Franchises by jizhen1947

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									                    Franchising
• Franchising
   – 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
                    What is a FRANCHISE?
A form of business where the franchisor sells or provides to a franchisee:

•   the right to do business under a particular trade name or brand

•   the right to use/sell a proprietary product, process, or service

•   training and assistance in setting up the business

•   a business and marketing plan

•   economies of scale for purchasing and marketing

•   a financial (accounting) system

•   regular inspection and quality checks once the business is established
           The 20 Fastest-Growing Franchises - 2009


1. Subway          Submarine sandwiches & salads    $84,300 - $258,300                 11. Jiffy Lube Intl          Fast oil change $229,000 - $323,000


2. McDonalds                Hamburgers, chicken, salads   $995,900 - $1,842,700        12. Instant Tax Service                 $39,000 - $89,000


3. Liberty Tax Service                    Income-tax preparation $56,800 - $69,900     13. Baskin-Robbins USA Ice cream $41,450 - $373,595
4. Sonic Drive-In Restaurants                                $1,209,300 - $3,413,800   14. KFC Corp         Chicken $1,379,900 - $2,422,500



5. InterContinental Hotels                          $5,136,370 - $93,855,035
                                                                                       15. Jani-King       Commercial cleaning $11,400 - $35,050



6. Ace Hardware                 Home improvement store $238,500 - $1,566,250
                                                                                       16. Dairy Queen             $372,802 - $1,771,860


                                                                                       17. Super 8       Hotels $285,445 - $5,396,983
7. Pizza Hut          Pizza, pasta, wings $316,500 - $2,974,000

                                                                                       18. Arby’s      Sandwiches $336,500 - $2,400,000
8. UPS Store/Mail Boxes Etc                               $154,947 - $293,473

                                                                                       19. Jan-Pro      Commercial cleaning $3,145 - $50,405
9. Circle K        Convenience store $161,000 - $1,353,000

                                                                                       20. Taco Bell        Quick-service Mexican $1,324,300 - $2,465,500
10. Papa John’s Intl               Pizza $113,823 - $528,123




 Source: Entrepreneur, 2009 Franchise 500 Rankings
      Top 12 Low-Cost Franchises - 2010

• H & R Block                             Tax preparation and electronic filing
       $26,427 - $84,094


• Jani-King                      Commercial cleaning
       $11,400 - $35,050


• Jan-Pro Intl                           Commercial cleaning
       $3,145 - $50,405


• Kumon Math Centers                                                                    • Vanguard Cleaning                                       Commercial cleaning
                                                                                          $8,125 - $38,100
•      Supplemental education $32,958 - $131,070


• Stratus Building Solutions                                                            • ServiceMaster Clean                                         Disaster cleaning
                                                                                          $20,926 - $132,623
       Commercial cleaning $3,450 - $57,750


• Jazzercise Inc                              Dance fitness classes
                                                                                        • Bonus Building Care                                          Commercial cleaning
                                                                                          $9,000 - $15,000
       $2,980 - $75,500


• Instant Tax Service                                          Retail tax preparation
                                                                                        • Merry Maids                          Residential cleaning
                                                                                          $24,750 - $59,450
       $39,000 - $89,000

                                                                                        • Anago Cleaning Systems
                                                                                          Commercial cleaning   $8,543 - $55,306
Source: Entrepreneur.com “Top Low-Cost Franchises in 2010”
         The Pros and Cons of Franchising
• Advantages                               • Limitations
   – Probability of success                  – Franchise costs
       • Proven line of business                •   Initial franchise fee
                                                •   Investment costs
       • Pre-qualification of franchisee
                                                •   Royalty payments
       • Overall lower failure rates            •   Advertising costs
   – Training
       • Franchisor-provided                 – Restrictions on business
                                               operations
   – Financial assistance                       •   Products sold
                                                •   Hours of operation
       • Loans & loan guarantees
                                                •   Restrictions on expansion/growth
                                                •   Franchisor only source of supplies
   – Operating benefits
       • Location feasibility study
                                             – Loss of independence
       • Marketing assistance
       • Quick start-up time
                                             – Lack of franchisor support
                                                •   Termination/renewal clauses
Franchisor Controls on Franchisees

• Restricting of sales territory
• Requiring site approval and imposing requirement on
  the outlet’s appearance
• Restricting the goods/
  services that can be sold
• Requiring specific
  operating hours
• Controlling advertising
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.
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]
Franchise Disclosure Requirements

• Rule 436 of the Federal Trade Commission
    – Uniform Franchise Offering Circular (UFOC)
        • A document accepted by the Federal Trade Commission as
          satisfying its franchise disclosure requirements
            – Litigation and bankruptcy history
            – Investment requirements
            – Conditions that would affect renewal, termination, or sale
              of the franchise
        • http://www.ftc.gov/bcp
               Franchising Arrangements
• Trade name franchise
   – agreement that provides to the franchisee the right to use the
      franchisor's trade name and/or trademarks
• Product distribution franchise
   – agreement that provides specific brand name products which are resold
      by the franchisee in a specific territory
• Business format franchise
   – agreement that provides a complete business format, including trade
      name, operating procedures, marketing, and products or services for sale
•   Piggyback Franchise
     – A retail franchise operation within the physical facilities of a host store
•   Area Developer/Master Licensee
     – Firms or Individuals that obtain the legal right to open several franchised outlets
        in a given area


    6-10
Before Buying a Franchise




 ASK QUESTIONS
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?
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?
Questions to Ask Before Buying a Franchise - 3

  • What is the track record of the franchise?

  • Has the franchisor conducted an in-depth investigation of
    the franchisee to assure that he or she has the necessary
    skills and financial requirements to operate the business
    successfully?

  • How much capital will be required to start and operate the
    business to a positive cash flow? Does the initial fee
    include an opening inventory of products and supplies?
    What do royalties pay for and how are they calculated?
  Questions to Ask Before Buying a Franchise - 4

• Can you transfer your franchise license to someone else?
  When and how?

• How can you terminate the contract? Under what
  circumstances can this be done?

• Can the franchisor terminate the contract? Under what kind
  of conditions?

• What disclosures are you required to make? What disclosures
  is the franchisor required to make?


6-15
    Where to Find out about Franchises

• www.franchise1.com
• www.franchising.com
• www.en.wikipedia.org/wiki/franchising
• www.entrepreneur.com/franchiseopportunitie
  s/index.html
• www.franchiseinfosite.com


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