franchise or license what to choose
Franchise Or License: What to Choose?
Often novice entrepreneurs find it difficult to decide whether to go for a franchise or license. This Buzzle article plans to explore the debate between the two options with the help of a few common parameters.
FRANCHISE | LICENSE |
Regulated by | |
It is regulated by Securities law. | It is ruled by Contract law. |
Mutual Competition | |
An exclusive area is allotted to the franchisee, discouraging direct competition between two parties. | Licenses can be given to two parties in the same geographic area, which leads to competition. |
Usage | |
Franchiser will dictate how he wants the franchisee to implement the intellectual property. | After getting the license, the licensee can use the intellectual property in any way he deems appropriate. |
Registration | |
Registration is mandatory. | Registration is not required. |
Control | |
Franchisers exercise control over every aspect of business including price setting, branding, marketing, advertising, etc. | Once the agreement is signed, the licensor will not bother to interfere with the licensee's business. |
Business Relationship | |
The relationship lasts longer and remains stronger than a licensee and licensor's agreement. | The two parties enter into a business relationship for a comparatively shorter duration. |
Support | |
The franchiser actively supports the franchisee by providing training, location hunting, operational know-how, etc. | No support is given by the licensor after the agreement has been signed. |
Business Independence | |
A franchiser cannot manage the business independently without the franchiser. | The licensee gets to steer the business and take business decisions on his own. |
Legal Setup | |
It takes a long time (anywhere between 6 months to a year) to complete the legal formalities because of the clauses involved. | Agreement drafting and signing does not take much time, and your business can kick-start in a matter of few weeks. |
Standardization | |
It follows strict internal and external standardization throughout all the franchises. | There is no standardization, and two licensees can operate the business in any way they like. |
Investment Cost | |
The investment cost and franchising fees can be extremely expensive. | Upfront investment is relatively cheaper to set up the business. |
Ongoing Fee | |
The amount of ongoing fee owed to the franchiser is on the higher side. | The ongoing fee is on the lower side. |
Examples | |
McDonald's, KFC, Dunkin' Donuts | Microsoft Office |
Uniformity | |
A franchise has uniformity in communication, branding, décor, etc. | There may be no uniformity as separate businesses may get the license. |
Regulations and Restrictions | |
As the state and federal authorities and SEC regulate it rigorously, you have to comply with the filings, disclosures, and offerings from time to time. | You are not obliged to undertake such filings or disclosures in this case. |
Brand Image and Reputation | |
As everything is standardized and uniform, brand image and reputation of the parent company may not get affected. | Brand image and reputation of the parent company may get affected due to mixed messaging and disparity. |
Compliance | |
It needs to comply with the Franchise law. | It is governed by Contract law. |
Logo and Trademark | |
Franchisee has a right to the logo and trademark of the franchiser. | A licensee does not hold the rights to the logo and trademark of the license issuing company. |
Duration | |
It is a long-term partnership, which ends when the franchiser or the franchisee wants to end the agreement. | The contract is for a limited duration and is subject to renewal from time to time. |
Tried and Tested | |
You will implement a workable tried and tested model, and this will work in your favor. | You cannot use anything except the attribute for which you own the license, and you will have to experiment in your business. |