chapter Buying a Franchise 14 Or Franchising Your Business Small Business: An Entrepreneur's Plan Buying a Franchise Or Franchising Your Business chapter 14 Prepared by Ron Knowles Algonquin College & Jennifer Rouse Barbeau Canadore College Copyright © 2011 Nelson Education Ltd.

chapter Chapter Overview 14 Chapter 14 will: Small Business: An Entrepreneur's Plan Chapter Overview Chapter 14 will: Introduce you to the world of franchising. Help you decide if buying a franchise or becoming a franchisor is right for you. chapter 14 Copyright © 2011 Nelson Education Ltd.

Learning Opportunities Small Business: An Entrepreneur's Plan Learning Opportunities Appreciate the vast world of franchising. Understand the key franchising terms and conditions in an agreement. Understand the relationship between franchisor and franchisee. Learn the benefits and liabilities of owning and operating a franchise. Learn how to become a master franchisee. Learn the process involved in purchasing a franchise. Understand what it takes to become a franchisor. Decide whether buying a franchise is the right step for you. chapter 14 Copyright © 2011 Nelson Education Ltd.

What is a Franchise? A franchise is: A franchisor is: A franchisee is: Small Business: An Entrepreneur's Plan What is a Franchise? A franchise is: A special kind of partnership in which one company (the franchisor) grants the right to sell its products or services to another company or individual (the franchisee). A franchisor is: A firm that sells the rights to do business under its name and continues to control the business. A franchisee is: The individual operator who is licensed to operate under the franchisor’s rules and directives. Copyright © 2011 Nelson Education Ltd.

The Franchising Industry Small Business: An Entrepreneur's Plan The Franchising Industry Franchised businesses account for 40% of all retail sales. 78,000 franchises across Canada Canadian Franchise Association membership grows 10% yr Franchising directly employs 1,000,000 people Every year, thousands of Canadians are improving their lives by becoming franchisees Franchising accounts for $90 billion/yr in nation sales & 10% of Canada’s Gross Domestic Product (GDP) Franchising accounts for 1 out of 5 consumer dollars spent in Canada on goods & services Copyright © 2011 Nelson Education Ltd.

Franchise Systems A business format franchise is: Small Business: An Entrepreneur's Plan Franchise Systems A business format franchise is: A type of franchise in which the product, method of distribution, sales and management procedures are highly controlled. Example: 1-800-GOT JUNK? A type of franchise in which the franchisee buys the right to distribute a franchisor’s product or service. Example: Home Hardware or PropertyGuys.com Copyright © 2011 Nelson Education Ltd.

Franchise Networks Direct franchising is: Master franchising is: Small Business: An Entrepreneur's Plan Franchise Networks Direct franchising is: A business arrangement in which a franchisee deals directly with the franchisor. Example: Anna Babin dealt directly with PropertyGuys.com. Master franchising is: A business arrangement or network in which a franchisor sells the rights of an area or territory to a franchisee who is normally required to sell (or establish) and service a specified number of franchises in a specified time period within its area. Example: Don Swanston and Matt Eldridge purchased 18 franchise units in British Columbia’s Greater Vancouver Area. Copyright © 2011 Nelson Education Ltd.

What the Customer Receives Small Business: An Entrepreneur's Plan What the Customer Receives Key reasons for buying a franchise: Customer satisfaction & brand loyalty A consistent standard of service and product. A sense of security and familiarity. A perception that the owner is close by and ready to help. Copyright © 2011 Nelson Education Ltd.

What the Franchisee Receives Small Business: An Entrepreneur's Plan What the Franchisee Receives The franchisee expects to receive: Brand-name recognition Support from the corporation (franchisor) Training Financial support A business template—a proven plan and business strategy Purchasing power Corporate monitoring and assistance Less risk of failure National/regional promotion Additional units—an opportunity to grow Copyright © 2011 Nelson Education Ltd.

What the Franchisor Receives Small Business: An Entrepreneur's Plan What the Franchisor Receives The franchisor expects to receive: Franchise fees Royalty fee Profit on items sold to franchisee Volume rebates Advertising fees Growth and market penetration Copyright © 2011 Nelson Education Ltd.

Small Business: An Entrepreneur's Plan Franchise Agreement You will likely be required to sign a contract that could be 50 pages long. This contract lays out the system, rules and regulations that you will be bound by. Get legal and financial advice. Do not deposit any money until you have consulted with a lawyer. Do your research. (Complete Action Step 62 and Box 14.4). Copyright © 2011 Nelson Education Ltd.

Purchasing a Franchise: The Process Small Business: An Entrepreneur's Plan Purchasing a Franchise: The Process Explore franchising Contact and pre-qualification Application Franchisor contact and review Franchise agreement provided Negotiate terms Agreements signed and business begins Copyright © 2011 Nelson Education Ltd.

Buyer Beware Issues that plague the franchising industry: Encroachment Small Business: An Entrepreneur's Plan Buyer Beware Issues that plague the franchising industry: Encroachment Ground-floor opportunities Renewal period Verbal agreements Minimum franchise legislation Signing personally Few facts Saturated markets Poor training Supplies stipulation Insiders first Non-refundable deposits Copyright © 2011 Nelson Education Ltd.

Evaluating a Franchise Small Business: An Entrepreneur's Plan Evaluating a Franchise Ask additional questions Choose your product or service with care Reasons for not buying a franchise You know the business as well as the franchisor Why pay a franchise fee? Your individuality may be stifled See textbook for more A final word about franchises Can you work under the franchise controls? Copyright © 2011 Nelson Education Ltd.

Small Business: An Entrepreneur's Plan Become the Franchisor Aileen Reid franchised her A.P. Reid Insurance Stores Ltd. business. Ken LeBlanc franchised his PropertyGuys.com business. Your business must: Have a proven and profitable business track record. Have a competitive advantage. Be credible, teachable and transferable. Not be dependent on your personality You must have the time, money and expertise to develop and grow the franchise system. Copyright © 2011 Nelson Education Ltd.

Business Plan Building Block Small Business: An Entrepreneur's Plan Business Plan Building Block Chapter 14 introduces you to the world of franchising: Buying a Franchise Becoming a Franchisor Copyright © 2011 Nelson Education Ltd.

Checklist for Your Business Plan Small Business: An Entrepreneur's Plan Checklist for Your Business Plan Why have you selected a franchise as your method of start-up? What were your lawyer’s comments on the franchise agreement? Do your personal vision, goals, and personality match a franchise form of ownership? Have you considered a master franchise? Is there a possibility you can franchise your business in the future? Copyright © 2011 Nelson Education Ltd.

Small Business: An Entrepreneur's Plan PropertyGuys.com Case Study PropertyGuys.com is a successful, high-growth Canadian franchise system. Answer Chapter 14 case study questions to learn: What was PropertyGuys.com major driving force or competitive strategy? Which franchise system and network did PropertyGuys.com use? Begin a franchise checklist. What are the most important franchise evaluation criteria? Are you ready to franchise your business? What questions should you be asking? Copyright © 2011 Nelson Education Ltd.