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Franchising

In this business structure, a franchisor licenses trademarks and tried and proven methods of doing business to a franchisee in exchange for a recurring payment, and usually a percentage piece of gross sales or gross profits as well as the annual fees.

Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the entity licensing the 'chain store' or franchise outlet.

Franchisor generally requires audited books and may subject the franchisee or the outlet to periodic and surprise spot checks. Failure of such tests typically involve non-renewal or cancellation of franchise rights.

Certain characteristics of this business structure are

• The parties involved typically enter a franchise agreement, which binds the parties together through contractual provisions. This is an arrangement whereby someone with an idea for a business (the franchisor), sells to another person (the franchisee) the rights to use the business's name, sell a product, or provide a service to someone else.
• A franchise agreement usually specifies the given territory the franchisee retains exclusive control over (the area protection), as well as the extent to which the franchisee will be supported by the franchisor (e.g. training and marketing campaigns).

This business structure too has its set of advantages and disadvantages, some of which have been mentioned here:

Advantages

• This structure enables people to start up a new business quickly based on a proven trademark and formula of doing business
• As long as their brand and formula are carefully designed and properly executed, franchisors are able to expand their brand very rapidly across countries and continents
• This also helps them become financially strong quickly

Disadvantages

• One of the main disadvantages that franchisees face is that of loss of control.
• The franchisee is required to follow the system and get approval of changes with the franchisor and thus loses his individuality
• Another problem is that the franchisor/franchisee relationship can easily give rise to litigation

So you have now finished with all the business structures and ready to start a home office

Next>>How to select a business name for your home office?

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