Franchising might be right for your business, but it is not your only option. Many business owners choose to implement a licensing agreement arrangement to expand their business. What is the difference and how do you know if franchising vs. licensing is right for you?
Sometimes licensing and franchising are used interchangeably, which can make things confusing if you are trying to decide which arrangement is right for your business. They do describe a similar relationship, but there are important differences in who is controlling what.
It might help to think of it this way: a licensing agreement is a part of the overall franchise agreement. Licensing might be a portion of the agreement that gives franchisees the legal right to use names and trademarks, or it could describe the entire arrangement. Licensing, without franchising, might be used in a case where someone is distributing technology. For instance, a software or hardware program would be sold through a licensed distributor or retailer.
On the other hand, franchising is a more complete arrangement. Franchisees have a right to use the name, brand, and business system of a franchise. A franchise model requires the implementation of a Uniform Franchise Disclosure Document that identifies the details of the roles of both the franchisee and the franchisor.
In franchising, the franchisor retains the right to control the overall operations and quality of service delivered by the franchisees. Franchising also has the oversight of the Federal Trade Commission, in addition to state and local laws regarding franchising. When you opt to franchise, your franchisees are held to higher standards and you have more control over what they can and cannot do, especially when it comes to quality standards.