Part 3 PowerPoint Presentation by Charlie Cook Copyright © 2003 South-Western College Publishing....

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PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook

Copyright Copyright © © 2003 South-Western College Publishing.2003 South-Western College Publishing. All rights reserved.All rights reserved.

Franchising Franchising OpportunitiesOpportunities

66

Pursuing New Venture Opportunities

12e

Copyright © by South-Western College Publishing. All rights reserved. 6–2

Looking AheadLooking AheadLooking AheadLooking Ahead

After studying this chapter, you should be able to:

1. Explain franchising terms and the structure of the industry.

2. Identify the major pros and cons of franchising

3. Describe the process for evaluating a franchise opportunity.

4. Discuss certain legal considerations in franchising.


Franchising TermsFranchising TermsFranchising TermsFranchising Terms

• Franchising–A marketing system revolving around a two-party

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


Franchising Terms (cont’d)Franchising Terms (cont’d)Franchising Terms (cont’d)Franchising Terms (cont’d)

• 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


Types of FranchisesTypes of FranchisesTypes of FranchisesTypes 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

• Piggyback Franchising–The operation of a retail franchise within the

physical facilities of a host store


Types of Franchises (cont’d)Types of Franchises (cont’d)Types of Franchises (cont’d)Types of Franchises (cont’d)

• Master Licensee–An independent firm or individual acting as a sales

agent with the responsibility for finding new franchises within a specified territory

• Multiple-Unit Ownership–Holding by a single franchisee of more than one

franchise from the same company

• Area Developers–Individuals or firms that obtain the legal right to

open several franchised outlets in a given area


Industry Associations(example: IFA)

Business/ConsultingFirms (example:

Franchise Connections)

Federal/State Agencies(example: FTC)

FranchiseFacilitators

Franchisee-Owned

Operating Units

Franchisor

Company-OwnedStores

FranchiseParties

Master Licensee/Area Developers

Fig. 6-1

The Structure of FranchisingThe Structure of FranchisingThe Structure of FranchisingThe Structure of Franchising


The Pros and Cons of FranchisingThe Pros and Cons of FranchisingThe Pros and Cons of FranchisingThe Pros and Cons of Franchising

• Advantages–Probability of success

Proven line of business

Pre-qualification of franchisee

–TrainingFranchisor-provided

–Financial assistanceFranchisor assistance

–Operating benefitsFranchisor-aided

• Limitations–Franchise costs

Initial franchise fee Investment costs Royalty payments Advertising costs

–Restrictions on Business Operations

–Loss of independence


Franchisor Controls on FranchiseesFranchisor Controls on FranchiseesFranchisor Controls on FranchiseesFranchisor 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

Copyright © by South-Western College Publishing. All rights reserved. 6–10Fig. 6-2

Pluses Minuses

Formalized training

Financial assistance

Proven marketingmethods

Managerial assistance

Quicker startup time

Overall lower failurerates

Franchise fees

Royalties

Restrictions on growth

Less independence inoperations

Franchisor may be solesupplier of somesupplies

Termination/renewalclauses

The Pros and Cons of FranchisingThe Pros and Cons of FranchisingThe Pros and Cons of FranchisingThe Pros and Cons of Franchising


Evaluating Franchise OpportunitiesEvaluating Franchise OpportunitiesEvaluating Franchise OpportunitiesEvaluating Franchise Opportunities

• Locating a Franchise Opportunity• Investigating the Potential Franchise

–Information sourcesIndependent, third-party sourcesFranchisors themselvesExisting and previous franchisees


The Nation’s Top Fifteen New FranchisesThe Nation’s Top Fifteen New FranchisesThe Nation’s Top Fifteen New FranchisesThe Nation’s Top Fifteen New Franchises

1. Curves for Women

2. Ace America’s Cash Express

3. Home Instead Senior Care

4. Cash Converters Int’l Franchise Group

5. The Mad Science Group

6. Mister Money—USA Inc.

7. House Doctors

8. Atlanta Bread Company

9. Bennigan’s Grill & Tavern

10. Wetzel’s Pretzels

11. Sport Clips

12. Dealer Specialties

13. Tilden for Brakes Car Care Centers

14. MilliCare Environmental Services

15. Talking Book World

Source: By permission of Entrepreneur magazine, 2445 McCabe Way, Irvine, California 92614. For subscription information call 1-800-421-6229. #8788 Reprinted by Reprint Management Services, (717) 399-1900, http://www.rmsreprints.com—[email protected].


Franchising from theFranchising from theFranchisor’s PerspectiveFranchisor’s Perspective

Franchising from theFranchising from theFranchisor’s PerspectiveFranchisor’s Perspective

• Benefits– Reduction of capital

requirements– Increase in

management motivation

– Speed of expansion

• Drawbacks–Reduction in control–Sharing of profits–Increase in

operational support costs


Legal Considerations in FranchisingLegal Considerations in FranchisingLegal Considerations in FranchisingLegal Considerations in Franchising

• The Franchising Contract–Signed with legal counsel present–Contains a termination and transfer provision–Contains statement of rights to renew contract


Franchise Disclosure RequirementsFranchise Disclosure RequirementsFranchise Disclosure RequirementsFranchise Disclosure Requirements

A. Basic Requirement: Franchisors must furnish potential franchisees with written disclosures providing important information about the franchisor, the franchised business and the franchise relationship, and give them at least ten business days to review it before investing.

B. Disclosure Option: Franchisors may make the required disclosures by following either the Rule’s disclosure format or the Uniform Franchise Offering Circular Guidelines prepared by state franchise law officials.

C. Coverage: The Rule primarily covers business-format franchises, product franchises, and vending machine or display rack business opportunity ventures.

D. No Filing: The Rule requires disclosure only. Unlike state disclosure laws, no registration, filing, review or approval of any disclosures, advertising or agreements by the FTC is required.

E. Remedies:The Rule is a trade regulation rule with the full force and effect of federal law. The courts have held it may only be enforced by the FTC, not private parties. The FTC may seek injunctions, civil penalties and consumer redress for violations.

Fig. 6-3


Items Covered in the Uniform Franchise Items Covered in the Uniform Franchise Offering Circular (UFOC)Offering Circular (UFOC)

Items Covered in the Uniform Franchise Items Covered in the Uniform Franchise Offering Circular (UFOC)Offering Circular (UFOC)

1. The franchisor, its predecessors and affiliates

2. Business experience

3. Litigation

4. Bankruptcy

5. Initial franchise fee

6. Other fees

7. Initial investment

8. Restrictions on sources of products and services

9. Franchisee’s obligations

10. Financing

11. Franchisor’s obligations

12. Territory

13. Trademarks

14. Patents, copyrights, and proprietary information

15. Obligation to participate in the actual operation of the franchise

16. Restrictions on what the franchisee may sell

17. Renewal, termination, transfer, and dispute resolution

18. Public figures

19. Earnings claims

20. List of outlets

21. Financial statements

22. Contracts

23. Receipt

Fig. 6-2

Part 3 PowerPoint Presentation by Charlie Cook Copyright © 2003 South-Western College Publishing....

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