The word Franchising comes from the French word meaning “freedom” or “honesty” and is the act of doing business in a franchisor-franchisee relationship, wherein the latter is authorized by the former to use their business concept for a fee and a percentage of profits and sales.  National and even international advertising, as well as support services and training are commonly made available to the franchisee by the franchisor.  The franchisee is oftentimes responsible for accounting and periodic spot checks at the hands of the franchisor.  It is not uncommon for franchise rights to be either cancelled or not renewed if the franchisee fails in any of these two areas just mentioned.

The word franchising is occasionally used to describe businesses that do not necessarily fall into the legal description above.  As an example, vending machine operators may have franchise rights to a particular type of machine, but might not have a method of conducting the business.  This referred to as “product or trade name” franchising.

Franchisees are often given exclusive rights to a specific territory as well as the amount of support he will be given by the franchisor.  Also, the franchisor earns royalties from the franchisee’s gross sales, and in some cases, the royalties are paid by the franchisee whether or not there are profits earned.

If the franchisee cancels or terminates their agreement before the contract is completed, there can be serious legal consequences involved.  If a franchisee has built the structure for the business, invested a lot of start-up capital, or has leased the brand name, he could lose all of this with no remuneration resulting.  The FTC’s rule known as the Item 15 ruling states that the franchisor must disclose any terms pursuant to termination.

One of the first appearances of a franchise business involved Isaac Singer and Singer sewing machines and dates back to the 1850’s.  He had made significant improvements to his sewing machines, then made the decision to distribute them more heavily and thoroughly than had previously been done.  Sadly, it wound up being a frustrating failure for Singer.  The first true success in franchising was executed by John S. Pemberton and Coca-Cola.  Another example was the telegraph system which despite being operated by numerous railroad companies, was controlled by Western Union.  Lots of automobile dealerships conduct business in this fashion, also.

Today, the franchise model works best with the following six business descriptions:

1.    businesses that are operated using unique or even unusual concepts
2.    businesses that can be easily duplicated
3.    Businesses that are simple to conduct
4.    businesses that are relatively inexpensive to maintain or operate
5.    businesses that have a broad geographical appeal
6.    businesses that are profitable and have a good track record in sales