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What is a franchise?

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For any entrepreneur looking at opening a franchise, such as an automotive franchise, it is important to understand the basics of a franchise and have all of the information concerning a franchise in order. At their most basic level, franchises are used to distribute goods and products such as automobiles.

The franchise relationship is important for potential franchisees to understand. A franchise is a legal relationship and there are normally at least two parties who are part of that relationship. The franchisor is the party that establishes the brand and the business system. The franchisee then enters into an agreement to conduct business under the franchisor’s name and system. The franchisee typically pays an initial fee and then a royalty.

There are different types of franchises and different supports that the franchise relationship may include. In addition to a brand name that is already recognized, the franchisee may receive site selection and development assistance; training for the franchisee and its management team; research and development for new products and services; headquarter and field support; and initial and continuing marketing and advertising resources. In a sense, the franchisee inherits an existing infrastructure to help them run their business and to be profitable.

In addition to helping a franchise be successful, knowing and understanding how a franchise works can also help auto dealers and franchisees with any concerns that might come up and with any franchise disputes. A franchise agreement is an important relationship so ensuring that the legal considerations are understood and accounted for can help better facilitate a smooth and successful franchise relationship.