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Franchising vs. Licensing: What’s the Difference?

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Franchises and licenses are both business agreements in which certain brand aspects are shared in exchange for a fee. However, a franchising agreement pertains to a business’s entire brand and operations, while a licensing agreement only applies to registered trademarks. Franchises typically work best for service-based businesses, while licenses are more conducive to product-based businesses. A licensee has more control over how they run their business compared to a franchisee, whose business will be dictated by the franchise owner (franchisor). However, a franchisee will also receive significant guidance and training from the franchisor.

If you’re considering expanding your business, you may be exploring how to franchise your business. In your research you may have also come across licensing and be wondering what the difference is between the two and which will best serve your expansion goals.

While franchising and licensing have some similarities, they are two very different agreements that mean different things for both you and your brand. In this franchising vs. licensing comparison, we’ll explain the differences between the two, as well as the pros and cons of each. Let’s get started.

What is franchising?

A franchise is a business agreement between a franchisor and a franchisee. The franchisor is the owner of a business. The franchisor sells the rights to their brand—including products and services, intellectual property, and more—to a franchisee who will open up a separate branch under that brand’s name, which is essentially a duplicate of the original business.

As part of the franchise agreement, the franchisee will pay fees to the franchisor to open a franchise, use their brand, and for advice and business support. The franchisor loans their brand for a fee and provides training, as well as expertise, to the franchisee.

Franchising is a deeper, more complicated business relationship and agreement than licensing. A franchisor retains control over how their brand is used and how each franchise under their name is operated. There is a lot of interdependence between the franchisee and franchisor in a franchise relationship.

Franchising examples

One of the most famous examples of a franchise is McDonald’s. From a modest start, the McDonald’s franchise now has more than 36,000 restaurants around the world.

Other famous franchise businesses include:

  • Burger King

  • Marriott International

  • Baskin-Robbins

  • Ace Hardware Corporation

  • The UPS Store

Many chain restaurants and other well-known businesses operate as franchises. The key with franchises is that no matter which one you visit, it will always look and feel the same, offer the same products and services, and more.

What is licensing?

Licensing, on the other hand, is a limited, legal business relationship where a specific party is granted rights to use certain registered trademarks of a brand. The business relationship is between the licensor (the one who owns the trademarks) and licensee (the one who is granted rights to use them).

To use the registered trademarks of another brand, the licensee pays the licensor an agreed-upon royalty fee.

Licensing examples

Two of the most famous brands that operate licensing agreements are Disney and Calvin Klein.

Calvin Klein works with a number of manufacturers under licensing agreements. This means that the Calvin Klein company has licensed, or loaned, its brand and trademarks to certain manufacturers who then use the brand to sell their products. Calvin Klein products such as underwear, perfume, and jeans are all produced and branded under licensing agreements.

Using a recognizable brand name like Calvin Klein under a licensing agreement can help a lesser-known brand get their well-made product to the market and trusted by consumers faster than they would if they had to build their own brand from scratch.

Another example of a brand that uses licensing agreements is Disney. When you purchase items emblazoned with Disney characters, it’s most likely that the product wasn’t actually manufactured by Disney. More often, Disney signs licensing agreements with certain producers to use their characters and images, which is why you find Disney characters on everything from soap to sleeping bags to T-shirts and clothing.

In general, licensing agreements are most often used by brands that are highly recognizable and marketable. For a licensing agreement to be beneficial to both parties, the business branding must already be successful and known by a large portion of buyers.

How franchising vs. licensing differ

If you’re looking into franchise vs. license agreements, it’s probably because you’re looking into either building your business into a franchise business or loaning your brand to another company for use. Knowing the differences between these two business agreements is key before jumping into a legally binding agreement.

While some business owners may look at licensing as an easier alternative to franchising, this would be misguided. These two types of agreements are legally very different and are appropriate in different scenarios. Businesses that would make for good franchises would not necessarily make for good licensing agreements, and vice versa. Let’s take a closer look at how licensing and franchising differ.

1. Limitations

One of the major differences when it comes to franchising vs. licensing is the limitation placed on licensing agreements. A license is much more limited than a franchise.

A license agreement allows for the use of registered trademarks, nothing more. Franchise agreements, on the other hand, allow for the use of trademarks, additional intellectual property, products, services, operating manual, and much more.

2. Control

Another difference between franchising vs. licensing is the amount of control that can be exerted by the seller over the buyer.

In a franchise agreement, the franchisor can lay out specific guidelines for how the franchisee markets the business, uses brand trademarks, where the business is located, and how the business is operated. In other words, the franchisor can exert a significant amount of control over the franchisee’s business and how it operates—because it is essentially an extension of their own business.

In comparison, a licensor has very little control over the business of a licensee. The licensor can make stipulations in how protected marks are used by the licensee, but they can’t control any other aspects of the licensee’s business.

3. Type of business

The type of business that grants a franchise is generally different than a business that operates with a license.

Most often, businesses that grant or purchase licenses deal with products. Licenses are great for adding a well-known brand or image to a product, such as clothing or other consumer goods.

On the other hand, franchises are generally service-based businesses. Most businesses that form a franchise operation are chain restaurants, hotels, cleaning services, auto repair shops, software repair companies, etc.

4. Legal regulations

In general, a franchise agreement is a much more stringent and complicated agreement. There are many moving parts within a franchise agreement, where a licensing agreement is a simple loan of certain protected marks or images.

In both instances, general contract law is followed for both licenses and franchises. In addition, there are specific federal regulations for franchises at the federal level and some additional requirements set down by certain states.

When starting a franchise, there are a lot more legal hurdles and regulatory requirements that must be followed than with a license agreement.

Pros and cons of franchising vs. licensing

Understanding the differences between franchises and licenses is only the first step in figuring out which is the right business model for you. It’s also beneficial to understand the benefits and drawbacks of both licenses and franchises.

Franchising pros

One of the pros of becoming a franchisee is all the benefits of being a self-employed business owner without the risks of starting a new business. Franchises come with the bonus that they’re already a proven business model with a pre-established customer base. Purchasing a franchise is often much less risky than starting a business from scratch, and while there can be significant fees involved, they may amount to a smaller investment than if you were to build your own company from scratch.

Franchising also has the benefit of a shared relationship. The franchisor gets to scale their business rapidly while minimizing some of the work, which is instead done by franchisees. Additionally, the franchisee works with the franchisor to manage the business and learn business skills that they may not know already.

In comparison to licensing, one of the big pros of franchising is the depth of the relationship between franchisee and franchisor. The franchise agreement may be complicated, but it also provides a wide-range of opportunities.

Franchising cons

One of the drawbacks for a franchisee is the loss of control. While it’s your business, most of the major business decisions will be made, or at least must be approved by, the franchisor. While this support can be beneficial while learning the ropes of the business, it can also feel like being micromanaged to experienced business owners. However, this control is a pro for the franchisor, as they can still dictate how their brand is used.

In comparison to a license, a franchise will seem much more expensive and complicated. Initial franchise fees can cost between $10,000 and $50,000—then there are the ongoing fees to keep in mind. This might seem exorbitant, but it’s important to remember that you’re getting access to an entire business. In comparison, a licensing agreement only gives you access to use specific trademarks in certain ways. So, a license will be cheaper and less complicated, but it also gives you access to a lot less.

Because of this cost discrepancy, business owners will sometimes opt for licensing agreements instead of franchising agreements; however, as we mentioned, these are not interchangeable and often do not work for the same types of businesses. Not to mention, you’re also putting yourself at legal risk by forming a licensing agreement for business operations that actually fall under the franchising category. If initial fees are prohibiting you from starting a franchise, you may want to check out these low-cost franchise options, or you can also seek out franchise financing to help you fund these expenses.

Licensing pros

One of the pros for licensing is the freedom for the licensee. In general, a license agreement happens between two established businesses. The licensee is purchasing the right to use protected marks that are already recognizable and appreciated by a built-in fan base. This makes licensing a secure investment and a great way to boost your business.

In comparison to franchises, another positive aspect of a license is the simplicity of the agreement. Because the license agreement covers the use of only one (or a few) protected marks, the agreement will be fairly simple and straightforward.

Licensing cons

The major con of licensing over franchising is the limitations. A license only gives access to use certain protected marks, nothing more. While this makes the agreement limited, that might be all your business needs. It’s also important when entering a licensing agreement to ensure you’ve taken these steps to protect your intellectual property.

Another con of licenses is that many people don’t understand their true purpose. There’s a lot of confusion over when to create a licensing agreement and when the licensing agreement is broaching the legal boundary of a franchise. Be sure to check with a knowledgeable lawyer before signing either a licensing or franchising agreement.

Is franchising or licensing right for your business?

When deciding what’s right for your business and evaluating franchising vs. licensing, you have to consider the needs and goals of your business.

If you’ll be the franchisor or licensor, it’s important to consider whether your brand is strong enough, widely recognized, and turning significant profits to the extent that it would do well either as multiple branches or emblazoned on products other than the ones you currently sell. If this is true and you run a service-based company, then franchising may be the right move. If it’s true and your company is product-based, licensing may be best. Either way, you’ll want to consult a trademark lawyer to protect your brand property, and then a business attorney to discuss the specifics of expanding your brand.

From the perspective of the franchisee or licensee, you need to think about where your business is within it’s journey. If you have a successful product-based business and are ready to grow, a license agreement with a recognizable brand could be an easy way to spur some quick growth. If you’re looking to start a business but prefer the lower level of risk an established brand offers, and are also looking for a hands-on mentor to guide you, a franchise is your best bet.

The final word

At first glance, licensing may seem like an abridged version of franchising—granting rights to only trademarks, instead of an entire business’s operations—however, the two are very separate agreements that should be used under different circumstances and for different types of businesses.

Both franchising and licensing are legitimate ways to grow your business, but you will first need to weigh several factors, take a look at where you are in your business journey, and decide what your goals are before deciding if franchising or licensing is the right choice for you.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

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Everything You Need for Starting a Pressure Washing Business

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If you have an entrepreneurial spirit and feel ready to go into business yourself, the pressure washing business could be the best option for you.

Starting a power washing business doesn’t require lengthy learning and the startup costs are relatively low. Since the demand for such services is always high, this business can provide a solid flow of income if mastered and managed properly.

Like any other business, a successful power washing business requires proper preparation and planning and this article offers a step-by-step guide for embarking on such an entrepreneurial journey.

Research the Market

Doing some in-depth research about the pressure washing market, what customers you want to target, and how many similar businesses are already operating in your area is essential. Even though this business is expected to register decent growth in the coming years, you should still dig a little deeper to see if there’s more work than the existing pressure washers can take on.

You can choose to focus on residential accounts or take on commercial clients. If you feel that you can manage more work, explore opportunities for pressure washing in surrounding neighborhoods and towns.

Proper research and identifying what opportunities exist is a crucial step in establishing a flourishing pressure washing business.

Get Your License

The moment you decide that this type of business is a golden opportunity, you need to check the local requirements for doing business as a pressure washer.

Depending on the state you live in, you may or may not need a business license. However, you should apply and obtain one before getting started as it will cover you legally. Make sure to check with your local authorities on what the rules and regulations are to stay on the right side of the law. 

This is also a major plus when attracting potential customers as they’ll feel more comfortable and it will help establish trust in your business. It may also help in meeting the requirements of other parties, such as vendors, who might want to see your license before deciding to do business.

Get Insurance

Even though it sounds easy to start a pressure washing business, make sure that you develop the proper skills on how to pressure wash without destroying the surrounding area, damaging your client’s siding, and causing an injury to yourself or somebody else.  

However, accidents happen, so in order to protect your new business from claims of negligence, injuries, accidents, financial risks, and legal fees, you should purchase insurance coverage. Nowadays, insurance companies can provide you with a quote for pressure washing insurance online, so you don’t have to waste time standing in lines.

Not only is pressure washing insurance a safety net for your business, but new potential clients will also take this as a positive sign that you’re a professional who takes their job seriously and ensures customer satisfaction.  

Choose Equipment

Depending on your service offering and scope, the type of equipment you’ll need might vary. If you only intend on working for residential clients, then you’ll be good to go with a pressure washer with a force of up to around 4,000 PSI, but for commercial work, you’ll need stronger equipment that offers more functionalities. Since this business is physically demanding, choose equipment that is fast but safe and helps you get certain jobs done efficiently.

Practicing also plays a big role as you don’t want to accidentally damage someone’s landscape while power washing their siding. Regardless of how technologically advanced your equipment is, not knowing how to efficiently handle it can get you bad reviews and cause unwanted accidents and lawsuits.

Before making any big investments, rent a pressure washer and practice on your friends’ patios, or driveways as this will give you the best hands-on experience.

Price Your Services

Once you’re done with all the administrative work, decide on your pressure washing service prices. Since you’re a new business owner, you should start with lower prices while trying to attract new clients.

Test what hourly rate gets you most jobs and try to slowly but surely bump the price up every year as your expertise gets better.

It might feel overwhelming at the beginning but focus on mastering few services first and settle on a rate that works for you. As you improve your skills and your business grows, you can adjust your prices accordingly.

Final Thoughts

Market research, obtaining the right pressure washing insurance, choosing the right equipment, and pricing your services, are all important aspects on the road to becoming a successful business owner.

We’re sure that you’ll be glad to have considered all the above-mentioned steps once your pressure washing business is set up and running.

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A Basic Guide to Starting a Home-Based Business

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Starting a business in 2021 is much easier than it was twenty years ago. With advanced technology and digital marketing, anyone can step into the role of an entrepreneur. In some cases, all you need is an idea and a computer.

Becoming a business owner is a path to financial security. Even if you don’t give up your day job, starting a home-based business can lead to financial freedom down the road. 

Are you wondering how to start a business? Keep reading for an essential guide to getting started.

Choosing a Home-based Business

Choosing a business that’s right for you is vital to your success. You want something you’ll stick to for the long run. The best home-based businesses are those you can operate from the comfort of your home. 

Start looking at things you are good at and research to learn if there is a market for what you want to offer. For example, if you have certification in accounting, you can start a business performing accounting services for other small businesses.

Creating a Business Plan

Like any business, it’s essential to create a business plan. This document outlines what your business offers, competitor analysis, marketing strategy, and financial goals.   

The business plan is a great way to measure success and to remain focused on reaching your goals. If you’re starting a business and require financial backing, you’ll need a business plan to show lenders. 

You can maximize solar savings by creating a green business.

Incorporate Your Business

A home-based business is no different from starting any other business model. You want to incorporate your business to add a layer of protection. It’s also valuable for opening a business bank account. 

Separating your business from your personal assets is essential in growing a business. It will help you build business credit. Plus, if you are ever sued, you don’t want someone going after your personal property. 

Get an ECommerce Website

Once the paperwork is done and your finances are in order, it’s time to get your business website up and running. Most businesses can benefit from an eCommerce website. These websites help grow efficient businesses that do not require a physical location or multiple employees.

With an eCommerce website, you can sell products, take deposits on bookings, and so much more. 

Marketing 

A powerful marketing strategy is essential to a home-based business. Determine which social media platforms have the greatest reach for getting noticed by your target audience. 

Use your website’s blog options and photo storage as a launching pad for the information you’ll share on online platforms. 

Don’t be afraid to try different marketing trends, including digital ads.

It’s Time to Invest in a Business

A home-based business is an excellent investment. Once your business is up and running and turning a profit, consider a second start-up. The potential is limitless.

If you need more great tips and information on business start-up trends, we have you covered. Continue to browse our site and check back often for new content.

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How To Set Up a Successful Electronic Business

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Consumers can purchase a range of mechanical items and parts from an electronics company, such as cell phones, televisions, computers, peripherals, and components. If you aim to create this type of business, you should arm yourself with knowledge so you don’t end up like huge electronic retailers that collapse. Read on!

1.Examine Other Electronic  Businesses

Examine and comprehend the business models of existing electronics businesses before starting your own. This comprises the typical markup on commodities, overall consumer satisfaction strategies, and managing supplier relationships. You’ll need this information to determine competitive store policies and prices. Compare and contrast the success of successful electronics stores with those that have closed or failed.

2.Research Your Interest Area of Establishment

If you’re just starting, you’ll focus on the local industry first. It’s also possible that you won’t be the first to play the electronic game. You may be competing with a lot of other small businesses in addition to big stores.

Make sure you do your homework before deciding where you want to locate your business and whether it is a good idea to do so. If your neighbourhood is densely packed with stores, consider looking on the opposite side of town or imagining how you may stand out. People may be hesitant to go through your doors if you come in and offer nothing more than another store.

3.Obtain The Necessary Permits

Check with your state and city to determine if there are any additional criteria for opening your store. If you repair computers, you may be required to pass a state-licensed test to ensure that you are aware and capable of providing proper care.

You’ll also need to check into various business licenses and other forms of documents to ensure that you’re following all of the rules.

4.Have a Competitive Business Plan

Due to the competitive nature of the electronics retail industry and the high risk of failure, you must develop a comprehensive business strategy that focuses on your competitive advantages. Use the information you acquired from your initial case study in the market and business profiles, as well as any personal experience you have with electronics, to show why your electronics company would thrive. 

If you’ve managed an electronics store, for example, you’ll be familiar with the inner workings of this type of retail operation and may have an advantage over other new stores.

In your plan, you need to include the brands you’ll be selling. You need to ensure that they are of both quality and outstanding market performance. For instance, working with certified wholesalers of closures and boxes, guarantee you offer the consumers new brands that are outstanding.

Also, don’t forget to include other regular but essential products such as lights and screens. This is because it is always good to offer a pool of varied products to your customers.

5.Choose a Brand For Yourself

idea

Your company’s brand is both what it stands for and how it is regarded by the broader public. Your company will stand out from the neighbourhood competition if it has a strong brand.

So, while naming your firm, don’t go with a generic name like most electrical stores these days. Try to come up with a distinctive name because the right name is really important. You can begin by considering the business’s nature. In your absence, your chosen name will operate as an extension of your brand, representing you. Part of your brand representation in what you sell. You can add some wire connectors. They are always widely in demand by everyone.

We recommend checking to see if the business name you want is available as a web domain and securing it as soon as possible so that no one else does.

6.Get Startup Funds

banknotes

For starters, you’ll need thousands of dollars to launch an electronic business in the first few months, with a large portion of that money going for rent. A significant portion of the funds will be spent on getting certain in-demand electrical goods as well as marketing your new business.

Personal cash, such as savings, loans from financial institutions, and borrowing from friends and family who are interested in assisting you in starting your business are all options for raising capital for your business.

7.Promote Your Store

Starting a business takes time and effort, as well as determination and vision. If you’ve already decided to work in this field, you should first check into legal and technical issues. After you’ve successfully achieved the first two responsibilities, you should build your brand and sell it. 

You must stay up with the most recent advances and maintain high standards at all times. It isn’t enough to have good items. To expand and develop revenue, it must be adequately publicized. The advertising team must be ready to provide you with a marketing strategy that will interest the audience.

As a result, the two key techniques of attracting new clients are word of mouth and local advertising. Many electronic stores promote in local media and provide first-time customers discounts and advertising billboards. Keep in mind that customer retention is crucial. Take extra precautions with the newcomer. 

They are your billboards. They are ecstatic and will brag about your store for hours. Be friendly to everyone that walks into the store. It’s more difficult to keep customers than it is to get them.

The Bottom Line

Starting and maintaining a business to its success is not an easy task. You need to be dedicated to the course and understand that however hard things get, you need to surpass them. Electronic stores are quite demanding, but a nice business to invest in altogether. Best of luck!

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