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Buying a Franchise

Sometimes entrepreneurs wish to buy into a proven business system rather than starting a business from the ground up. In the case of a franchise, they purchase the right to use a company’s trade name and proven methods of operations. In many cases, they also agree to pay a percentage of their sales to the franchisor in exchange for ongoing support (such as national advertising), purchase inventory from the franchisor, and follow the franchisor’s methods and ways of doing business.

Franchises operate all over the United States. The most well known are food businesses, but the franchise concept extends to all kinds of retail and service businesses. Some require investments of millions of dollars, others much less. In all cases, the buyer pays for certain intangible rights, in addition to the usual costs of starting a business. The relatively high investment carries risks, no matter how appealing franchising may appear in promotional materials.

Franchising can pay off, but only in the right hands. Franchising companies can run into difficulties or go out of business entirely, leaving their franchisees stranded and without support. The rules set down by franchisors can be too restrictive for some businesspeople, and disputes do arise. A certain breed of fairly sophisticated businessperson, however, can thrive in a franchise environment.

Next Section:Negotiating a Deal

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