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Startup Saturday: Franchising 101

[ 0 ] Jul. 27, 2013 | SBO Editor

His resume is impressive.  While he is remembered as one of the founding fathers of the United States, an inventor, a diplomat, a scientist and author, one of the nation’s earliest entrepreneurs has recently been discovered to have also created a business arrangement that could earn him yet another title in the history books.

For centuries, Americans have honored Benjamin Franklin as a major figure in American history, but evidence also points to Franklin as the first to franchise a business concept—printing.

For years, there has been much debate about the origin of franchising.  But according to documents unearthed by franchise consultant and author Michael H. Seid, Franklin, in 1733, drew up a six-year contract that allowed South Carolina printer Thomas Whitmarsh to operate under terms much like those enjoyed by franchisees today.

As stated in the agreement, Franklin was to pay one-third of the costs in return for one-third of Whitmarsh’s profits.  From that point onward stemmed multiple partnerships throughout the colonies.  Other evidence reveals that one of his earliest franchisees became the first female publisher in the colonies.

The income from his growing franchise network, Seid said, helped sustain Franklin while he lived in Paris negotiating France’s entry into the Revolutionary War as an American ally.

How did the language in the contractual agreement, which authorized Whitmarsh to run another printing business, resemble that of the franchise disclosure documents of today? The similarities are notable.

The document, while long, dense and legalistic, contains statements that outline Franklin’s responsibilities to his franchisee, such as providing paper, ink, balls, tympans, wool, oil, rent for the print shop, repairs and other things integral to the process.  As the franchisee, Whitmarsh’s obligations to franchisor Franklin included abstaining from any other form of business and refraining from using any other printing materials not approved.  The document was sealed by both parties and had witnesses to confirm its legitimacy.

Unlike more than 250 years ago when Franklin picked his first franchisee, the process today is much more complex.  The resources available to help prospective owner-operators learn about this business model are plenty and the education, training and legal assistance available to franchisors is substantial.

On the Web at www.franchise.org, the International Franchise Association’s content-rich site enables tomorrow’s franchise owners to transform their lifelong passions and strengths into realities in the form of the franchised-small business of their desires.

IFA, which represents more than 10,000 franchisees and 1,200 franchise companies, has developed a toolkit of resources at www.franchise.org, including information from a variety of publications, educational seminars and trade shows designed to help equip those new to franchising with the information they need to make the dream of franchising a reality.

IFA also offers a free online course, “Franchising Basics,” and promotes the Federal Trade Commission’s “Consumer Guide to Buying a Franchise,” a brochure that helps franchisee candidates learn more about the industry and better determine if franchising is the right match for their entrepreneurial interests.  A variety of educational seminars planned during the next few months enlist the help of franchise experts to shed light on topics pertinent to prospective investors, such as understanding the components of companies’ franchise disclosure documents.

Franchising is big and growing bigger daily.  An IFA Educational Foundation study shows that there are more than 760,000 franchised businesses in the United States.  If it weren’t for the nation’s founding fathers making independence possible and Ben Franklin launching a business model that made financial independence possible for franchised-business owners, the U.S. economy would be without the more than $1.53 trillion franchises generate.  More than 18 million Americans would not have jobs and America would be a different country.

The International Franchise Association announced in the fall of 2007 that its “VetFran” program, created to aid former military personnel in the transition to civilian life, has enabled 1,000 veterans to become franchise small-business owners and has 200 more sales pending, according to the association’s latest quarterly survey of participating companies.

IFA, founded nearly 50 years ago to represent the franchising industry, re-established the program after Sept. 11, 2001 to help honorably-discharged veterans acquire franchised small businesses.  In that quest, more than 260 franchise systems that are members of the association currently offer financial incentives, or discounts, to lower the up-front costs of purchasing a franchised establishment.

Formally known as the Veterans Transition Franchise Initiative, VetFran is supported by the U.S. Department of Veterans Affairs via an official Memorandum of Understanding, but receives no government funding.  VA has also honored IFA with its “Support Sector Champion” Award.
“As we pause on November 11 to honor America’s veterans, we also bear in mind the sacrifices that our military men and women continue to make around the world,” IFA Pres. Matthew Shay said.  “The franchising industry not only recognizes the challenges faced by veterans, but demonstrates its commitment to making their return to civilian life more meaningful by providing a path to the dream of small-business ownership.”

“I would like to congratulate the participating franchises, the veteran-business owners and all of those who helped the Veterans Transition Franchise Initiative reach this historic milestone,” said Scott Denniston, director of the VA’s Center for Veterans Enterprise. “This achievement solidifies what we have known for years–veterans make great business owners. We know that, and obviously the 264 participating franchises understand the value a veteran-business owner brings to their brand.”

Franchises operate in more than 80 business categories ranging from accounting and tax services to senior care.  Research by PricewaterhouseCoopers for the IFA Educational Foundation in 2004 determined that nearly 800,000 franchise establishments generate $1.53 trillion in economic impact or 10 percent of the U.S. private-sector economy and provide employment for more than 18 million Americans.

Originally the vision of Don Dwyer Sr., the late founder of The Dwyer Group of residential and light-commercial service businesses, the program is a voluntary effort by members of IFA which today represents nearly 1,300 franchise companies, 10,000 franchisees and more than 500 firms that provide goods and services to the industry.

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Category: Features