What is a franchise?
A franchise is a contractual relationship between two parties. Franchising gained popularity in the 1960s and has been employed by more than a thousand U.S. businesses as a means to expand their businesses using other people's money and labor to meet aggressive expansion goals.
In a franchise system there are two types of parties, the Franchisor and the Franchisee; with the party granting the franchise being the Franchisor and the party purchasing the franchise being the Franchisee. Generally, in a franchise relationship, the franchisee furnishes equity and borrowed capital to pay for real estate, leasehold improvements, equipment, fixtures, furnishings, inventory and working capital required to establish the franchisee's outlet. The franchisee also typically pays an initial franchise fee (typically $25,000 to $35,000) to cover the franchisor's costs in connection with selling and establishing the franchised business (e.g., providing initial training, site selection assistance, etc.), and an ongoing royalty fee (typically a percentage of the franchisee's gross revenues) for the continued right to use the franchisor's name and system in connection with operating the franchised business.
Franchise Industry Statistics
- There are an estimated 1,500 different franchisors (franchise companies) operating in the U.S.
- More than 75 different industries use franchising as a means to distribute goods and services.
- A 1999 study by the United States Chamber of Commerce found that 86% of franchises opened within the last five years were still under the same ownership and 97% of them were still open for business.
- A U.S. Department of Commerce study conducted from 1971 to 1997 showed that during that time less than 5% franchise businesses were closed each year.
- 1 out of every 12 businesses is a franchised business.
- A new franchised business is open every 8 minutes of every business day.
RBM has extensive experience working with franchisors ranging from start-ups to established franchise systems on all matters related to the operation of their franchise system. We also provide assistance to prospective franchisees, including development of a buisiness plan; evaluation of financing arrangements, legal entity selection, establishment of accounting systems and overall compliance with the terms of the UFOC.
For more information about our Franchise services, contact
Scotty Amos at (318) 221-3615. Also visit our corporate partners...