1. LESSONS ENTREPRENEURSHIP: Ideas in Action© SOUTH-WESTERN PUBLISHING Chapter 2 SELECT A TYPE OF OWNERSHIP 2.1 2.1An Existing Business 2.2 2.2A Franchise or a New Business 2.3 2.3The Legal Form of Your Business

2. Chapter 2 Page 29 Lesson 2.2 OWN A FRANCHISE OR START A BUSINESS Evaluate franchise ownership. Recognize the advantages and disadvantages of starting a new business. GOALS

3. Chapter 2 Page 29 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.

4. Chapter 2 Page 30 OPERATING COSTS OF A FRANCHISE Initial franchise fee – fee the franchise owner pays in return for the right to run the franchise. Start-up costs – the costs associated with beginning a business. They include the costs of renting a facility, equipping the outlet, and purchasing inventory. Royalty fees – are weekly or monthly payments made by the owner of the franchise to the seller of the franchise. The payments are usually a percentage of your franchise’s income. Advertising fees – fees paid to support television, magazine, or other advertising of the franchise as a whole.

5. Chapter 2 Page 31 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.

6. Chapter 2 Page 31 – 32 DISADVANTAGES OF OWNING A FRANCHISE Franchises can cost a lot of money and cut down on profits. Owners of franchises have less freedom to make decisions than other entrepreneurs. Franchisees are dependent on the performance of other franchisees in the chain. The franchisor can terminate the franchise agreement.

7. INVESTIGATE THE FRANCHISE OPPORTUNITY The FTC requires franchise sellers to provide detailed disclosure information at least 10 business days before finalizing a purchase. The disclosure document should include the following: Contact information for at least ten previous purchasers who live nearest to you. The fully audited financial records of the seller. Background and experience of the business’s key executives. Costs of starting and maintaining the business. The responsibilities you and the seller will have once you have invested in the opportunity. Chapter 2 Not in text

8. Chapter 7 Not in text EVALUATE A FRANCHISE Study the disclosure document and proposed contract carefully. All costs and royalty fees should be provided. Interview current owners. Note: be wary of shills - business references who are paid to give favorable reports Research the franchisor’s history and profitability. Have the seller provide, in writing, the number and percentage of owners who have done as well as they claim you will.

9. Chapter 7 EVALUATE A FRANCHISE Listen carefully to sales presentations. Do not sign up immediately. Do not fall for a promise of easy money. Shop around. Compare services offered by similar franchisors. Investigate claims about your potential earnings. Does projected local demand match potential earnings? Get the seller’s promises in writing. Determine what will happen if you want to cancel the franchise agreement. Ask for advice from professionals. Not in text

10. Chapter 2 Pages 32 - 33 EVALUATING A FRANCHISE Demand for product or service Exclusive territory Costs Profitability Longevity Services provided by franchisor Loss of independence Cancellation

11. Chapter 2 Pages 33 - 34 STARTING YOUR OWN BUSINESS Advantages of starting your own business Make decisions about everything from where to locate the business to how many employees to hire to what prices to charge. Completely independent and create their own destinies. Great satisfaction in starting their own business. Challenge (feeling of triumph). Disadvantages of starting your own business Risk. Estimate demand for your product or service. No certainty that customers will purchase what you offer.