Student: Binh Minh Tran

Lecturer: Dr. Harald Merlz

Subject: Entrepreneurial Skills

FRANCHISING
 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

CONTENTS

1. What is Franchising ?
2. General Business Road Map
3. Framework for quick analysis
4. Conclusion

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 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

1.1 WHAT IS FRANCHISING?

Franchising is a method of business

Supports

Brand name
• Want to expend
their business • Want to be
• With minimal FDD /
Franchiso business owner
capital Franchise Franchisee
r • Have no novel
• Without hiring Agreemen
business idea
more labor t

Initial Fee

Royalty

Franchise is the license or agreement between Franchisor & Franchisee

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 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

1.2 TYPES OF FRANCHISES

PRODUCT DISTRIBUTION FRANCHISE

• Franchisor not provide franchisee with an entire system

for running their business

BUSINESS FORMAT FRANCHISE

• Franchisor provide franchisee with complete method to

conduct the business itself

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 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

1.3 TYPES OF FRANCHISE ARRANGEMENTS

Franchisee Single Unit Franchise

Franchisee
Franchiso Area Development Franchise
Franchisee
r
Franchisee

Franchisee

Franchisee Master Franchise

Franchisee

Franchisee

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 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

1.4 ADVANTAGE & DISADVANTAGE

Advantage Disadvant
s ages
●
Enjoy already widespread brand- ●
Smaller profit margins
name recognition ●
Lack of independence and
●
Proven methods and products freedom
●
Reduced risk of failure
●
Initial support
●
A franchisor’s problem may
●
On-going training & support become your problem
●
Regional & national advertising ●
Duration of franchise
●
Association with other franchisee agreement is usually limited

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 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

2. GENERAL BUSINESS ROAD MAP

• Advantage/disadvantage
BEING ENTREPRENEUR • Probability of the Entrepreneurial Success

• Advantage/ disadvantage of different options

BEING FRANCHISEE • Requisite traits to be franchisee

INVESTIGATE SELECTED • Is there a market ?

OPTION • Start-up cost & profit potential

SELECTING CORRECT
• Evaluate the franchisor strength
FRANCHISE • Create Criteria for selection

DETAIL BUSINESS PLAN

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 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

3. FRAMEWORK FOR A QUICK ANALYSIS

Market Competitor
Economics
Research analysis

Risk analysis Decision:

Your ability Go/No Go

Franchisor Experience Brand Name Training & Support

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 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

SELECTING CORRECT FRANCHISE

 Otherwise it will be a costly decision

 Evaluate the strength of the franchisor

 Methods:

• Invest Franchisor history

• Obtain professional advice: attorney/accountant specialist in
franchise
• Asking franchisee: existing and terminated/cancelled
• Asking franchisor
• Study Franchise Agreement carefully
 Criteria:

• Costs
• Brand name: CREDIBLE, UNIQUE, DOMINATE THE MARKET
• Franchisor’s experience
• Training & Support
• Expansion Plans
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 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

MARKET RESEARCH

 Successful franchisee conduct their own market research

• How many potential customers?
• Is the demand year-long or seasonal?
• Will the demand grow or consolidate?

 Ask for franchisor’s market research

• What type of market research did the franchisor conduct?
• What was the result?
• Was there any market research on the territory to ensure that it can support a
franchise

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 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

COMPETITORS ANALYSIS

 How many existing franchisee and company-owned outlets in your area?

 Is the company-owned outlet compete with franchisee?

 How many other companies sell the same or similar products or services?

 Are these competing well established, with wide name recognition in your are?
Do they offer the same goods and services at the same or lower price?

 Is there a well-defined protected territory in the Franchise Agreement

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 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

ECONOMICS
 Costs
• Initial Franchise Cost & other initial expenses
• Royalty & Advertising fees
• On going cost

 Whether the business allow enough profit after deducting a royalty (4% to 8%
of gross sales) to earn adequate RoI.

 The royalty is calculated based on turnover even if the business is profitable or

not.

 Even if the franchisor fails to provide support services, royalties still must be
paid for the duration of the franchise agreement.

 According to the iFranchise Group , RoI should be at lease 15% - 20%, by the
second or third year of operation
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 Binh Minh Tran - Entrepreneurial Skills 12/08/2021

CONCLUSION

 Franchising may help emerging business owners live their dreams

 However , entrepreneurial skills from franchisors will not automatically

translate into franchise success.

 Being a franchisee you still need certain entrepreneurial skills

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