Franchising – A marketing system revolving around a two-party agreement, whereby the franchisee...
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Franchising – A marketing system revolving around a two-party agreement, whereby the franchisee conducts business according to the terms specified by the
Franchising A marketing system revolving around a two-party
agreement, whereby the franchisee conducts business according to
the terms specified by the franchisor Franchisee An entrepreneur
whose power is limited by a contractual agreement with a franchisor
Franchisor The party in the franchise contract that specifies the
methods to be followed and the terms to be met by the other
party
Slide 2
Franchising Arrangements THREE KINDS OF FRANCHISES Trade Name
Franchise Grants the right to use a widely recognized name within a
particular territory True Value Hardware, Associated Grocers Inc
(AGI), Century 21 Product Distribution Franchise (Dealership)
Allows you to sell a specific, brand-name product in a specified
territory Snap-On Tools, Toyota Business Format Franchise Provides
an entire business plan, marketing, and operating system Guidance
from the franchisor is ongoing; supervision & monitoring are
continuous Subway, McDonalds * * * * * * * * * Single Franchise
Owner Owns the franchise rights to operate in just one business
location or territory Multiple-Unit Owner/Master Franchisee Has the
right to open several franchised outlets in a given area or
territory Piggyback Franchise A retail franchise operation within
the physical facilities of a host store a Subway inside
WalMart
Slide 3
The Pros and Cons of Franchising Advantages Probability of
success Proven line of business Pre-qualification of franchisee
Overall lower failure rates Training Franchisor-provided Financial
assistance Loans & loan guarantees Operating benefits Location
feasibility study Marketing assistance Quick start-up time
Limitations Franchise costs Initial franchise fee Investment costs
Royalty payments Advertising costs Restrictions on business
operations Products sold Hours of operation Restrictions on
expansion/growth Franchisor only source of supplies Loss of
independence Lack of franchisor support Termination/renewal
clauses
Slide 4
Franchisor Controls on Franchisees Restricted sales territory
Requires site approval and imposes requirements on the outlets
appearance Restricts the goods/ services that can be sold Requires
specific operating hours Controls advertising
Slide 5
An Attractive Franchise Opportunity Includes: - 1 Registered
trademarks Successful prototype stores with a track record of
profitability and a positive reputation A business that can be
systematized so that it can be easily replicated. A product or
service that can be successful in many different geographic
regions.
Slide 6
An Attractive Franchise Opportunity Includes: - 2 An operations
manual that specifies all the functions of the business and their
associated policies A training and support system Site selection
criteria and architectural standards A detailed prospectus that
spells out the franchisees rights, responsibilities, and risks. The
Federal Trade Commission requires disclosure...Uniform Franchise
Offering Circular [UFOC]
Slide 7
ASK QUESTIONS Before Buying a Franchise
Slide 8
Questions to Ask Before Buying a Franchise Does the franchisor
have an excellent reputation in the industry? Is the franchisor in
partnership or any other legal relationship with another
franchisor? If so, how will the franchisee be protected should that
relationship fail? Is the franchisee required to do anything that
appears questionable from a legal or ethical perspective? Under
what circumstances can the franchisee or franchisor terminate the
franchise agreement and what are the consequences to either party?
Will the franchisor grant an exclusive territory? Is that area
subject to reduction or modification? If so, under what
conditions?
Slide 9
Questions to Ask Before Buying a Franchise - 3 What is the
track record of the franchise? Has the franchisor conducted an
in-depth investigation of the franchisee to assure that he or she
has the necessary skills and financial requirements to operate the
business successfully? How much capital will be required to start
and operate the business to a positive cash flow? Does the initial
fee include an opening inventory of products and supplies? What do
royalties pay for and how are they calculated?
Slide 10
Where to Find out about Franchises www.franchise1.com
www.franchising.com www.en.wikipedia.org/wiki/franchising
www.entrepreneur.com/franchiseopportunitie s/index.html
www.entrepreneur.com/franchiseopportunitie s/index.html
www.franchiseinfosite.com Getty Images
Slide 11
Buying an Existing Business? Reduction of Uncertainties
Acquisition of Ongoing Operations and Relationships A Quick Start A
Bargain Price
Slide 12
Good Reasons to Purchase an Existing Business It is less risky
than starting from scratch, because facilities, employees, and
customers are likely to be in place. To acquire a business with
ongoing operations and established relationships with loyal
customers and reliable suppliers The business has established trade
credit, which is crucial because relationships with suppliers and
others take a long time to develop. It is an easier route to owning
a business if the entrepreneur has limited business experience,
especially if the owner stays on for a time to help with the
transition. To begin a business more quickly than starting from
scratch To obtain an established business at a price below what a
new business or franchise would cost
Slide 13
Pros and Cons of Buying an Existing Business Pros Higher chance
of success Less planning Existing customers/ suppliers Necessary
equipment Bargain price Experienced employees Existing business
records Cons Existing problems Poor quality of current employees
Poor business image Modernization required Purchase price based on
inaccurate data Poor business location
Slide 14
Where to Find Business Opportunities Attorneys Accountants
Bankers The Wall Street Journal Liquidation auctions Business
brokers The internet
Slide 15
What to Look For in a Business A business that had a broad
scope that would insulate it from market downturns. A business with
existing customers and vendors A low-tech business but with high
growth A market that was not so large so as to encourage major
players but not so small that the company couldnt grow. Available
float from suppliers; in other words, leeway in having to pay
vendors. Manageable seasonality Cost cutting potential
Slide 16
Do Your RESEARCH! Develop a set of criteria for judging the
business based on the entrepreneurs needs and goals. Understand the
industry and the market niche in which the business will operate
Examine the records of the business Getty Images
Slide 17
More Ways to RESEARCH! Talk to employees, suppliers, and
customers Examine equipment and facilities to make certain they are
current and in good working order Examine all contracts Verify the
value of the business based on industry statistics and perhaps the
advice of a professional business appraiser. Getty Images