One of the fastest ways to establish a business is to purchase a franchise. Historically, the concept of a franchised business became popular in the 1960s and has continued to increase in economic importance. Franchising involves drafting a contract between a manufacturer (franchiser) and a dealer (franchisee), which stipulates how the manufacturer’s or supplier’s products or services will be sold. The dealer (franchisee) agrees to sell the product or service of the manufacturer (franchiser) in return for royalties.

The franchising agreement can be beneficial to both the franchisee and the franchiser. The benefits of the franchisee are as follows:

• Recognition – the franchise name gives the franchisee instant recognition with the public.
• Standardized appearance of the franchise – customers know that the quality and consistency of the goods or services does not change from one outlet to another.
• Management assistance – the franchisee can obtain advice on how to run franchise effectively.
• Economies of scale in buying – the head office of the franchise buys (manufactures) goods (services) in large volumes and resells to the franchisee at low prices.
• Promotional assistance – the head office provides the franchisee with prepared advertising and other promotional materials.

The franchisee is not the only party who gains in franchising. The following benefits are available to the franchisor:

• Recognition - the franchisor is able to expand its area of operation by signing agreements with dealers in widely dispersed places.
• Promotion savings – as various franchisees can decide on local advertising efforts, the franchiser saves money on promotional coverage.
• Franchisee payments – franchisees pay the franchisor for the right to operate their franchises.
• Attention to detail – since franchisees own their franchises, they are motivated to do a good job and to sell the franchisor’s product or service aggressively and efficiently.

Franchising, however, has its shortcomings. Not all franchises are as successful as McDonald’s. Many entrepreneurs are uninterested in becoming franchisees because their business behaviours will be too closely regulated and monitored by the franchisor.

Starting a franchise of your own from start-up loans is alright if they were borrowed as personal loans and not something mis-informing like car loans. This is almost a fraudulent activity.