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Types of Franchises Based on Ownership

You can choose from a variety of options if you are looking to take up a franchise. One way of categorizing franchises is based on the operational structure of the business, while another is based on the type of ownership you have in the franchise.

Franchises Based on Operational Structure

A franchise business can be categorized into three types depending on the rights a franchisor gives the franchisee with respect to the products and services.

  • Manufacturer Franchise – In this type of franchise, the franchiseehas the right to manufacture the products of franchisor, and in some cases, get the rights to distribute or sell the products too.
  • Product Franchise – A product franchise gives the franchisee a right to sell or distribute products of a particular franchisor.
  • Business Format Franchise – A business format franchise, one of the most common forms of franchises, gives thefranchisee a right not only to manufacture and sell the products but also to adopt their operational model or structure that has been proven to generate profits.

Types of Franchises Based on Ownership

Franchises are also classified based on the type of ownership a franchisee has over the business. Discuss about the options below, with your franchise lawyer, and chose what suits you.

  • Single Unit – A single unit franchise makes you the owner of a single franchise outlet at a particular location. This is the most common form of franchise that is ideal for beginners. The advantage of this franchise is – the startup costs are low and the franchise can be personally managed by a single person.
  • Multi Unit Franchise – A multi-unit franchise format enables you to start franchises in more than one location within a short period of time. This kind of format can be cost-effective as you get to open branches covering a wider market, and increase your chances of profit. However, you need to constantly monitor the performance of the managers who take care of individual franchise units.
  • Existing Franchise – By investing in an existing franchise, you are taking over an established franchise that was owned and developed by someone else previously. This is perhaps the safest way franchise formats, as you can know what to expect from the business from the start and how to plan your operations accordingly.
  • Area Developer Franchise – Area Developer franchise is an advanced format of the multi-unit franchise, where you need to open a number of franchises in a particular region over a specific period of time.
  • Master Franchise – In this type of agreement, you are not an owner but an intermediary between the franchisor and a number of individual franchisees. In such a format, you pay the franchisor a huge amount as investment to directly collect the fee from the individual franchisees.

Depending on the kind of business you want and how you want to manage it, you can choose a particular form of franchise, but only after understanding the pros and cons of each format with the help of your franchise lawyer.

By:Jonathan R. Bailey http://www.untwistedvortex.com

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