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Franchising refers to the method of practicing and using another person's philosophy of business.

The "franchiser's" authorize the proven methods and trademarks of their businesses to "franchisee" for a fee and a percentage of gross monthly sales.

Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchiser.

The term "franchising" is used to describe business systems which may or may not fall into the legal definition provided above. For example, a vending machine operator may receive a franchise for a particular kind of vending machine, including a trademark and a royalty, but no method of doing business. This is called "product franchising" or "trade name franchising".

A franchise agreement will usually specify the given territory the franchisee retains exclusive control over, as well as the extent to which the franchisee will be supported by the franchiser (e.g. training and marketing campaigns).

The franchiser typically earns royalties on the gross sales of the franchisee.  In such cases, franchisee must pay royalties whether or not they are realizing profits from their franchised business.

Agreements typically last five to twenty years.

Cancellations or terminations of franchise agreements before the completion of the contract have serious consequences for franchisee.

Businesses for which franchising is said to works best have the following characteristics

  • Businesses with a good track record of profitability.
  • Businesses built around a unique or unusual concept.
  • Businesses with broad geographic appeal.
  • Businesses which are relatively easy to operate.
  • Businesses which are relatively inexpensive to operate.
  • Businesses which are easily duplicated.