ABA Family Legal Guide

Forming and Operating a Small Business

Franchising and Buying a Business

Buying a Franchise

How does a franchise work?

A franchise is a way of doing business. The franchisor, be it McDonald's, the Ford Motor Company, or Motel 6, grants you, the franchisee, the rights to sell the company's products or services. No matter what you're selling, though, the franchisor will license you to use its established trademark or trade name or both.

Why are big companies eager to let little old you have a slice of the pie? From their standpoint, the logic behind franchising is simple: It costs them lots less money to distribute goods and services by using franchises than by operating company-owned units. And they get extra money from licensing trademarks and trade names and from other services they provide to franchise holders.

What do you get? You always get the goodwill of the franchisor's trademarks and trade name, and you usually get expert guidance in such matters as site selection, training of employees, bookkeeping, and other managerial services. This help is particularly valuable to businesspeople with little or no prior experience.