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Ask the Experts: What is franchising?

Finance concept: sign Franchising on Building backgroundBy Martin Greenspon

Q: I’ve heard the word ‘franchise’ used in reference to a lot of things. In the simplest terms, what exactly is franchising?

Martin says:
Strictly speaking, franchising is a method of doing business by which you, as a franchisee, are granted the right to offer, sell and distribute goods and/or services under a marketing plan or system prescribed by a franchisor. To that end, the franchisor permits you to use its trademark and name for a set period of time (typically, anywhere from 10 to 20 years).

A sound franchisor offers a proven and tested product and/or service, a refined operating system, training, advertising resources and, most importantly, knowledge and experience, with access to proven methods that are easy to replicate. However, as a franchisee, you still exercise a certain amount of independence over your franchise.

Q: How popular is franchising in Canada? Is it growing or declining?

Martin says:
Franchising as a means of business expansion has virtually exploded in Canada in the past several years. It represents the most successful area of business growth in the country, with an estimated 1,000 companies now operating in Canada, with more than 76,000 outlets employing more than 1.5 million people. Franchises also produce more than $100 billion in sales, which accounts for roughly 45 per cent of total national retail sales.

The list of products and services offered by franchises has also expanded exponentially. Today, consumers turn to franchised companies for everything from car rentals, hair cuts and cleaning services to meals, weight loss and pet supplies. In recent years, food service has represented the biggest growth area in franchising; however, several areas (e.g. mobile communications, senior-care services, etc.) are also poised for significant growth.

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