1. Lesson 4.2 OWN A FRANCHISE OR START A BUSINESS
GOALS
Evaluate franchise ownership.
Recognize the advantages and disadvantages of starting a new business.
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2. FRANCHISE OWNERSHIP
A franchise is a legal agreement that gives an individual the right to market a company’s products or services in a particular area.
A franchisee is the person who purchases a franchise agreement.
A franchisor is the person or company that offers a franchise for purchase.
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3. Franchise Ownership
More than 500,000 people in the US owne franchises and the number is growing.
Franchising opportunities are available in virtually every field, from motels to pet stores to video outlets
Sources you can find information about franchises include
Consumer Guides
Books
Wall Street Journal
Magazines
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4. OPERATING COSTS OF A FRANCHISE
Initial franchise fee
Fee the franchise owner pays in return for the right to run the franchise
Usually non-refundable and a few thousand to a few hundred thousand dollars
Start-up costs
Costs associated with beginning a business
Royalty fees
Weekly or monthly paymnets made by the owner of the franchise to the seller of the franchise
Usually a percentage of the franchises income
Advertising fees
Fees paid to support TV, magazine or other advertising of the franchise as a whole
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5. ADVANTAGES OF OWNING A FRANCHISE
An entrepreneur is provided with an established product or service.
Can compete with giant companies
Franchisors offer management, technical, and other assistance.
Onsite training or classes and tips
Equipment and supplies can be less expensive.
Because franchises are part of large chains, they are able to purchase in huge quantities
Discounts passed on to individual franchisee
A guarantee of consistency attracts customers.
Customers know quality of franchise
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6. DISADVANTAGES OF OWNING A FRANCHISE
Franchises can cost a lot of money and cut down on profits.
Initial capital to buy franchise is high
Often profits you receive as franchisee must be reutrned to franchisor as royalty fees
Owners of franchises have less freedom to make decisions than other entrepreneurs.
Franchisees can only offer certain products and services that have already been decided by franchisor
Franchisees are dependent on the performance of other franchisees in the chain.
Customers opinions and other franchise reputations follow you around
The franchisor can terminate the franchise agreement.
If franchisee fails to pay royalty fees, or meet other agreements, the franchise can be lost
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7. EVALUATING A FRANCHISE
Demand for product or service
Exclusive territory
Costs
Profitability
Longevity
Services provided by franchisor
Loss of independence
Cancellation
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