Advantages of Franchising Your Business

Franchising is one type of business strategy where two parties enter a contractual agreement. One party, the franchisor, allows another party, the franchisee, to use its trademark, trade-name, business processes and systems to produce a good or service. The franchisor additionally offers the franchisee assistance with marketing, managing, and other business operations. This type of business strategy allows a franchisor to increase capital with reduce risk and increase profits.

The most common reason businesses franchise is to increase capital. Franchising is a form of capital acquisition and allows organizations to expand without the cost of equity or risk of debt. The franchisee provides all the capital required, and it will enable the business to grow without directly investing in more resources. This allows the franchisor to build without going into debt and virtually no contingent liability because the franchisee commits to the contract.

Essentially, a franchisee pays a to a franchisor to gain the use of a trademark, the right to use the franchisor’s business system to sell its goods or services, and ongoing support from the franchisor. Franchising is a business strategy that a business may consider because it increases capital and profits with reduced risks.

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