Simple business ideas have been transformed into worldwide success stories
through franchising, licensing and distributorship programs. While the terms
aren't synonymous, you can quickly learn the differences between the entities,
as well as what's required to set up the structure best suited for growing your
business.
It’s not uncommon to find that the sale of any opportunity can lend itself to
a maze of legal issues involving state statutes and federal compliance. Ideally,
individuals can take a concept, reproduce it and live on royalties for the rest
of their lives. Although there's always room in the marketplace for a good idea,
the founder of a concept can also be saddled with a great deal of
responsibility, planning, financial and regulatory obligations.
In deciding how to grow your company, the first task is to determine what
business format you'll introduce to consumers. Regardless of which level of
opportunity you choose to sell, you'll need to research state and federal laws.
You'll also be required to produce manuals, training programs and equipment. In
some cases, The Federal Trade Commission will impose certain requirements for
businesses and demand a specific financial investment. And when you're ready to
sell your opportunity, you'll most likely have to provide buyers with
disclosures, contracts and many other items. Make sure your sales paperwork is
expertly compiled to protect both you and the buyer.
Can You Leap Franchising Hurdles?
Franchising, of course, is the gold standard of expanding your business.
Name recognition and royalties from each franchise's sales can be extremely
lucrative. However, along with the potential for great rewards comes a heavy
regulatory responsibility at the federal and state level. The legal barriers are
significant, and you may need an experienced franchise attorney to get you
through the requirements.
It won’t be cheap, either. Expect to pay a premium for a good, experienced
lawyer. Generally, a franchisor offers buyers the right to use a specific
trademark or name when selling goods and services and offers substantial control
over the buyer's operation in return for monthly royalty fees and commissions on
product sales.
Franchises can range greatly in cost, but they usually require a substantial
initial investment for the franchisee. In exchange for an obligation to comply
with all criteria set by the parent company, franchisees will expect substantial
support and assistance. For the money franchisees pay you, they'll expect name
recognition, support and, in most cases, the potential for quick success and
profits.
Licensing Offers Less Control
Offering a license allows your buyer to use proprietary data and products
in a limited sense. In other words, you're granting permission to the buyer to
sell your idea or product. In a licensing arrangement, the seller has less
control over the buyer, and the buyer may or may not use the corporate trademark
and name. Buying a license typically costs less than buying a franchise but will
probably offer a good training program and name recognition. Licensees find this
option affordable and can still enjoy some name recognition; licensors benefit
from less regulatory oversight and fewer expectations from the licensee.
Ceding a Territory
Another option is distributorship. The purchaser will buy the right to
sell your company's products and concepts within a territory that may or may not
be exclusive. The overall price of the distributorship is usually less than
other business opportunities and can still have name recognition, training and
excellent guidance. Licensing and distributorship programs often sound very
similar and the distinction between the two will routinely be defined by the
degree of control between the seller and buyer.
A business opportunity is a generic form of business model, though it does
require registration in more than 25 states to be legal. In some states, a
substantial fine may be issued if the seller is in noncompliance with specific
statutory requirements. There is a great deal of flexibility with a business
opportunity, so setup as the seller is relatively easy. The buyer won't use the
company’s name or logo, and there are usually no continuing fees or royalties.
Is it worth the legal issues, manpower and headaches involved in setting up
the sale of your brainchild? Absolutely. With a stable idea, hard work and
attention to detail, expanding your business worldwide is something you can do.
And offering a business model, knowledge and training will assist many people in
achieving business ownership. What type of expansion you wish to employ depends
on your tolerance for regulatory oversight and responsibility for a buyer’s
business and financial resources. Whatever form of expansion you choose,
thoroughly research the requirements for each form and make sure all of your
financial and regulatory ducks are in a row.