Considering a Franchise

Among the types of businesses that you can purchase are franchise operations. Some companies increase the number of their locations by selling replicas, or franchises, of their business. When you purchase a franchise, you buy the local rights within a specified geographic area to sell the company’s products or services under the company’s name and to use the company’s system of operation. In addition to an upfront franchisee fee, franchisers typically charge an ongoing royalty (percentage of sales).

As a consumer, you’ve likely done business with franchises. Franchising is a huge part of the business world. Companies that franchise — such as McDonald’s, H&R Block, Subway, and FootLocker — account for about $2 trillion in sales annually. Purchasing a good franchise can be more expensive in upfront dollars but can also be a relatively safer ticket into the world of small-business ownership. In the next sections, we cover the pros and cons of buying a franchise.