1. Franchise Ownership franchise franchisee franchisor
a legal agreement that gives an individual the right to market a company’s products or services in a particular area
franchisee
the person who purchases a franchise
franchisor
the company that offers the franchise for purchase
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2. Franchising opportunities can be found in a variety of resources including:
The Franchise Opportunities Handbook
Buying a Franchise: A Consumer Guide
the Internet
library books
The Wall Street Journal
Forbes, Barron’s, Entrepreneur, and Inc.
Chapter 1

3. Operating Costs of a Franchise
initial franchise fee
the amount the local franchise owner pays in return for the right to run the franchise
startup costs
the costs associated with beginning a business
Chapter 1

4. royalty fees advertising fees
weekly or monthly payments made by the local owner to the franchise company
advertising fees
paid to the franchise company to support television, magazine, or other advertising of the franchise as a whole
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5. Investigate the Franchise Opportunity
Franchise Disclosure Document (FDD)
a regulatory document describing a franchise opportunity that prospective franchisees must receive before they sign a contract
must be provided to franchisee at least 14 days before a contract is signed
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6. Information contained in the FDD includes:
background and experience of the business’s key executives
costs of starting and maintaining the business
terms of the franchise agreement
acceptable reasons for contract termination
the responsibilities you and the seller will have once you have invested in the opportunity
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7. Evaluate a Franchise
Study the disclosure document and proposed contract carefully.
All costs and royalty fees should be provided.
Interview current owners.
shills
business references who are paid to give favorable reports
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8. Investigate the franchisor’s history and profitability.
Investigate claims about your potential earnings.
Does projected local demand match potential earnings?
Have the seller provide, in writing, the number and percentage of owners who have done as well as they claim you will.
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9. Listen carefully to sales presentations.
Do not sign up immediately.
Do not fall for a promise of easy money.
Shop around.
Compare to other business opportunities.
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10. Get the seller’s promises in writing.
Determine what will happen if you want to cancel the franchise agreement.
Remember that it is okay to ask for advice from professionals.
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11. Advantages of Owning a Franchise
An entrepreneur is provided with an established product or service.
Franchisors offer management, technical, and other assistance.
Equipment and supplies can be less expensive.
A guarantee of consistency attracts customers.
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12. Disadvantages of Owning a Franchise
Franchise fees can be costly and cut down on profits.
Owners of franchises have less freedom to make decisions than other entrepreneurs.
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13. Franchisees are dependent on the performance of other franchises in the chain.
The franchisor can terminate the franchise agreement.
Chapter 7