1. FRANCHISING AND LEASING
By-
Advitya
Abhishek Arora
Ankit Saini

2. CONTENTS Describe the significance of franchising
Identify the major advantages and limitations of franchising
Discuss the features of franchising
Describe the franchisor/franchisee relationship.

3. Franchising Terms Franchising Franchise contract Franchise
A marketing system revolving around a two-party legal agreement, whereby the franchisee conducts business according to the terms specified by the franchisor
Franchise contract
The legal agreement between franchisor and franchisee
Franchise
The privileges conveyed in the franchise contract

4. Contd…
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

5. Types of Franchises Product and Trade Name Franchise
Grants the right to use a widely recognized product or name
Business Format Franchise
Provides an entire marketing system and ongoing guidance from the franchisor
Manufacturing Franchising
Grants manufacturer the rights to produce and sell goods using name and trademark

6. Features of Franchising
A license
A shared development and improvement obligation
Franchisor’s right to define rules regarding operations
Two parties and agreement
Specified period
Support system

7. The Advantages of Franchising (Franchisor)
Financial assistance
Operating assistance
Strategic
Administrative
Research and development
Cost saving
Risk reduction

8. Financial Assistance
Start-up business costs are normally high and thus by teaming up with a franchise organization, the individual can increase her/his chance of receiving financial help.
The franchisor might chose to use liberal payment schemes to the franchisee in order to get over the initial financial hurdle.

9. Operating Assistance
The franchisor provides a range of operating services including site selection, bulk purchasing of equipment, and inventory.
Other areas of assistance include the use of an established, nation-wide brand

10. Disadvantages Capital investment share Risk (Goodwill) Undue influence
IPR Risk (intellectual property rights)
Shared profit
Reduction in control

11. Pros and Cons of Franchising (Franchisee)
Limitations
Franchise costs
Initial franchise fee
Investment costs
Royalty payments
Advertising costs
Restrictions on Business Operations
Restricted profits
Transfer of goodwill
Loss of independence
Advantages
Probability of success
Proven line of business
Pre-qualification of franchisor
Training
Franchisor-provided
Financial assistance
Franchisor assistance
Lesser risk
Operating benefits
Franchisor-aided

12. -A contractual arrangement
LEASING
-A contractual arrangement

13. DEFINITION
It is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset.

14. Lessor and Lessee - Meaning
The Lessor is the legal owner of the asset.
 The Lessee obtains the right to use the asset in return for rental payments

15. Elements of a Lease Agreement
Date and duration of the agreement.
Conditions for renewal or non-renewal
Security deposit and its return
Names of the parties
Object Being Leased
Specific consideration
Other Conditions
Termination Clause

16. Sample Lease Agreement

18. Types of Lease
1. Operating Lease
2. Finance Lease

19. Operating Lease vs. Finance Lease
Lessor is the legal and the economic owner
Lessor is the legal owner
Lessee is the economic owner
Risks and rewards associated with the asset not substantially transferred
Risks and rewards associated with the asset are substantially transferred
Risks include losses due to idle capacity, technological obsolescence & changing economic conditions. Rewards include expectation of profitable operation over economic life of asset and gain from appreciation in value or realization of residual value.
Source: Accounting Standard 19 issued by the Institute of Chartered Accountants of India

21. Advantages of Leasing
No Large Outlay – The cost is spread over a number of years
Security – The asset is owned by the lessor therefore, no further security needed
Tax Advantages – Lease rental costs are often tax deductible
Budgeting -  Lease agreement is almost always a fixed contract, it is relatively easy to budget and forecast with. 

22. Disadvantages of Leasing
 No Ownership
Long Term Expense – Cheaper in short term, more expensive in long term
Maintenance – Even though you don’t own it, maintenance is still your responsibility

23. FRANCHISING
VS.
LEASING

24. DIFFERENCES FRANCHISING LEASING Right to use the brand name.
Good working relationship between both parties.
Proper training from franchisor.
Money paid as royalties.
Includes securities laws and legal formalities.
No right to use the brandname
Good relationship is not necessary.
No training from parent company.
Money paid as leasing cost.
Simple contract or agreement.

25. CASE STDY-1
MCDONALDS

26. MCDONALDS Founded by Dick and Mac in 1940 in California.
Ray Kroc a Chicago based salesman realised the potential.
The best way was- FRANCHISING!!!
Today 70% stores are franchised.

27. ….contd First outlet opened in Basant Lok, New Delhi in 1996.
Potential franchisers must have atleast liquid assets of $ (4,80,00,000 INR).
In addition franchise fees $45000 ( INR)
4% monthly service fees on gross sales
And a certain percentage as rent.

28. Figures speaks…

29. CASE STUDY-2
AMUL

30. AMUL
AMUL(Anand milk federation union limited) was found in 1946 at Anand in Gujarat.
It is owned by Gujarat co-operative milk marketing federation ltd(GCMMF).
It has a annual turnover of $3.4 billion dollars(21,67,07,330 INR).
More than 6400 outlets of Amul.

31. Contd… Franchisee requires 300sq feet of area at a premium location.
Approx investment of 5-10 lacs.
Training, renovation,designing done by franchisor.
No royalties.

32. FIGURES SPEAKS….

33. THATS ALL FOLKS!!
THANK YOU!!