You might consider buying a business franchise or taking on a licensing agreement. In either case, you’d be adopting the products, technology, or methods of another business. So what’s the difference?
How Does Licensing Differ From a Franchise?
In the franchise vs. license debate, the main difference is in the area of control. As an entrepreneur, you can attempt to get a franchise agreement or a license agreement with another company … and end up with two very different contracts.
If you agree to a franchise agreement, you’ll adopt the name, the branding, the culture, and the methods of conducting business established by the franchisor. You’ll have your own company and be your own boss, but that company might be virtually indistinguishable from that of the franchisor and its dozens, hundreds, or even thousands of other franchisees.
Consider Wendy’s, Holiday Inn, or Minute Maid as examples.
If, instead, you undertake a license agreement with another company or individual, you will be given permission to use the trademark in selling a specific product, technology, intellectual property, or other asset. The licensor will have no control over — or even interest in — how you run your company or what other products or services you bring to market.
Your franchisor, on the other hand, will expect you to run your company like the other franchises in the organization. That’s the main advantage of owning a franchise: partaking in an already recognizable and accepted brand and appearance.
In addition to using the same name and branding, and exclusively selling the products or services owned and offered by the franchisor, you might even have to use the same employee uniforms, operate during agreed-upon hours, and contribute to shared marketing campaigns.
In other words, as a franchisee, you’ll own your own company, but it will be in the “footprint” of the established brand. In the case of a licensing agreement, the licensor only cares about how you treat the product, technology, or other asset it sold to you — not how you run your company overall.
Licensing and Franchising Advantages and Drawbacks
Both methods of operating your business can be beneficial. Franchise agreements tie you to a company in how you manage your business, but this will be an advantage if the franchising organization is successful and has a brand that’s recognized and readily accepted.
In franchising, you are always in charge. You own the company. But you have the recognized name and brand, the training and ongoing support, and the built-in audience of a company that might have been in successful operation for years or decades. The franchisor has a history of doing business profitably and can show you how to do the same.
If, however, your goals and ambitions are to start an entirely original business from the ground up, you might not want to buy a franchise. You might not want the level of control and the expectation of shared business methods. You might not want to visibly resemble countless other franchise companies.
In that situation, you might instead consider a license agreement to gain access to trademarks that you think might advance your own business goals. Just keep in mind that your company won’t have the brand recognition and support it might gain from being part of a successful franchise operation.
Licensing vs. Franchising Contract Considerations
The franchise agreement, also known as your Franchise Disclosure Document (FDD), will spell out all considerations for becoming a franchisee of the enterprise. That will include all costs of being a franchisee, as well as the expectations and ways of doing business that you must adopt.
After you’ve reviewed your FDD, you’ll sign a franchise agreement if you wish to proceed with buying a franchise. Your relationship with the franchisor is governed by both federal and state franchising laws.
License agreements, on the other hand, come under the control of general contract law.
The advantage here goes to the company that buys a franchise, in that you’ll have a greater level of legal support.
Success Tips for Licensing and Franchising
You can succeed through both business models. In both cases, sign nothing before contracts are reviewed by your lawyer, accountant, or other business advisors. And don’t even go that far before you have a thorough understanding of contract terms and conditions.
In the case of a licensing agreement, make sure you have an audience lined up for the product or technology. You should know about all competitors and the obstacles you might encounter during the sales process.
Since a franchise agreement is more all-encompassing than a licensing deal, you must be even better prepared before the contract signing. You are starting an entire company and brand, not just licensing and selling a product. Make sure it’s the kind of company you want to operate and have long-term involvement with.
After all, your new business will be a big part of your life. So be assured that it’s the sort of operation you’ll be proud to own and grow.
Now Consider a Freeway Insurance Franchise Agreement as Your Route to Business Success
Hundreds of Freeway Insurance franchisees have found business success and personal satisfaction in being a part of our organization.
You’ll inherit our strong reputation as one of the nation’s largest and most respected personal lines insurance companies. You’ll have our built-in base of customers who know and respect our operation and have done business with us in the past.
Our independent insurance agents also have access to a full inventory of insurance products from major national carriers, an added incentive for your policyholders.
Another advantage is the modest start-up costs associated with buying a Freeway Insurance franchise. You can initially operate your business from your home, with little more capital costs than business cards, a website, a phone, and a computer.
But first, we’ll show you how to build a dynamic insurance agency, even if you’re a first-time business owner. You’ll be your own boss but have all the benefits of top-tier training and ongoing support as needed. We’ll even help you obtain the certifications needed to become a licensed insurance agent in your state.
Let us answer all your essential questions regarding franchise investment success.
Call your Freeway Insurance franchise representative at (877) 822-3024.
