franchise

Franchise

An agreement in which an entrepreneur buys a license to use another business' products, brand, proprietary knowledge, and trade secrets. This allows the entrepreneur to start a business without building up his/her own brand or products. This is a common way to start a business, especially in highly competitive industries. An industry that utilizes franchises on a regular basis is fast food; because of stiff competition, it is generally more profitable for one who wishes to start a fast food restaurant to buy a franchise.

franchise

1. An agreement between a firm and another party in which the firm provides the other party with the right to use the firm's name and to sell or rent its products. Selling franchise rights is a method of expanding a business quickly with a minimum of capital. See also franchisee, franchisor.

2. A right granted to another party by a government to engage in certain types of business. For example, a firm may obtain a government franchise to supply certain public services within a limited geographic region.

franchise

the granting by one company to another company (exclusive franchise) or a number of companies (non-exclusive franchise) of the right/s to supply its products. A franchise is a contractual arrangement which is entered into for a specified period of time, with the franchisee paying a royalty to the franchisor for the rights assigned. Examples of franchises include the McDonald Burger and Kentucky Fried Chicken diner chains, Tie Rack and Dyno-Rod.

Franchises are a form of co-partnership, offering mutual benefits. They allow the franchisor to expand sales rapidly and widely, sometimes on a global basis, without having to raise large amounts of capital, by building on the efforts of a highly motivated team of entrepreneurs. Individual franchisees are usually required to contribute the bulk of the investment in physical assets and hence have a personal interest in the success of the venture. For his part, the franchisee obtains access to an innovative product or novel selling method, with the franchisor providing back-up, technical assistance, specialized equipment and advertising and promotion. See VERTICAL MARKETING SYSTEM, BUSINESS STRATEGY, EXTERNAL GROWTH, BUSINESS FORMAT FRANCHISING.

franchise

the assignment by one FIRM to another firm (exclusive franchise) or others (nonexclusive franchise) of the right(s) to supply its product. A franchise is a contractual arrangement (see CONTRACT) that is entered into for a specified period of time, with the franchisee paying a ROYALTY to the franchisor for the rights assigned. Examples of franchises include the Kentucky Fried Chicken and MacDonald's burger diner and ‘take-away’ chains. Individual franchisees are usually required to put up a large capital stake, with the franchisor providing back-up technical assistance, specialized equipment and advertising and promotion. Franchises allow the franchisor to develop business without having to raise large amounts of capital.

franchise

(1) A contractual relationship whereby one party (franchisee) is entitled to use the trade name, image, procedures, and trade secrets of another (franchisor) usually in return for paying an initial purchase price and a percentage of gross revenues over the period of the arrangement. In most instances,there is a separate fee for the franchisee's share of national and regional advertising campaigns. Real estate franchises include Century 21, RE/MAX, and ERA. (2) A government grant of some privilege, such as the ability to operate as a corporation or the ability to sell drinks and sandwiches in the county courthouse.