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Franchising vs. Licensing

Written by: John Power

Article Overview: Frequently entrepreneurs look to licensing as a way to accomplish their expansion goals, thinking that it is less complicated and less expensive than franchising, but they should look carefully before thinking that licensing can accomplish the same thing as franchising.

Franchising vs. Licensing

Licensing is an expansion vehicle that is best used for a "process," or a straight business opportunity. Someone might license a certain manufacturing process that they have developed, and receive a fee each time it is used, for example. A business might license a person or another business to sell their product, without significant control over the business. Franchising exists when someone: 1) uses the name of an existing business, 2) pays $500 or more to the existing business, and 3) operates in a manner somewhat as prescribed by the existing business, providing assistance, or maintaining control. Thus, name, payment, and assistance or control determine when a franchise exists.

So, one or more of those has to be eliminated to avoid being subject to franchise requirements, and normally it is either "name" or "control." However, many people who think that they are expanding by licensing can quickly and inadvertently develop a franchise program without realizing it. Many of those who start expanding by licensing soon discover that they really want more control over the business operation of the licensee, and that franchising would be a better expansion vehicle. Additionally, many of those who opt for licensing eventually find out out that they they have run afoul of state business opportunity laws.

Franchising is more costly, and takes longer, than simply putting together a licensing agreement. However, rather than thinking: "I want to expand. How can I do it and avoid franchising?", we recommend that business owners carefully consider the legal position and market acceptance of franchising. We think that unless you are licensing something like a manufacturing process, franchising can provide a much greater payoff, and higher level of satisfaction (and a better exit strategy) than licensing.

Franchising does not have to be difficult, nor does it have to be costly. We believe that it is a very good way for a successful business to expand regionally and nationally.

More information can be found at: www.biltmorefranchise.com

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Article Tags: business operation, business opportunity, business owners, exit strategy, franchise program, legal position, licensee, licensing agreement, maintaining control, manufacturing process, market acceptance, opportunity laws, satisfaction, state business, straight business



Related Forum Posts
Franchising vs. Licensing? - What is your opinion on Franchising vs. Licensing? Which is better?
Great Article, chock full of info. - Ian, Thank you for linking your article regarding Licensing vs Franchising. Its a good read.
Franchising & Licensing Can Be The Same Thing - FTC Rule 436 defines franchising as anyone offering an Agreement that contains these 3 things: 1. Licensing a "Mark" - which can be a trade name, service mark, commercial symbol, slogan, etc. 2. In the body of the Agreement, there contains, significant controls and assistance. 3. The licensee is paying the licensor in excess of $500 within the first six months of the actual offering of the business. Licensing and Franchising can mean the same thing today. If you do not decide to franchise and comply with FTC Rule 436, you may be in violation of Business Opportunity Laws that exist in 24 individual States.
Re: Re Franchise etc - [quote="bmueller47":e0j0nu4t]Can you see a shift of various types of franchises? What I am thinking about is that today it is more difficult to create franchises, that has great appeal. More and more people want to have their business, but no interference of someone else.[/quote:e0j0nu4t] Not sure what you mean exactly but it is certain that more and more people want to have their own business but not more and more people know what they really want to do, or how to do it. And that's what franchising is all about. Franchising is not for an entrepreneur. An entrepreneur will do his own thing. People who buy franchises want a turn key business, with a proven model. Franchising in the US had never been that good. I don't have the exact numbers in mind but I know for sure that franchising is growing more and more as people are getting more and more aware of this business model.
Nominations for a new Franchising Moderator! - Is there anyone you'd like to nominate as our Franchising Moderator (or volunteers for the position)?


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