Franchising. What is a franchise?  License to use an established brand  Use is very restrictive – many rules to be followed.  Provide a proven successful.

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Presentation transcript:

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 Franchisee’s Perspective Things to Look For z Proven operating location z Credible top management z Skilled field support staff z A trade identity z A proprietary operations manual z Effective training programs z Disclosure and offering documents z Plans for advertising, marketing, PR and promotion z A communications system z Sufficient capital

Franchising Agreements 1-16 IssueQuestions to Resolve Franchise feeAmount? One time? Per unit? RoyaltiesAmount? Percentage of net or gross? Sliding scale? Quality controlQuality specs? Monitoring practices? Rewards? Sanctions? AdvertisingFee? Local budget? National? Intensity? Messages? OfferingsProduct line? Product mix? Requirements? Alternatives? EquipmentRequired? Additional? Financing? LocationSite selection requirements? Franchisor aid? Financing? OperationsSigns? Hours? Maintenance? Décor? Personnel policies? ReportingTypes? Frequency? Auditing? Sanctions? DisputesResolution methods? Equity of resolution process? TerminationTiming? Causes? Sanctions? Recourse?

Franchisee Guidelines © 1999 by Prentice Hall1-17 z Perform a self-evaluation z Investigate the franchisor z Study the industry and competition z Study the Uniform Franchise Offering Circular z Investigate the franchisor’s disclosure z Know your legal rights and retain counsel

The Franchisor’s Perspective Advantages  Faster growth  Lower capital requirements  Motivation – franchisors are owners of the franchise  Control of locations  Revenue stream – franchise fees/royalties

The Franchisor’s Perspective Disadvantages  Reduced control  Profit sharing  Greater commitment to operating support  Problem franchisees???