Some businesses can drastically increase their revenue by changing their business model to offer franchising. If a business has a successful business model and a good brand, other businesses may see good value in paying for the rights to adopt that business model and brand as their own. The franchisor can continue to stay in the same line of business while charging others for the chance to use its own intellectual property. Not only does this provide for multiple other sources of revenue, but also allows the brand to grow in fame and value much quicker than it would without franchising.
Franchising is regulated both by federal and state government agencies. Therefore, a great deal of formalities must be observed and complied with in order to implement such a business model. Many disclosures must be made to the potential franchisee. Failure to observe these regulations can lead to very serious monetary penalties and business problems in the future.
Sometimes, parties enter into a business relationship without even being aware that their relationship is actually a franchise, subject to all the relevant regulations – the “accidental franchise.” This can make the accidental-franchisor the target of the government investigation.
When the required amount of care and diligence is shown, franchising may be an excellent way to increase the revenue and value of a business.