Starting a business can be complicated, which is why many Floridians consider buying a franchise. After all, purchasing a franchise can overcome many of the barriers to starting a successful business, like marketing, branding, training and of course, access to an already established customer base. Though, like any business, there are still risks.
What is a franchise?
In Florida, a franchise is legally defined in the Florida Franchise Act (Florida Statute § 817.416).
Put simply, if you buy a franchise, you own a business that is controlled by another business. That controlling business, the franchisor, gives you, the franchisee, everything you need to run the business.
This includes the right to use the franchisor’s brand, name, logo, products, services, etc. Though, it usually does not include the brick-and-mortar storefront, and equipment may or may not be included.
In return, you pay an upfront fee and ongoing royalties. You also must operate your franchise according to the rules and policies of the franchisor. Failure to follow those rules and policies can result in fines and even the loss of your business.
Product distribution franchises
In Florida, we have different types of franchises. Each has various levels of control and support that the franchisor offers to the franchisee. For example, in product distribution franchises, the franchisor sells/distributes their product/service to the franchisee, who then sells that product/service as an independent dealer or retailer. This is the model used by Coca-Cola and Ford.
Business format franchises
Business format franchises are entire business systems. This includes quality control, marketing, back-end and front-end operations, accounting, training, etc. to the franchisee. In these franchises, the franchisor meticulously monitors and evaluates the performance of their franchises, and examples include McDonald’s and Subway.
Conversion franchises are for existing businesses that want to convert their business to a franchise. The benefit is usually group purchasing power, marketing and advertising support, business support, etc. Common examples are Meineke, Century 21 and H&R Block.
If you are interested in a franchise, it can be a great way to start your business or help your business grow. However, like with anything in business, with all potential benefits, there are potential risks.