franchisee. However, the franchisor has a say in how the franchisee runs their business. Ultimately, those considering franchising may want to seek legal advice, which this post does not provide, before moving forward so they understand their rights as a franchisee.