1. Franchising

2. – A marketing system revolving around a two-party agreement, whereby the franchisee conducts business according to the terms specified by the franchisor Franchisee – An entrepreneur whose power is limited by a contractual agreement with a franchisor Franchisor – The party in the franchise contract that specifies the methods to be followed and the terms to be met by the other party

3. Franchising Arrangements THREE KINDS OF FRANCHISES Trade Name Franchise – Grants the right to use a widely recognized name within a particular territory True Value Hardware, Associated Grocers Inc (AGI), Century 21 Product Distribution Franchise (…Dealership) – Allows you to sell a specific, brand-name product in a specified territory Snap-On Tools, Toyota Business Format Franchise – Provides an entire business plan, marketing, and operating system – Guidance from the franchisor is ongoing; supervision & monitoring are continuous Subway, McDonalds

4. The Pros and Cons of Franchising Advantages – Probability of success Proven line of business Pre-qualification of franchisee Overall lower failure rates – Training Franchisor-provided – Financial assistance Loans & loan guarantees – Operating benefits Location feasibility study Marketing assistance Quick start-up time Limitations – Franchise costs Initial franchise fee Investment costs Royalty payments Advertising costs – Restrictions on business operations Products sold Hours of operation Restrictions on expansion/growth Franchisor only source of supplies – Loss of independence – Lack of franchisor support Termination/renewal clauses

5. Franchisor Controls on Franchisees Restricted sales territory Requires site approval and imposes requirements on the outlet’s appearance Restricts the goods/ services that can be sold Requires specific operating hours Controls advertising

6. An Attractive Franchise Opportunity Includes: - 1 Registered trademarks Successful prototype stores with a track record of profitability and a positive reputation A business that can be systematized so that it can be easily replicated. A product or service that can be successful in many different geographic regions.

7. An Attractive Franchise Opportunity Includes: - 2 An operations manual that specifies all the functions of the business and their associated policies A training and support system Site selection criteria and architectural standards A detailed prospectus that spells out the franchisee’s rights, responsibilities, and risks. The Federal Trade Commission requires disclosure...Uniform Franchise Offering Circular [UFOC]

8. ASK QUESTIONS Before Buying a Franchise

9. Questions to Ask Before Buying a Franchise Does the franchisor have an excellent reputation in the industry? Is the franchisor in partnership or any other legal relationship with another franchisor? If so, how will the franchisee be protected should that relationship fail? Is the franchisee required to do anything that appears questionable from a legal or ethical perspective? Under what circumstances can the franchisee or franchisor terminate the franchise agreement and what are the consequences to either party? Will the franchisor grant an exclusive territory? Is that area subject to reduction or modification? If so, under what conditions?

10. Questions to Ask Before Buying a Franchise - 2 Will the franchisor reveal the certified financial figures for one of its franchises and can those figures be verified with the franchisee? Will the franchisor provide a management training program, an employee training program, public relations and advertising support, or credit? Does the franchisor assist in finding a suitable location? What is the financial health of the franchisor? Can financial statements be verified?