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Defining the franchise business

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Franchising is a way for successful businesses to expand rapidly, nationwide or worldwide.
All Franchises begin with a good concept that is easy to copy from location to location. For example a business with a business concept that sells cheap burgers, French fries and donuts decides to expand its services by franchising their concept.

When a business franchises their concept they allow other entrepreneurs or franchisees to buy the rights to open up an identical business, helping the franchiser to expand and letting the franchisee become the owner of the new location.

right-arrow-action ALSO READ: The fantastic franchise business.

The franchiser makes money in three ways from the franchisee.

  1. The franchisee buys right to open up an identical business.
  2. The franchiser and the franchisee enter into a master franchise agreement. Under this agreement the franchisee agrees to buy all the material for the business from the franchiser, from things like the business sign and furniture to the hamburger patties and buns to make the burger.
  3. The franchisee agrees to pay the franchiser an ongoing fee like a percentage of the all sales.

The franchisee continues to make money because he is able to keep all the remaining profits after these costs.  However the franchisee must run the business in accordance to strict guidelines detailed in an agreement, such as how to run their store location and how it must look inside and outside.

In exchange for all these requirements, the franchiser agrees not to open up another store to close to an existing store, so the franchisee doesn’t have to worry about competition. The franchiser also agrees buy all advertising and marketing campaign for the business.

McDonald’s and Dunkin’ Donuts are two of the most well-known franchises that exist today. Across the glove customers can rely on the consistency of McDonalds products because all McDonalds ultimately follow the same guidelines and purchase their food from the same franchise. The same goes for Dunkin’ Donuts, as all of the franchisees across the globe purchase the same coffee and donuts from the same franchiser.

right-arrow-action ALSO READ: Banks criteria for giving you a loan.

Franchises benefits from having various stores owners because they can expand their businesses faster and easier and the same time people are paying them to help them expand, also local store owners know their customers so they can make smarter business choices to keep the franchise profitable.

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