If you are interested in running a franchised business, and you have even read about the fundamental steps of starting a business, it is recommended that you also familiarize yourself with the different types of franchises that are available in the current market. Although geographic location and size are some of the factors used to differentiate between various types of franchises, there are three key types of franchises we talk about when it comes to New York.
Manufacturing franchises refer to a business that utilizes raw materials, parts, or other components to produce a finished good. These finished goods can be sold to other manufacturing plants to make a different product or sold directly to consumers. This franchise model is often used by food and beverage companies where a franchisor supplies the ingredients to the manufacturer, which in turn, mixes and packages the final product and/or distributes it. For example, soft drink bottling companies are known to obtain franchising rights from other soft drink companies to distribute, bottle, and produce the final product.
Also known as a trade name franchise, a product franchise involves the manufacture and/or sale of products. The business model of product franchises basically covers the overall management of the sale of said products. If you are the franchisor, you are in charge of supplying a product family to your franchisee. Next, they may also take on the intellectual property, branding, identity of you, the franchisor.
If you wish to obtain product franchise rights, you, the store owner, are required to pay a certain fee or purchase a minimum amount of products on a regular basis. With that, exclusive brand-name stores are often called product franchisees.
Business Format Franchising
A business format franchise is usually part of an enterprise’s plan to expand. The company may expand by supplying independent business owners with an established business, including its trademarks, rules, products, and even name. In most cases, the franchisor will also assist independent business owners in running and launching their businesses.
If you are the franchisee, you are required to purchase your business supplies from the franchisor or other approved vendors, and pay fees and royalties to them. McDonalds and other fast food restaurants are excellent examples of a business format franchise.
Today, you can find a wide range of franchise types depending on the level of franchise opportunities offered, but, all in all, manufacturing franchising, product franchising, and business format franchising comprise the vast majority of the type of franchise opportunities that exist in the market.
For entry-level budding entrepreneurs, they tend to gravitate towards the business format franchising option, as both manufacturing and product franchises require the business to have an established infrastructure in place to manage the franchise. Regardless of the type of franchised business you may be considering, it is best that you consult with your small business and startup attorney so that your best interests are protected when you start the business.