chap04 franchising and the entrepreneur

8/9/2019 Chap04 Franchising and the Entrepreneur

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Chapter 4: Franchising 1Copyright 2003 Prentice Hall Publishing Company

Franchising and theEntrepreneur


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The Franchising Boom!!!

Sales of $1 trillion from virtually everyproduct or service imaginable.

More than 5,000 franchisers operatingsome 600,000 outlets worldwide.

Franchise sales account for 50% of totalretail sales.

A new franchise opens somewhere in the

world every six-and-a-half minutes, andin the United States, every eightminutes.


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Franchising

Franchisingsemi-independent business

owners pay fees and royalties to a parentcompany in exchange for the right to sell

its products and services under thefranchisers trade name and often to use

its business format and system.


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Types of Franchising

Trade name

Product distribution

Pure (Business format)


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Why Buy a Franchise?

Franchisees benefit from the franchisers

experience.

Franchisees get a proven business systemand avoid having to learn by trial-and-error.

Franchisees earn a great deal of satisfaction

from their work.Before buying, ask: What can a franchise

do for me that I cannot do for myself?


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Benefits of Franchising

Management training and support Brand name appeal

Standardized quality of goods and services

National advertising program Financial assistance

Proven products and business formats

Centralized buying power

Site selection and territorial protection

Greater chance for success


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Drawbacks of Franchising

Franchise fees and profit sharing Strict adherence to standardized

operations

Restrictions on purchasing Limited product line

Unsatisfactory training programs

Market saturation

Less freedom



Ten Myths of Franchising

1. Franchising is the safest way to go intobusiness because franchises never fail.

2. Ill be able to open my franchise for lessmoney than the franchiser estimates.

3. The bigger the franchise organization,

the more successful Ill be.



Ten Myths of Franchising

4. Ill use 80 percent of the franchisersbusiness system, but Ill improve uponit by substituting my experience andknow-how.

5. All franchises are the same.

6. I dont have to be a hands-on

manager. I can be an absentee ownerand be very successful.


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What Do Franchisers Look for in

a Franchisee?

Experienced?

Hard Working?

Team Player? Leadership & Management Skills?

Risk Averse?

Educated? Financially Stable?

A Desire to Succeed?

Yes No Maybe


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a Franchisee?

Experienced?

Hard Working?


Risk Averse?



Yes No Maybe


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a Franchisee?

Experienced?

Hard Working?


Risk Averse?



Yes No Maybe


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a Franchisee?

Experienced?

Hard Working?


Risk Averse?



Yes No Maybe


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a Franchisee?

Experienced?

Hard Working?


Risk Averse?



Yes No Maybe


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a Franchisee?

Experienced?

Hard Working?


Risk Averse?



Yes No Maybe


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a Franchisee?

Experienced?

Hard Working?


Risk Averse?



Yes No Maybe


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a Franchisee?

Experienced?

Hard Working?


Risk Averse?



Yes No Maybe


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a Franchisee?

Experienced?

Hard Working?


Risk Averse?



Yes No Maybe


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Franchising and the Law

Key protection is the Uniform FranchiseOffering Circular (UFOC).

Franchisers mustdeliver a copy of UFOC

before any offer or sale of a franchise. The UFOC contains information on 23

topics, including:

franchisers business experience franchise fees and costs

lawsuits involving the franchiser


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Detecting Dishonest Franchisers

Promises of future earnings with no

documentation.

High franchisee turnover or termination rate.

Unusual amount of litigation by franchisees.

Attempts to discourage your attorney

from evaluating the contract beforesigning it.

No written documentation.

(Continued)


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Detecting Dishonest Franchisers

Claims to be exempt from federaldisclosure laws.

"Get rich quick" schemes, promisinghuge profits with minimal effort.

Reluctance to provide a list of existingfranchisees.

Evasive, vague answers to yourquestions.

(Continued)


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How to Buy a Franchise

Preparation, common sense, and patience are

vital ingredients in choosing the right franchise.

Evaluate yourself - What do you like and dislike?

Research the market.

Consider your franchise options.

Get a copy of the franchisers Uniform Franchise

Offering Circular (UFOC) and study it.


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What Should You Look For?

A unique concept or marketing approach

Profitability

A registered trademark A business system that works

A solid training program

Affordability

A positive relationship with franchisees


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How to Buy a Franchise

Preparation, common sense, and patience are

vital ingredients in choosing the right franchise.

Evaluate yourself - What do you like and dislike?

Consider your franchise options.

Get a copy of the franchisers Uniform Franchise

Offering Circular (UFOC) and study it.

Talk to existing franchisees. Ask the franchiser some tough questions.

Make your choice.


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Franchise Contracts

Note clauses covering: Termination

Renewal

Transfers and Buybacks

40% of New Franchisees Sign

Contracts Without Reading Them

!!!

Contract


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Trends Shaping Franchising

International opportunities

Smaller, nontraditional locations

Conversion franchising

Multiple-unit franchising

Master franchising

Piggybacking (Combination franchising) Serving aging baby boomers


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Ch 4 F hi i 29

Franchising Web Sites

Entrepreneurs Franchise Zonehttp://www.entrepreneur.com/Franchise_

Zone/FZ_FrontDoor/0,4670,,00.html Subway Sandwiches and Salads

http://www.subway.com/

Auntie Annes Pretzelshttp://www.auntieannes.com/
http://www.entrepreneur.com/Franchise_Zone/FZ_FrontDoor/0,4670,,00.htmlhttp://www.entrepreneur.com/Franchise_Zone/FZ_FrontDoor/0,4670,,00.htmlhttp://www.subway.com/http://www.auntieannes.com/http://www.auntieannes.com/http://www.subway.com/http://www.entrepreneur.com/Franchise_Zone/FZ_FrontDoor/0,4670,,00.htmlhttp://www.entrepreneur.com/Franchise_Zone/FZ_FrontDoor/0,4670,,00.html

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