1 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Chapter 5: Franchising and Other Alternatives

2 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Learning Objectives To know why franchising has become an extremely popular way of going into business To understand the many significant advantages, to an entrepreneur, being a part of a franchise chain offers To know legal protection from being rushed into a premature decision by the franchisor the law provides to anyone interested in buying a franchise To be aware that despite government regulations, many individuals are cheated by unscrupulous sellers of franchises and business opportunities To understand what the failure rate of franchises really is, and what it means

3 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Franchising A legal arrangement by which one company allows its products, services, or business format to be used by others for a fee

4 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Franchisee A company or individual who pays for the legal right to use the product, service, or format of another

5 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Franchisor A company that grants to another company or individual the legal right to use its product, service, or format

6 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Product Franchising Dealers are given the right to distribute goods for a manufacturer Dealer (franchisee) pays a fee for the right to sell the goods of the franchisor

7 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Manufacturing Franchising Common in the soft drink industry Franchisor gives dealer (bottler) the right to produce and distribute the product in a particular area

8 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Business-Format Franchising Franchisor offers wide range of services to the franchisee Marketing Training Site selection Advertising Accounts for 75% of all franchised outlets in the United States

9 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Influence on U.S. Economy Franchising accounts for Over $1 trillion in sales annually Fourty percent of all retail sales Eight million jobs

10 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Advantages for the Franchisee Start-up assistance Basis for judging prospect of success Instant recognition Advertising scope and sophistication Operational improvements

11 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Disadvantages for the Franchisee Restrictions Cost Terminations Unrealistic expectations

12 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Evaluating the Franchise Option Should you be a franchisee? Research the industry Research the franchisor

13 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Franchising and the Law The Uniform Franchise Offering Circular Document required of franchisors by federal law Provides information on 23 topics about the franchise Often called a “disclosure document” Must be given to franchisee at least 10 days before a contract is signed

14 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Other Entrepreneurial Options Business opportunity Sale of a product or service that the seller promises the buyer will provide a profit on the buyer’s original investment Often buyer and seller of the opportunity do not see each other after the sale Buyer does not pay fees after the sale Buyer has fewer restrictions than a franchisee

15 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Other Entrepreneurial Options Manufacturers Representatives A firm or individual who represents a manufacturer or supplier in dealings with customers Often compensated on commission-only basis

16 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ Franchises and the Business Plan Includes History and financial statements of franchisor Why you chose this franchise over others Any research you have completed (i.e., talking to other franchisees, competing franchises, etc.)