Bus Expansion Seminar Outline

THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 [email protected] www.kosnar.com

FRANCHISING AND ALTERNATIVE

BUSINESS EXPANSION TECHNIQUES

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SEMINAR

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SEMINAR OUTLINE

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BUSINESS EXPANSION TECHNIQUES

SEMINAR OUTLINE

SECTION PAGE

1. OBJECTIVE OF THE PROGRAM 1

2. ALTERNATIVE TECHNIQUES OF EXPANSION 3

3. THE FRANCHISE VEHICLE 5

4. FRANCHISING IN THE ECONOMY 7

5. CAN YOUR BUSINESS BE FRANCHISED? 8

6. WHY FRANCHISE YOUR BUSINESS? 9

7. THE BENEFITS OF BEING A FRANCHISEE 10

8. THE FRANCHISE AGREEMENT 11

9. FRANCHISE REGISTRATION AND DISCLOSURE LAWS 17

10. FRANCHISE SALES PROGRAM 19

11. FINANCING REQUIREMENTS 20

12. SPECIAL CONCERNS 21

13. WHAT THE FRANCHISE DEVELOPMENT PROGRAM SHOULD INCLUDE 22

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1 OBJECTIVE OF PROGRAM

A. Planning and Establishing Goals for Your Company's Expansion ProgramI. Assess Feasibility of Product or Service That is the Subject of Expansion

Program

II. Evaluate and Determine Which Expansion Vehicle is Best

III. What Should the Expansion Program Include?

B. Evaluate Your Company's Operational, Financial and Human Resource CapabilitiesI. Prepare a Complete Set of Financial Projections

a. Source and Use of Funds Analysis for Franchisor and Franchisee

b. Pro-forma income Statement for Franchisor and Franchisee

c. Personnel Schedule Indicating Positions, Salaries, Timing

d. Territory or Area Allotment

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II. Organization Charta. General Manager

b. Sales Manager

c. Training Director

d. Accountant

e. Secretary

III. Position Descriptions

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2. ALTERNATIVE TECHNIQUES OF EXPANSION

A. Continue Current Program

B. Expand Through Vertically Integrated, Company-owned Units

C. Partnership or Joint Venture

D. Limited Partnership

E. Distributorship or Dealership

F. Trademark License

G. Management Incentive/Equity Participation

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Expansion Techniques Chart

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EXPANSION TECHNIQUES

Company -Owned

Partnership or Joint Venture

Limited Partnership

Distributorship

Trademark License

Management Incentive

Franchise

Legend:Excellent 3Good 2Fair 1Poor 0

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3. THE FRANCHISE VEHICLE

A. Definition:

B. Elements of a FranchiseI. Use of Name, Trademark or logo

II. Use of a Marketing Plan, System or Procedure on Which the Franchisee Relies and Submits to Control

III. Payment of Fee

C. Types of FranchisesI. Trade Name and Product

II. Business Format

III. Affiliate

D. Various Franchise StructuresI. Individual

II. Territorial or Areaa. Two-Tier

b. Three-Tier

E. Possible Sources of Revenue and How to DetermineI. Franchise Fee

II. Royalty

III. Profit on Sale of Product

IV. Rental or Lease Fees

V. Advertising Fee

VI. Equity Appreciation

VII. Unusual Profit Potential

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FRANCHISE STRUCTURE CHARTS

INDIVIDUA

LFRANCHIS

E

AREADEVELOPMENT

FRANCHISE

MASTERFRANCHISE

SUBFRANCHISE

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4. FRANCHISING IN THE ECONOMY

A. Retail Sales

B. Other Sales

C. Business Format Franchises

D. Product and Trade Name Franchises

E. Is There Room For More Franchises?

F. What Are The Future Prospects For Franchising?

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5. CAN YOUR BUSINESS BE FRANCHISED

A. Risk Rating

B. Competition Rating

C. Industry, Service or Profession Rating

D. Company Longevity Rating

E. Company Growth Rating

F. Desirability Rating

G. Business Organization

H. Business Adaptable on a Nationwide Basis

I. Business Has Public Acceptance

J. Product or Service Differentiation

K. Can Others Learn Business

L. Financial Controls and Records

M. Credit Rating

N. Public Attention

0. Price of Opportunity

P. Integrity and History

Q. Monitor From Headquarters

R. Review by Independent Professional

S. Feasibility Study Should be Performed if in Doubt

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6. WHY FRANCHISE YOUR BUSINESS?

A. Expansion Can Be Accomplished With Less Capital

B. Eliminates Manager Recruitment Problem and Day-to-Day Direct Management Responsibility

C. Income is Based on Franchisee's Gross Sales, Not Net, and is Easier to Monitor

D. Growth Can Usually Be Accomplished Faster

E. Group Purchasing Power Can Result in Savings

F More Funds are Available for National, Regional arid Local Advertising

G. More Funds are Available for Research and Development

H. Cash Flow From Franchise Fees and Royalties Can Be Utilized to Develop Company-Owned Units in the Future

I. Market Penetration is Faster and Greater

J. Creates Excitement Among Present Employees

K. Generates Better Product and Service Loyalty and Control

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7. THE BENEFITS OF BEING A FRANCHISEE

A. "Own Your Own Business" Syndrome/The Great American Dream

B. In Most Cases No Previous Experience Is Necessary

C. Existing Complete System; Everything Established, Business Concept, Name, Patents, Formulas, Design, etc.

D. Proven Proto-type

E Identity

F. Lower Risk

G. Standard Products and Systems

H. Bookkeeping and Accounting Systems

I. Group Buying Power

J Initial Training Program

K. Ongoing Training, Supervision and Consulting

L. Local, Regional and National Advertising Programs

M. Ongoing Research; New Products, Ideas, etc.

N. Financing or Assistance in Obtaining Financing

0. Location and Site Selection

P. Use of Operations Manuel

Q. Marketing and Sales Techniques

R. Planning and Forecasting

S. Inventory Control Systems

T. Computer Systems

U. Begin Business With Less Capital

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V. Equity Appreciation

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8. THE FRANCHISE AGREEMENT

A The Reasons a Franchise Agreement is NeededI. The F.T.C. Rule 436 Requiring Full Disclosure Makes it Necessary to Have a

Written Agreement.

II. All the Parties Have an Understanding of the Basics on Which They Will Operate.

III. Equitable Relationship

IV. Insures Uniformity

V. Establishes Standards of Performance

VI. Protects All the Parties

VII. Provides For Remedies in the Event of Default

B. Who Should Draft the Franchise AgreementI. The Franchisor

II. Duplicate Another Company's Agreement

III. Attorney

IV. Consultant/Attorney

C. Content of Franchise AgreementI. Appointment and Franchise Fee

II. Territory/Locationa. Right to Approve Sites

b. Right to Prime Lease

c. Tie Lease to Franchise Agreement

d. Plans and Specifications

e. Equipment Must Conform to Specifications

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III. Proprietary Marksa. Use of Name

b. Contest Name

c. Notification to Franchisor of Other's Use of Named. Conformance to Operating I-11anual

e. Use Products, Systems, Supplies, as Specified

f. Sign Requirements

IV. Training and Assistancea. Must Complete Training

b. Start-up Assistance

c. Continuing Advisory Service

d. Promotional Materials and Bulletins, Marketing Developments, Products and Techniques

V. Advertisinga. Approval of All Advertising Copy, Materials, Packaging, Promotional

Materials

b. Establishment of National Advertising Fund

c. Local Advertising

d. Co-op Advertising

VI. Operating Manuala. Must Adhere

b. Confidential

c. Property of Franchisor

d. Adopt Revisions

VII. Maintenance and Repairs

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a. Maintain Interior and Exterior

b. Create Fund for Refurbishing

VIII. Accounting and Recordsa. Must Keep Complete Records as Prescribed

b. Provide for Reports

c. Allow for Inspection of Recordsd. Provide for Audited Statements

e. Weekly Reports and Payments of Royalty

IX. Standards of Qualitya. Establish Need for Uniformity

b. Provide for Purchases Which Conform to Specifications

X. Modification of Systema. Establish Right of Franchisor to Modify

b. Prohibit Franchisee from Unauthorized Modification

XI. Continuing Services and Royalty Feea. Establish Royalty

1. Determine Program Necessary to Provide Ongoing Support and Consulting Service

2. Project Total Direct and Indirect Costs of Providing Continuing Services

3. Establish Percentage of Royalty and Continuing Service Fee to Provide for Costs and Reasonable Return for Use of Franchisor’s Name, Concept and System

XII. Insurancea. Protection for Franchisee and Franchisor

b. Establish Amounts of Protection Necessary1. Worker’s Compensation

2. General Liability -- Product --Bodily Injury

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3. Property Damage

4. Malpractice

5. Errors and Omissions

XIII. Terma. Determine Term

1. Renewal and Termination Provisions Must Comply with New Laws

2. Coordinate with Lease

3. Long Terma. Insures Royalty Longer to Franchisor

b. More Security for Franchisee

4. Short Terma. Adjust Royalty Upward if Desired

b. Eliminate Undesirable Franchisees

c. Allows for Earlier Execution of New Terms and Conditions

XIV. Restrictive Covenantsa. Establish Restrictions of Franchisee's Ability to Compete, Divert Business,

Hire Away Employees, Divulge Secrets -- Subject to State and Antitrust Laws'

XV. Termination and Defaultsa. Bankruptcy

b. Notice to Cure -- Varies from State to State

c. Failure to Pay Royalties or Fees

d. Failure to Submit Reports or Financial Data

e. Vacation or Abandonment of Premises

f. Failure to Comply with Franchise Agreement

g. Loss of License

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XVI. Rights and Duties of Parties Upon Expiration or Terminationa. Franchisee Must Pal All Sums Owing

b. Franchisee Must ' Cease Using Name

c. Franchisor's Right to Purchase Physical Assets

XVII. Commencement and Hours of Operationa. Specify When Agreement Commences

b. Determine Hours and Days of Operation Short of Agency Relationship

XVIII. Transferability of Interesta. Provide Conditions Under Which Franchisee Can Sell

1. Transfer Fee

2. Rights of Approval

3. Payments of Fees and Sums Owed

4. Not Unreasonably Withheld

5. Require Training of New Franchisee

XIX. Death of Franchiseea. Survivors Can Apply to Continue

b. Survivors Can Sell

c. Franchisor Can Buy Assets and Real Estate

c. Provide Formula for Buy-Out

XX. Right of First Refusala. Franchisee Must Notify Franchisor of Bona Fide Offer

b. Franchisor Can Buy at Same Price as Buyer.

XXI. Operation In Event of Disability or Deatha. Franchisor's Right to Operate

b. Save Harmless

XXII. Taxes Permits

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a. Require Payment of Taxes, Assessments, Liens, Equipment and Previous Accounts

b. Require Compliance with all Federal, State and Local Laws

c. Require Obtaining of All Permits, Certificates and Licenses Necessary

XXIII. Independent Contractora. Not Agent, Partner, Employee of Franchisor

b. Can't Incur Liability to Franchise

c. Franchisee Bears Cost of Defense of Claims

b. Receipt of Payments Not Waiver

XXIV. Non-Waivera. Non-enforcement by Franchisor is Not a Waiver

b. Receipt of Payments not Waiver

XXV. Noticea. Manner of Notice

b. Date of Notice

XXVI. Liability for Breacha. Payment of Costs, Attorneys' Fees by Party in Default

XXVII. Entire Agreementa. Overrides Any Previous Agreements

b. Provides for Amendments, Charges or Variance Only if in Writing

XXVIII.Severabilitya. Each Section of Agreement is Severable

c. Franchisor Can Terminate Agreement if Parts Found Illegal Affect Basic Consideration of Agreement

XXIX. Applicable Lawa. Specifies Which States' Laws Apply

XXX. Arbitration (Where Applicable)

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a. Provides for Selection of Arbiters b. b. Binding Arbitration

XXXI. Franchisee Acknowledges Receipt of FTC or UFOC Documents

XXXII. Franchiseea. Define Term "Franchisee" to Include Successors

XXXIII. Caveata. Disclaimer as to Claims Made b. Franchisee Assumes Risks c. Success

of Business Cannot be Guaranteed d. Success of Business Also Depends on Franchisee's Ability

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9. FRANCHISE REGISTRATION AND DISCLOSURE LAWS

A. Definition and Purpose -- Protect Franchisee and Franchisor

B. States in Which Registration is Required:

CaliforniaHawaiiIllinoisIndianaMarylandMichiganMinnesotaNew YorkNorth DakotaRhode IslandSouth DakotaVirginiaWashingtonWisconsin

C. Certain States Have Franchise Investment Laws

D. Federal Trade Commission Rule 436

E. Business Opportunity Laws

F. Penalties

G. Uniform Franchise Offering Circular

I. The Franchisor and Predecessors

II. Identity and Business Experience of Persons Affiliated with the Franchisor and Franchise Brokers

III. Litigation

IV. Bankruptcy

V. Franchisee's Initial Franchise Fee or Other Initial Payment

VI. Other Fees

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VII. Franchisee's Initial Investment

VIII. Obligations of Franchisee to Purchase or Lease from Designated Sources

IX. Obligations of Franchisee to Purchase or Lease in Accordance with Specifications

X. Financing Arrangements

XI. Obligations of the Franchisor; other Supervision, Assistance or Services

XII. Exclusive Area or Territory

XIII. Trademarks, Service Marks, Trade Names, Logotypes and Commercial Symbols

XIV. Patents and Copyrights

XV. Obligation of the Franchisee to Participate in the Actual Operation of the Franchise Business

XV1. Restrictions on Goods and Services Offered by Franchisee

XVII. Renewal, Termination, Repurchase, Modification and Assignment of the Franchise Agreement and Related Information

XVIII. Arrangements With Public Figures

XIX. Actual, Average, Projected or Forecasted Franchisee Sales, Profits or Earnings

XX. Information Regarding Franchises of the Franchisor

XXI. Financial Statements

XXII. Contracts

Acknowledgement of Receipt by Prospective Franchisee

Exhibits:

I. Actual, Average, Projected or Forecasted Franchisee Sales, Profits or EarningsII. Financial Statements for Fiscal Year 2006III. Financial Statements for Fiscal Year 2007IV. Financial Statements for Fiscal Year 2008V. Franchise Agreement

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VI. Equipment LeaseVII. Lease for PremisesVIII. Loan Agreement

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10 FRANCHISE SALES PROGRAMA, Determine Buyer Profile

I. Entrepreneur as a Franchisee

II. Manager-Type

III. Sales-Type

IV. Technological or Professional Background

V. Financial Requirements

B. Determine Where Your Buyers Are Located

C. Develop Best Plan to Reach Them

D. Set Sales Goals and Prepare

E. How Many Can You Really Handle?

I. How Many Prospects Can You Follow-Up

II. Site Selection Assistance

III. Initial Training

IV. Start-Up Assistance

V. In-Field Support

F. Franchise Opportunity Brochure and Other Recruitment Materials

G. Advertising and Public Relations Programs

I. Establish Budget for Advertising and Public Relations

II. Determine Best Medium

a. Newspapers

b. Other Publications - Special Magazine, Trade Journals etc.

c. Business Opportunity Shows

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d. Trade Shows

H. Follow Up….I. Complete Prospect Form

II. Send Literature

III. Salesperson Contacts Prospect

IV. Qualify Prospect ... Background, Experience, Interest, Available Cash

V. Answer Questions

VI. Ask Prospect to Complete Confidential Application

VII. Negative Selling Technique

VIII. Schedule Personal Interview/Visit

IX. Provide Offering Circular (Disclosure)

X. Close

I. In-House Franchise Sales OrganizationI. Control and Direction

II. CostsIII. Integrate into Total OperationIV. Other FunctionsV. Future Corporate Potential

J. Outside Franchise Sales OrganizationI. Possibly More Experienced Than In-House

II. Cost Less Initially

11. FINANCING REQUIREMENTS

A. Which Party Needs FinancingI. Franchisor

II. Franchisee

III. Customer of Franchisee

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B. Capital Requirements of the Franchisor Occur in the Following Order:

I. Research and Development Stage

II. Prototype Development

III. Franchise Development Program

IV. Initial Recruitment and Selling Period

C. TypesI. Business Loan

II. Venture Capital

III. Receivables Financing

IV. Equipment Financing -- Add-On

V. SBA

VI. SBIC

VII. Public Stock Issuance

VIII. Private Placement

12. SPECIAL CONCERNS

A. Antitrust

B. New Laws

C. UFOC Interpretation and Applicability in Various States

D. Use of Pro Forma Statements and Projections on Earnings, Sales or Profits

E. Class Action Suits

13. WHAT FRANCHISE DEVELOPMENT PROGRAM SHOULD INCLUDEA. Conduct Research

B. Prepare Client Analysis Report

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C. Prepare Definitive Time/Task Schedule

D. Review Prototype Unit

E. Systems, Forms and Controls

F. Operations Manual

G. Initial Training Program

H. Support Program

I. Determine Franchise Fees, Royalties, Advertising Fees and Other Revenue Sources

J. Franchise Agreement

K. Franchise Brochure

L. Disclosure Statement (UFOC or FTC)

M. Franchise Registration

N. Franchise Sales Program

0. Continuing Professional Assistance

THIS PUBLICATION HAS BEEN BROUGHT TO YOU BY:

CARL J. KOSNARTHE KOSNAR GROUP2306 WALES DRIVECARDIFF BY THE SEA, CA 92007PHONE: (760) 632-8402FAX: (760) [email protected] www.kosnar.com

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