 Franchise  A contractual license to operate an individually owned business as part of a larger chain  Franchisor  The parent company that develops a product or business process and sells the rights to franchisees  Franchisee  The small business person who purchases the franchise so as to sell the product or service of the franchisor

 Product-Distribution  Franchisee agrees to purchase the products of the franchisor or use their name  Connects a single manufacturer with many dealers  Soft-drink bottlers and gasoline station

 Business-Format  Franchisee adopts the franchisor’s entire method of operations  Not only product but entire way of doing business

AdvantagesDisadvantages  Proven Product  Marketing Expertise  Financial Assistance  Professional Guidance  Opportunity to Learn  Recognized Standards  Efficiency  Potential for Business Growth  Cost  Restrictions on Freedom or Creativity  Overdependence  Risk of Fraud or Misunderstanding  Problems of Termination  Poor Performance of Other Franchisees

AdvantagesDisadvantages  Expansion with Smaller Capital Investment  Multiple Sources of Revenue  Controlled Expansion  Motivated Franchisees  Bulk Purchasing  Loss of Control  Profit Sharing  Franchisee Disputes

 Evaluate your needs  Match your interests, skills, and needs  Do your research  “Inc.”, “Fortune Small Business”, and “The Wall Street Journal” provide information related to franchising  Trade associations: “International Franchise Association” and “The Franchise Handbook”  Analyze the Market  Check out Disclosure Statement  Information that franchisors are required to provide to potential franchisees

 Franchise Agreement  Legal contract that binds both parties involved in the franchise  Franchise Fee  One time payment made to become a franchisee  Royalty Fees  The ongoing payments that franchisees pay to franchisors (Usually a percentage of gross sales)

1. What is franchising and how does it operate? Legal agreement that allows a franchise to use a product, service, or method of the franchisor in exchange for royalties and fees. 2. Differences between product-distribution and business format franchises? Product allows the franchise to purchase the right to use the trade name of the manufacturer’s product. Business-format franchises allow the franchise to duplicate the franchisor’s way of doing business. 3. What is the difference between a franchise fee and a royalty fee? Franchise fee is a one time payment Royalty fee are ongoing payments that franchises pay to franchisors  Usually a percentage of gross sales

 Pick a Franchise  Prepare a 1-12 slide PowerPoint Presentation  5-10 Minutes