Company Owned Businesses or Franchising?

There are many factors to consider when a business owner decides to expand. One of the big questions to answer is that the business will use the business format franchising model to expand?
In academic circles, franchising has been seen as a potential principal-agent relationship. However, franchisors should be especially careful to avoid such a relationship from being formed since it would defeat the entire purpose of franchising. This is why a competent franchise attorney needs to draft the franchise agreement to avoid the principal-agent pitfall.
The idea of franchising is that the franchisee is an independent business owner that can gain the accrued experience from the franchisor in return for paying some form of remuneration, typically an initial franchisee fee and ongoing royalties. The franchisee has more independence than a company-owned manager and is incentivized by receiving most of the profits. The franchisor can expand the company while minimizing risks.
Franchisors can also decide their franchisees’ location and place them accordingly so motivated franchisees can succeed, whereas company managers might lack the dedication required.
Multiple factors come into play regarding franchising: will the company only franchise? Will there be a combination of company-owned stores and franchises? Will the company own the majority of stores? Will franchising only occur in the United States, or is the plan to go international as well?
Then, franchise attorneys can help with practical issues, such as drafting franchise agreements, franchise disclosure documents, lease agreements, and writing operational manuals.
All of these different questions should be carefully analyzed before making a decision. To assist in that process, contact franchise attorney Mario L. Herman.