Franchising

What is a franchise?
License to use an established brand
Use is very restrictive many rules to be

followed. Provide a proven successful business format Entrepreneurship for people that are not particularly entrepreneurial.

Advantages of Franchising
Buying a name/reputation Established markets Technical/management assistance Standardized procedures Quality standards Selection of location Facility design Quicker cash flow

Disadvantages of franchising
Loss of independence High initial fees High royalties and advertising allowances Contractual restrictions Inapplicable advertising Termination clauses Not receiving promised help Unsuitable products Lack of competitive advantage

The Franchisees Perspective Things to Look For

Proven operating location Credible top management Skilled field support staff A trade identity A proprietary operations manual Effective training programs Disclosure and offering documents Plans for advertising, marketing, PR and promotion A communications system Sufficient capital
1999 by Prentice Hall 1-15

Franchising Agreements
Issue
Franchise fee Royalties

Questions to Resolve
Amount? One time? Per unit? Amount? Percentage of net or gross? Sliding scale?

Quality control Quality specs? Monitoring practices? Rewards? Sanctions?

Advertising
Offerings Equipment Location Operations Reporting Disputes Termination

Fee? Local budget? National? Intensity? Messages?

Product line? Product mix? Requirements? Alternatives? Required? Additional? Financing? Site selection requirements? Franchisor aid? Financing? Signs? Hours? Maintenance? Dcor? Personnel policies? Types? Frequency? Auditing? Sanctions? Resolution methods? Equity of resolution process? Timing? Causes? Sanctions? Recourse?

1999 by Prentice Hall

1-16

Franchisee Guidelines
Perform a self-evaluation Investigate the franchisor Study the industry and competition Study the Uniform Franchise Offering Circular Investigate the franchisors disclosure Know your legal rights and retain counsel

1999 by Prentice Hall

1-17

The Franchisors Perspective Advantages

Faster growth
Lower capital requirements Motivation franchisors are owners of the

franchise Control of locations Revenue stream franchise fees/royalties

The Franchisors Perspective Disadvantages

Reduced control
Profit sharing Greater commitment to operating support Problem franchisees???