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What does it mean to franchise a business?

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Quick Answer

A franchise is a business model wherein a company licenses its goods and trademarks to a business owner in exchange for an agreed-upon fee. This model is typically adopted by large companies in order to quickly increase market share without taking on the associated risks of opening new locations.

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Full Answer

The franchise model is common in the fast food industry. While the parent company controls the brand and creates new products, franchisees buy the supplies necessary to produce those items locally. For instance, a McDonalds franchisee gains access to the brand and trademarks of the parent corporation, as well as the raw materials to make all the foods a McDonalds branch sells. In return, the owner pays a recurring fee to the corporation as part of their business agreement, and keeps the remaining profits.

Franchisees may have some control over the products they're able to offer, but in some cases the corporate headquarters dictates specifically what can and cannot be sold. This is why the phrase "participation may vary" sometimes appears in national advertising campaigns. In this case, individual franchisees may be able to opt out of particular product lines if they feel the item is not right for their market.

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