ation status is usually beneficial to start-up companies, anticipating net losses and to highly profitable firms with substantial dividends to pay out to shareholders.Franchising is a system of distribution in which semi-independent business owners pay fees and royalties to a parent company in return for the right to sell its products or service and often to use its business format and system.Trade name FranchisingFranchisee purchases the right to use the franchiser’s trade name without distributing particular products exclusively under the franchiser’s name.Product Distribution FranchisingA franchiser licenses a franchisee to sell its products under the franchiser’s brand name and trademark through selective, limited distribution network.Pure FranchisingA franchiser sells a franchisee a complete business format and sytem.The benefits of buying a franchise are:Management training and support to ensure franchisees continued success.Brand name appeal, with the advantage of a highly recognized name and identifying trademark.Standardized quality of goods and services.National advertising programs essential to the success of virtually all franchise operationsFinancial Assistance, franchisers usually assist franchisees in establishing relationships with banks, investors and other funding sources.Proven products and business formats, the franchisers experience, expertise and products.Centralized buying power, cost savings passed on from the franchiser to franchise.Territorial protection, proper location is critical to the success of a business.The drawbacks of franchising are:Franchising fees and profit sharing, imposing fees and demanding a share of the franchisees revenues.Strict conformities to standardized operations.Restrictions on purchasing products and supplies outside of the franchisers approved suppliers.Limited product line, selling only those products approved by the franchiser.Unsatisfactory training programs, un...
