Franchising can be viewed as an alternative growth strategy because the original founders of a company avoid dilution of their ownership and are no longer directly responsible for the financial investment needed to fuel growth and expansion. Instead, this financial responsibility is shifted to third-party franchisees and area developers who pay the franchisor for the right to use its trademarks and systems in exchange for initial franchise fees and royalties. Over time, this income stream can be a very valuable and lucrative asset around which an estate plan can be built.
Over the past three decades, franchising has emerged as a popular expansion strategy for a variety of product and service companies. Retail sales from franchised outlets make up about half of all retail sales in the United States (estimated at more than $1.5 trillion) and employ nearly 16 million people. (See sidebar.) You don’t have to have the ambition to become a national or multinational corporation to consider franchising, which can be an especially effective option for smaller businesses that cannot afford to finance internal growth. But franchising as a method of marketing and distributing products and services is appropriate only for certain kinds
of companies. A host of legal and business prerequisites must be satisfied before any company can seriously consider franchising as a method for rapid expansion.
Many companies prematurely choose franchising as a growth alternative or exit strategy, then haphazardly assemble and launch the franchising program. Other companies are urged to franchise by unqualified consultants or advisers who may be more interested in professional fees than in the long-term success of the franchising program. This has caused financial distress and failure for both the growing company and the franchisee, usually resulting in litigation.
Current and future members of the franchising community must be urged to take a responsible view toward the creation and development of their franchising programs.
Over the past three decades, franchising has emerged as a popular expansion strategy for a variety of product and service companies. Retail sales from franchised outlets make up about half of all retail sales in the United States (estimated at more than $1.5 trillion) and employ nearly 16 million people. (See sidebar.) You don’t have to have the ambition to become a national or multinational corporation to consider franchising, which can be an especially effective option for smaller businesses that cannot afford to finance internal growth. But franchising as a method of marketing and distributing products and services is appropriate only for certain kinds
of companies. A host of legal and business prerequisites must be satisfied before any company can seriously consider franchising as a method for rapid expansion.
Many companies prematurely choose franchising as a growth alternative or exit strategy, then haphazardly assemble and launch the franchising program. Other companies are urged to franchise by unqualified consultants or advisers who may be more interested in professional fees than in the long-term success of the franchising program. This has caused financial distress and failure for both the growing company and the franchisee, usually resulting in litigation.
Current and future members of the franchising community must be urged to take a responsible view toward the creation and development of their franchising programs.
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