Buying a Franchise

Licensing vs. Franchising

licensingAt America’s Best Franchises, we feature a variety of franchise opportunities, from the largest and most established to the hottest new franchises.

There are also a number of listings for licensing agreements that are different from traditional franchises. iDeal Furniture is one business we feature on our website that isn’t exactly a franchise. iDeal refers to their licensors as a “network” rather than as franchisees, but there are many similarities between licensors and franchisees. What exactly is the difference between an iDeal Furniture broker and a franchisee in another furniture niche business?

Furniture brokers with iDeal Furniture aren’t faced with the same types of stringent rules that franchisees in a conventional franchised furniture system might be bound by, and they don’t pay the same types of fees that franchisees might. Brokers sign on as dealers with an exclusive territory, just as a franchisee does, and they gain access to a national brand and buying power. Instead of paying for access to the brand as franchisees, iDeal Furniture brokers have a partnership in profits with iDeal Furniture through wholesale contracts. The licensor is basically buying furniture from iDeal and selling it to the customer.

However, the relationship between iDeal and the licensor is not that of a vendor and a retailer, either. iDeal offers a proven business model, marketing materials, training, and support — going far beyond what a typical supplier provides a retailer. The licensor can use the name and logo of iDeal and benefit from their national name brand recognition, where a retailer can’t operate under the name of a supplier.

When it comes to actually running the business, iDeal Furniture brokers aren’t required to have retail locations or to abide by certain business management techniques. Franchises vary greatly in their requirements for franchisees, but they may require franchisees to use certain practices, software, suppliers, or marketing materials.

Franchising typically comes with lots of guidance from the franchisor through training and ongoing support. There’s usually a business operating system, perhaps with proprietary software and required suppliers, and this can reduce the risk of opening your own business. There’s almost always someone to turn to if you run into trouble or have questions that you can’t answer in a franchising system. The support you gain from other franchisees is also often invaluable to running a successful business. In most licensing situations, you lose that benefit you’d otherwise get from franchising in exchange for greater freedom to run your business as you choose.

However, franchises and licensing arrangements can vary widely. Some franchisors provide lots of support and have a lot of control over franchisees, while others are more liberal or less supportive. The same can be true of licensing arrangements.

Franchise contracts are governed by securities law, because the franchisor maintains enough control over how the business is run that they can influence the franchisee’s chances of success — though of course the franchisee has primary control over that. Licensure is governed by contract law, and can be as simple as the license a company might have to use Microsoft Office on their computers.

For some people, a licensing arrangement is a good compromise between a franchise business and a from-scratch start-up. For many, the company is the major factor in the decision, and those who want to work with the company will accept either franchise or licensing. Either way, it makes sense to know which system you’re working under.

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