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Chain Vs. Franchise

As a business grows there are many strategic decisions that must be addressed. One of the decisions that the parent corporation must make is whether it wants to directly own all of the units or if it wants to allow outside investors to buy franchises. There are benefits to keeping the chain entirely corporate owned and to selling franchises.

Definition of Chain
A chain is a group of one or more stores that have the same name, sell the same products and follow the same corporate policies. Chains can be local, regional, national or international.

Corporate-Owned Chains
When a chain is corporate owned, the parent corporation owns all of the stores or units. The corporation runs the day-to-day operations and the profits or losses of each unit belong to the corporation.

Benefits of Corporate-Owned Chain
A corporate-owned chain retains total control of each unit. It can set all policies and procedures in each unit. The corporation also retains all of the profits from each unit.

Franchise
Corporations sometimes sell franchises. This is called a franchised chain. A franchised unit is owned by an outside investor. Each franchised unit must follow certain guidelines set up by the parent company. These include the types of products that can be sold, operating procedures and many times the prices they can charge.

Benefit of Franchising for Corporation
Corporations sell franchises as a way to expand. The franchisee takes on the financial burden of building a unit. In exchange for the time-tested business plan, marketing power and brand name, the franchisee pays the corporation royalties.

Benefits of Buying Franchise
Unlike starting a new business from scratch, many new business owners decide to buy a franchise. They get a proven business model, the buying power of a large chain and consumer awareness of a large brand.

By: Eric Scott, Demand Media http://smallbusiness.chron.com

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