Which type of franchise is the right choice for you?
- Wednesday, April 4, 2012
There are several steps that go into purchasing a franchise, and one of the first considerations individuals should weigh is which type of franchise is right for them. The type of franchise a buyer chooses will impact their day-to-day operations and responsibilities.
There are two primary types of franchises: product distribution and business format. Under the product distribution model, business owners simply sell the franchisor's products under the company's brand. This relationship is considered more of a vendor-dealer agreement and business owners are not involved in every facet of how the business is operated. For example, business owners who purchase a soft drink franchise, such as Pepsi, will provide the product to dealers, who will then sell them to customers in different venues. The most common of these types of franchises are gasoline, automotive and soft drink industries.
In contrast, business owners who purchase business format franchises are involved in the entire process of running the company. There are several franchise industries that fall under this model, including fast food, retail, hotels and resorts and restaurants. Building and construction are other popular industries that provide business owners with a franchise opportunity.
In addition to the types of franchises, business owners should also decide early if they wish to engage in a single-unit or multi-unit model. Under a single-unit agreement, franchise owners have the right to own and operate only one franchise.
Multi-unit agreements give owners more leeway to open more than one franchise, however, there are also two types of models. The traditional multi-unit agreement may allow owners to open a specific number of businesses in a given area. There may also be time parameters attached to this agreement that allow for a certain number of units to be opened within a three-year period. A master franchise agreement gives business owners even more freedom to open up more businesses in several areas. Further, owners may also be able to sell these franchises to other people who operate in the same area.
Before choosing the type of franchise opportunity that fits best, it's important for buyers to read over the terms and conditions of their agreement carefully to fully understand their rights and responsibilities. The type of agreement they choose can have heavy implications for their future expansion goals.
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