chapter 4: franchising1 copyright 2003 prentice hall publishing company franchising and the...

Chapter 4: Franchising 1Copyright 2003 Prentice Hall Publishing Company

Franchising and the Entrepreneur

Franchising and the Entrepreneur


The Franchising Boom!!!The Franchising Boom!!!

Sales of $1 trillion from virtually every Sales of $1 trillion from virtually every product or service imaginable.product or service imaginable.

More than 5,000 franchisers operating More than 5,000 franchisers operating some 600,000 outlets worldwide.some 600,000 outlets worldwide.

Franchise sales account for 50% of total Franchise sales account for 50% of total retail sales.retail sales.

A new franchise opens somewhere in the A new franchise opens somewhere in the world every six-and-a-half minutes, and world every six-and-a-half minutes, and in the United States, every eight in the United States, every eight minutes.minutes.


FranchisingFranchising

Franchising – semi-independent business Franchising – semi-independent business owners pay fees and royalties to a parent owners pay fees and royalties to a parent company in exchange for the right to sell company in exchange for the right to sell its products and services under the its products and services under the franchiser’s trade name and often to use franchiser’s trade name and often to use its business format and system. its business format and system.

Types of FranchisingTypes of Franchising

TradenameTradename

Product distributionProduct distribution

Pure (Business format)Pure (Business format)


Why Buy a Franchise?Why Buy a Franchise?

Franchisees benefit from the franchiser’s Franchisees benefit from the franchiser’s experience.experience.

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

Franchisees earn a great deal of satisfaction Franchisees earn a great deal of satisfaction from their work.from their work.

Before buying, ask: “What can a franchise Before buying, ask: “What can a franchise do for me that I cannot do for myself?” do for me that I cannot do for myself?”


Drawbacks of FranchisingDrawbacks of Franchising Franchise fees and profit sharingFranchise fees and profit sharing Strict adherence to standardized Strict adherence to standardized

operationsoperations Restrictions on purchasingRestrictions on purchasing Limited product lineLimited product line Unsatisfactory training programsUnsatisfactory training programs Market saturationMarket saturation Less freedomLess freedom


Benefits of FranchisingBenefits of Franchising Management training and supportManagement training and support Brand name appealBrand name appeal Standardized quality of goods and servicesStandardized quality of goods and services National advertising programNational advertising program Financial assistanceFinancial assistance Proven products and business formatsProven products and business formats Centralized buying powerCentralized buying power Site selection and territorial protectionSite selection and territorial protection Greater chance for successGreater chance for success


Ten Myths of FranchisingTen Myths of Franchising

1.1. Franchising is the safest way to go into Franchising is the safest way to go into business because franchises never fail.business because franchises never fail.

2.2. I’ll be able to open my franchise for less I’ll be able to open my franchise for less money than the franchiser estimates.money than the franchiser estimates.

3.3. The bigger the franchise organization, The bigger the franchise organization, the more successful I’ll be.the more successful I’ll be.



4.4. I’ll use 80 percent of the franchiser’s I’ll use 80 percent of the franchiser’s business system, but I’ll improve upon business system, but I’ll improve upon it by substituting my experience and it by substituting my experience and know-how. know-how.

5.5. All franchises are the same.All franchises are the same.6.6. I don’t have to be a “hands-on” I don’t have to be a “hands-on”

manager. I can be an absentee owner manager. I can be an absentee owner and be very successful. and be very successful.



7.7. Anyone can be a satisfied, successful Anyone can be a satisfied, successful franchise owner.franchise owner.

8.8. Franchising is the cheapest way to get into Franchising is the cheapest way to get into business for yourself.business for yourself.

9.9. The franchiser will solve my business The franchiser will solve my business problems for me; after all, that’s why I pay problems for me; after all, that’s why I pay an on-going royalty.an on-going royalty.

10.10. Once I open my franchise, I’ll be able to run Once I open my franchise, I’ll be able to run things the way I want to. things the way I want to.

What Do Franchisers Look for in What Do Franchisers Look for in a Franchisee?a Franchisee?

Experienced?Experienced? Hard Working?Hard Working? Team Player?Team Player? Leadership & Management Skills?Leadership & Management Skills? Risk Averse?Risk Averse? Educated?Educated? Financially Stable?Financially Stable? A Desire to Succeed?A Desire to Succeed?

Yes NoMaybe


Franchising and the LawFranchising and the Law

Key protection is the Uniform Franchise Key protection is the Uniform Franchise Offering Circular (UFOC).Offering Circular (UFOC).

Franchisers Franchisers mustmust deliver a copy of UFOC deliver a copy of UFOC before any offer or sale of a franchise.before any offer or sale of a franchise.

The UFOC contains information on 23 The UFOC contains information on 23 topics, including:topics, including: franchiser’s business experiencefranchiser’s business experience franchise fees and costsfranchise fees and costs lawsuits involving the franchiserlawsuits involving the franchiser


Detecting Dishonest FranchisersDetecting Dishonest Franchisers

Claims that the contract is "standard; no Claims that the contract is "standard; no need to read it."need to read it."

Failure to provide a copy of the required Failure to provide a copy of the required disclosure documents.disclosure documents.

Marginally successful prototype or no Marginally successful prototype or no prototype.prototype.

Poorly prepared operations manual.Poorly prepared operations manual.



Promises of future earnings with no Promises of future earnings with no documentation.documentation.

High franchisee turnover or termination rate.High franchisee turnover or termination rate. Unusual amount of litigation by franchisees.Unusual amount of litigation by franchisees. Attempts to discourage your attorney Attempts to discourage your attorney

from evaluating the contract before from evaluating the contract before signing it.signing it.

No written documentation.No written documentation.

(Continued)(Continued)



Claims to be exempt from federal Claims to be exempt from federal disclosure laws.disclosure laws.

"Get rich quick" schemes, promising "Get rich quick" schemes, promising huge profits with minimal effort.huge profits with minimal effort.

Reluctance to provide a list of existing Reluctance to provide a list of existing franchisees.franchisees.

Evasive, vague answers to your Evasive, vague answers to your questions.questions.

(Continued)(Continued)


How to Buy a FranchiseHow to Buy a Franchise

Preparation, common sense, and patience are Preparation, common sense, and patience are vital ingredients in choosing the right franchise.vital ingredients in choosing the right franchise.

Evaluate yourself - What do you like and dislike?Evaluate yourself - What do you like and dislike? Research the market.Research the market. Consider your franchise options.Consider your franchise options. Get a copy of the franchiser’s Uniform Franchise Get a copy of the franchiser’s Uniform Franchise

Offering Circular (UFOC) and study it.Offering Circular (UFOC) and study it.


What Should You Look For?What Should You Look For?

A unique concept or marketing approachA unique concept or marketing approach ProfitabilityProfitability A registered trademarkA registered trademark A business system that worksA business system that works A solid training programA solid training program AffordabilityAffordability A positive relationship with franchiseesA positive relationship with franchisees


How to Buy a FranchiseHow to Buy a Franchise

Preparation, common sense, and patience are Preparation, common sense, and patience are vital ingredients in choosing the right franchise.vital ingredients in choosing the right franchise.

Evaluate yourself - What do you like and dislike?Evaluate yourself - What do you like and dislike? Consider your franchise options.Consider your franchise options. Get a copy of the franchiser’s Uniform Franchise Get a copy of the franchiser’s Uniform Franchise

Offering Circular (UFOC) and study it.Offering Circular (UFOC) and study it. Talk to existing franchisees.Talk to existing franchisees. Ask the franchiser some tough questions.Ask the franchiser some tough questions. Make your choice.Make your choice.


Franchise ContractsFranchise Contracts

Note clauses covering:Note clauses covering: TerminationTermination RenewalRenewal Transfers and BuybacksTransfers and Buybacks

40% of New Franchisees Sign 40% of New Franchisees Sign Contracts Without Reading Contracts Without Reading

Them !!!Them !!!

Contract


Trends Shaping FranchisingTrends Shaping Franchising

International opportunitiesInternational opportunities Smaller, nontraditional locationsSmaller, nontraditional locations Conversion franchisingConversion franchising Multiple-unit franchisingMultiple-unit franchising Master franchisingMaster franchising Piggybacking (Combination franchising)Piggybacking (Combination franchising) Serving aging baby boomersServing aging baby boomers


Franchising Web SitesFranchising Web Sites

Entrepreneur’sEntrepreneur’s Franchise Zone Franchise Zone http://www.entrepreneur.com/Franchise_http://www.entrepreneur.com/Franchise_Zone/FZ_Zone/FZ_FrontDoorFrontDoor/0,4670,,00.html/0,4670,,00.html

Subway Sandwiches and SaladsSubway Sandwiches and Saladshttp://www.subway.com/http://www.subway.com/

Auntie Anne’s PretzelsAuntie Anne’s Pretzelshttp://www.auntieannes.com/http://www.auntieannes.com/

chapter 4: franchising1 copyright 2003 prentice hall publishing company franchising and the...

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