Franchising is a long-term cooperative relationship between two entities - a franchisor and one or more franchisees - that is based on an agreement in which the franchisor provides a licensed privilege to the franchisee to operate the business. The franchisor grants the franchisee the right to use a developed concept, including trademarks and brand names, production, service and marketing methods and the entire business operation model, for a fee.

The product, method or service being marketed is usually identified by the franchisor's brand name, and the holder of the privilege (franchisee) is often given exclusive access to a defined geographical area for a defined period of time

While fairly similar in nature, there are very important differences between Franchises and Business Opportunities:

In simple terms, a franchise opportunity is a relationship between a seller and a buyer that continues for the duration of the buyer’s involvement in the business. A franchise differs from a business opportunity in two important ways:

The Federal Trade Commission (FTC) regulates franchising at the federal level. In order for a business to be labeled a franchise, three elements must be in place:

If a business meets the above criteria, it is considered a franchise by the FTC and is required by law to follow federal guidelines. The most critical FTC guideline requires franchisors to provide buyers proper disclosure information prior to finalizing the sale.
Before a potential buyer can purchase a franchise, he must receive specific disclosure information about the franchisor, called a Uniform Franchise Offering Circular (UFOC). The UFOC is a valuable document that will assist a buyer in completing the due diligence (the process of investigation into the details of a potential investment and the verification of material facts) before purchasing the franchise. In many cases, individual states have additional guidelines a franchisor must meet to sell locations in that state.

In a franchise opportunity, the franchisor has a vested interest in the success of the buyer (franchisee) because it receives ongoing royalty payments. Therefore, the franchisor is usually committed to building the brand by adding locations, monitoring individual performance based on a proven system and assisting the franchisees to increase their revenues. This relationship lasts the duration of the franchise agreement.

In a business opportunity, the seller makes his money by delivering the business system, training, equipment, or service method to the buyer. In some cases, the seller may also make residual income for the ongoing sale of products or services, but for the most part, the relationship is over once the purchase is final.

While a business opportunity is not federally regulated, some states will encourage a general form of disclosure prior to purchase, but most do not require it. If a business opportunity does offer a disclosure document, it may provide only general information. The lack of regulation can speed up the purchase process, but it also leaves the buyer responsible for a thorough investigation of the business.

Since there is no ongoing royalty payment, there is no vested interest by the seller to ensure that the buyer succeeds in the business. Although many business opportunities provide system training, they may not require or monitor performance. Sellers generally don’t invest in local marketing or operational support, but buyers are given complete freedom to run the business.
Income expectations for a business opportunity may be lower than for a franchise opportunity, but they are also a lower investment than most franchises. A business opportunity may not require costly leasehold improvements or large working capital reserves, making it an option for many people whom may not have the capital available to purchase a franchise. For many buyers, a business opportunity provides the flexibility to start out as a supplemental income or home-based business, but has the potential to support their lifestyle and meet their financial goals.

Which opportunity is better? The answer, obviously, is that it depends on the buyer. An entrepreneurial individual may find the confines of a franchise opportunity limiting and thrive in a business opportunity where he makes all the decisions. Another buyer may find the brand recognition, ongoing assistance, and company-wide marketing programs associated with a franchise just the safety net he needs to feel confident when starting a new career.

The answer to this questions depends upon each individual person. The answer, obviously, is that it depends on the buyer. An entrepreneurial individual may find the confines of a franchise opportunity limiting and instead would thrive in a business opportunity where he makes all the decisions. Another person may find the brand recognition, ongoing assistance, and company-wide marketing programs associated with a franchise just the safety net he needs to feel confident when starting a new career.

If you've never owned a business, you may find that franchising offers a significant advantage to you over a business opportunity. A good franchisor is continuously working on refining the product or service and building the brand. As the marketplace or technology changes, your franchisor will be there for you, providing new products, upgraded equipment and training as needed. As a franchisee, you have the benefit of learning from your peer groups – other franchisees in your area, region, state and even across the country. You may also have such advantages as group buying power and national advertising.

A franchisor has a vested interest in seeing each franchisee succeed for many reasons, including the royalty it receives. The royalty revenue makes it possible for the franchisor to have a strong corporate staff and to provide a superior level of ongoing support to the franchisees. Finally, franchising offers one exceptional benefit over a business opportunity and that's the power of the brand. A consistent, recognizable, and everywhere brand is important to customers with an added benefit of increasing the value of the investment the franchisees make in their business.

Whichever way you are leaning, you owe it to yourself to investigate both options before making a final decision.

Owning a franchise can be a wonderful experience. The nature of franchising is to take a business concept that has been proven to be successful and replicate it over and over again with the same success. As a result, franchised-businesses are typically much more successful that their non-franchised counterparts.

In addition, franchises use the power of the brand and the group to everybody's advantage. Franchisees pool marketing money to build a strong, recognizable brand that provides a tremendous benefit in the marketplace. Franchisees shares experiences to help each other learn and improve. And franchisors invest time and money developinng new products and systems to help all franchisees in the system.

Overall, owning a franchise provides substantial benefits.

While franchising is typically more successful than non-franchised businesses, there are some drawbacks to owning a franchise. First, you are locked into a long-term agreement with the franchisor. If you want out of the agreement, it will cost you.

Second, you give up control and flexibility in a franchised business. You must operate your franchise exactly according to the franchisor's specifications and cannot deviate. If you do, the franchisor can revoke your franchise agreement and you are out your investment.

Third, franchising can be more expensive than a business opportunity. You must pay monthly royalties on gross revenues, plus you typically must also pay a fee to a co-op marketing program. While the fees typically go to good us, they can add up and cut into your profitability.

Finally, franchisors can (and do) go out of business. If your franchisor goes out of business it can leave you in a precarious situation. While you may not have to go out of business, you chances for success will be greatly diminished.

While there are some drawbacks to owning a franchise, typically they are far outweighed by the advantages of owning a franchise.

When considering the purchase of a franchise, the best first step is to sit down and do a self-assessment. You need to honestly answer questions such as are you willing to commit to the business? Can you afford the business? What do you want out of owning a franchise? Do you want to work full-time as a career, or part-time for extra income? Are you comfortable managing people, or do you prefer working alone? And many more.

While you can conduct this important process by yourself, it is typically extremely beneficial to work with a franchise consultant who can walk you through this process for free. Their services are well-worth your time.

There are many sources to find franchises that are for sale. You can look at magazines at your local bookstore, you can look at the library and you can look in your local paper for advertisements. But probably the most effective method of finding a directory of franchises to buy is the internet.

There are many directories online (visit AllFran's Franchise Directory to conduct your own search) that enable you to search by location, capital and industry to get on overview of what franchises are available.

However, the best method of finding a franchise to buy is to work with a franchise consultant. They will work with you to develop your self assessment and profile and they will help you find franchises that best meet your profile and goals.

There are a number of ways to help determine if the company is going to be able to support you, both initially and down the road.

Buying a franchise is a life-changing decision, and it requires careful consideration. Not only do you not want to purchas the "wrong" franchise, you also don't want to miss the "right" franchise. As a result, you need to keep an open mind during the search process and look at franchises you may not have initially considered. Those are often the hidden gems in the franchise industry.

When evaluating a franchise opportunity, you should be able to eliminate those that don't meet your needs and won't help you reach your goals. Instead, only focus your time and efforts on those that will get you to where you want to be in life.

To help you establish your search criteria, the first thing you need to do is look in the mirror and carefully evaluate yourself. This is an area where a professional service, such as that provided by AllFran's free consulting services, can help you . At AllFran, we help people find the right franchise and realize their dreams and we have developed a franchise buying process that will greatly increase your probability of selecting and buying the "right" franchise for you.

A "Franchise Resale" is an existing franchise that the franchisee has developed and is not selling. All aspects of the business have been built, and the franchisee is selling the business as a going concern. Typically, franchisees must be granted approval by the franchisor to sell an existing franchise to a new owner, and the franchisor must approve of the new owner before the purchase is allowed. In addition, the new owner may be required to pay the franchisor a franchisee fee and execute a new Franchise Agreement with the franchisor in order to purchase the existing franchise.

The answer to this question depends upon your situation. Purchasing a franchise resale is already a turnkey operation that is already up and running. As a result, you will simply takeover an existing business. However, the cost to purchase a franchise resale is often more expensive than buying a the rights to a new franchise and starting from scratch. However, in some areas your only option to own a specific franchise is to purchase a resale because the franchisor is no longer selling new franchises in that area.

Whatever the case may be, if you are looking at buying a resale franchise the biggest question you need to have answered is, "Why is the franchisee selling the franchise?" The answer to this question will greatly impact your decision of whether to buy the franchise or not.

There are a number of franchises and business opportunities that have initial investments as low as $20,000. While this is a low number, it is important to note that the investment required in any franchise is often not a good indicator of the total returns that may be available.

In any case, the most important requirement is that the concept fits your needs and goals, regardless of how much it costs. If the franchise does not meet your needs and goals, then it's not a bargain no matter how inexpensive it is.

As a general rule of thumb, you will need approximately 30-50% of the total cost to open a new franchise in cash. You can typically finance the remaining 50-70% using a number of different financing options.

Financing can be a major hurdle for any potential franchisee. Start-up costs can reach a high level and it is essential that the franchisee has adequate working capital. As a result, it is imperative to address any financing issues during the investigation of franchise opportunities so they can be met head-on.

The best source of information about financing options for any franchise is the franchisor because they have dealt with this issue many times in the past. They often work with lenders that are familiar with their concept and are therefor more willing to help finance one of their new franchisees.

In addition, there are several franchise financing options that enable you to use your retirement savings accounts penalty-free. These are often excellent sources of financing and should be investigated thoroughly.

Franchisors need people who can be effective in areas such as motivating employees, generating sales, and running the day-to-day operations as efficiently as possible. As a result, most franchisors are looking for people with no experience in their industry. Instead, they want their franchisees to focus on running the business rather than performing the labor their concepts require. This enables franchisees to buy a franchise in an industry in which they have no prior experience, and still experience tremendous success.

Purchasing a franchise is a major life-changing event. As a result, the process should be taken seriously and the potential franchisee should consult various experts throughout the course of the process.

One of the first experts to consult is a Franchise Consultant. Franchise Consultants are very experienced and knowledgable about how to selelct the right franchise for you to buy, as well as how to navigate the franchise buying procss. AllFran's Franchise Consultants are available to help you free of charge to ensure you successfully purchase the right franchise for you.

A franchise lawyer is another expert to consult with during your franchise buying process. The lawyer will answer your legal questions, review the franchise disclosure documents and franchise agreement, and help you negotiate with the franchisor. To find a franchise lawyer that can help you buy a franchise, visit our directory of franchise lawyers.

Another expert to consult in your analysis and purchase of a franchise is an experienced accountant. An accountant can help you analyze the franchisor's financial statements and projections, as well as analyze your chances for financial success.

Prior to the 60s, there was little franchising momentum in the US. However after the success of McDonald's, many other companies began to franchise their concepts and the franchise industry expanded rapidly. In 1979 the Federal Trade Commission's Franchise Rule became effective. This rule required all franchisors submit to all potential franchisees a document called the Uniform Franchise Offering Circular (UFOC). The purpose of the Franchise Rule (manifested in the UFOC) was to provide enough information so the prospective franchisee could make an informed decision about purchasing the franchise.

The UFOC serves as a protection for the individual against making a decision based on information not supported by fact. The FTC Rule requires franchisors provide the UFOC to the prospective franchisee at the earlier of the first personal meeting or 10 business days before the franchisee signs an agreement or pays any money. It also provides that the franchise agreement must be given to the prospective franchisee at least 5 business days before the franchisee signs any agreement or pays any money. A franchisor's UFOC must be updated on an annual basis, or sooner if certain conditions are met.

Here are some of the items a UFOC must contain:

• History and Experience. The franchisor must provide you with a history of their past activities, especially as it may relate to potentially negative information. This information must be provided not only for the company itself but also for the officers and directors. The information includes factors like the business experience of the company and its principles and any fairly recent litigation or bankruptcy history for either.
• Financial Factors. The company must disclose to you the relevant financial terms of the franchise opportunity. This would include the initial franchise fees, other startup costs, and an investment range estimate for your total cost to get into the business. The UFOC must also disclose any other fees, such as the royalty, marketing and renewal fees that the franchisee will have to pay throughout the life of their franchise.
• Obligations and Restrictions. The company must disclose the obligations of both you and the company under the terms of the franchise agreement. They must also spell out any mandated restrictions that you will operate under in terms of your purchasing options and behavior as a franchisee.
• Other Considerations. The company must also disclose relevant information on a number of other factors such as financing programs, territory, trademarks and patents, renewal or transfer provisions and public figures.
• Exhibits. The company must also provide other data including audited financial statements, current franchisee lists with contact information, contracts and receipts.
• Earnings Claims. FTC rules leave it up to the franchisor whether they want to supply information about the earnings that can be achieved in their business. If a franchisor does want to provide earnings claims, they must follow stringent rules on how this information can be given to a prospective franchisee. It is essential for the franchisor to make sure that the data provided is as accurate and representative as possible and they must also clearly label any assumptions or qualifications on the data provided. As a result, earnings claims can take a variety of angles and approaches, so reviewing the background information is vital.

Individual State Requirements
In addition to the laws that mandate disclosure, there are also some states that have passed specific laws to further protect franchisees in that state. These laws may add additional disclosures or rules about franchise agreement terms. As an example of this, there are a number of states that require that the legal venue for any dispute must be in their state rather than in the state where the franchise company is located. These types of additional requirements vary from state to state but any that are appropriate to your situation in your state should be disclosed in the UFOC you receive.

The following "filing states" currently have additional requirements above and beyond the requirements of the FTC:

Your responsibility
The most important point to remember regarding the UFOC is that you need to read and understand the material that the franchisor is disclosing to you. The FTC has a requirement that these documents must be presented in understandable English so that the material should be clear. It won't make any difference, however, if you don't carefully review the material.

Make sure you take the time to study the information supplied to you and you'll have a much better chance of making sure that these legal requirements actually serve their purpose of protecting or safeguarding your interests.

Although it may not be immediately evident, a franchise company is under no obligation to award a franchise to just anyone who can afford the franchise fee.

Like any good business, a franchise company will want to populate their system with great people. Since franchising has as its foundation a strong, consistent brand, a franchisor looks for franchisees who will present the brand in the most positive light. In the same manner, they will want to have only those people as franchisees who are able and willing to learn the system and work within the specific parameters of the business.

When researching a franchise company, you will find that they may have as many questions about you as you do about their company. A franchisor is putting their time, money and reputation on the line, so most have developed a "profile" of a successful franchisee which they use to determine if you are "right" for their business.

While this may sound exclusionary, franchisors have a very good reason to learn what works and then to stick with it. Successful franchise companies want their franchisees to excel. They have refined their systems around a set of standards they have learned franchisees need to thrive.

These are the most common items a franchisor looks for in a potential franchisee:

• Capital: This is one of the first hurdles you'll encounter when trying to qualify for a particular franchise. Most franchisors have a minimum net worth and liquid capital requirement for their franchisees. While this may seem obvious, there are other demands on cash availability beyond the initial costs of the franchise – such as the length of time it will take your business to start making money and the living expenses you will have during that time. There are financing options available that may help you qualify if you are short of capital, however no good franchisor will want to see you start out your business heavily in debt.
• Personality: There are some personality characteristics that seem to be common in all successful franchisees. Other characteristics are specific to individual businesses. Are you willing to follow a system or are you the type who wants to do everything your own way? Do you enjoy working with people? Are you focused and decisive? Do you enjoy solving problems? Are you willing to work hard? These are some of the questions a franchisor may have for you and your answers will determine not only if you can qualify for a particular franchise but also if you will be a successful franchisee.
• Skills: Your skills are closely related to your personality. If you like working with people, chances are you will be good at it. Are you customer service focused? Can you lead a team of employees? Can you set and meet personal goals? Do you understand financial concepts? One attribute required by most franchisors is that you have business acumen and understand how the parts of a business contribute to the whole.
• Experience: Franchising is one area of business where your specific experience is less important than other factors. That's because of the excellent training provided by most franchise companies. In truth, many franchisors prefer franchisees without industry experience because it is easier to train someone in a franchisor's system than it is to "un-train" a franchisee that has ideas which may conflict with the way a franchise system works. Again, it is the overall business experience you've attained through life that will make you a "star" in a franchisor's eyes.

The goal for every franchisor is to have successful franchisees. As much as you may want to qualify for a franchise opportunity that interests you, remember that the franchisor has the background and experience to know what type of person makes a good franchisee in their system.

If you encounter a franchise that doesn't discriminate when choosing franchisees – look out. They're just going for volume and hoping some of the businesses succeed. Stay clear of these companies as they will not be vested in helping you achieve your long term goals.