1. 1 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 Chapter 5: Franchising and Other Alternatives

2. 2 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 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. 3 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 Franchising A legal arrangement by which one company allows its products, services, or business format to be used by others for a fee

4. 4 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 Franchisee A company or individual who pays for the legal right to use the product, service, or format of another

5. 5 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 Franchisor A company that grants to another company or individual the legal right to use its product, service, or format

6. 6 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 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. 7 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 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. 8 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 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. 9 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 Influence on U.S. Economy Franchising accounts for Over $1 trillion in sales annually Fourty percent of all retail sales Eight million jobs

10. 10 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 Advantages for the Franchisee Start-up assistance Basis for judging prospect of success Instant recognition Advertising scope and sophistication Operational improvements

11. 11 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 Disadvantages for the Franchisee Restrictions Cost Terminations Unrealistic expectations

12. 12 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 Evaluating the Franchise Option Should you be a franchisee? Research the industry Research the franchisor

13. 13 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 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. 14 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 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. 15 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 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. 16 ENTREPRENEURSHIP, 4/e By Lambing and Kuehl PRENTICE HALL ©2007 by Pearson Education, Inc. Upper Saddle River, NJ 07458 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.)