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Lesson 4.2 OWN A FRANCHISE OR START A BUSINESS

Lesson 4.2 OWN A FRANCHISE OR START A BUSINESS. Evaluate franchise ownership. Recognize the advantages and disadvantages of starting a new business. GOALS. FRANCHISE OWNERSHIP.

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Lesson 4.2 OWN A FRANCHISE OR START A BUSINESS

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  1. Lesson 4.2OWN A FRANCHISE OR START A BUSINESS • Evaluate franchise ownership. • Recognize the advantages and disadvantages of starting a new business. GOALS Chapter 4

  2. FRANCHISE OWNERSHIP • A franchise is a legal agreement that gives an individual the right to market a company’s products or services in a particular area. • A franchisee is the person who purchases a franchise agreement. • A franchisor is the person or company that offers a franchise for purchase. Chapter 4

  3. Franchise Ownership • More than 500,000 people in the US owne franchises and the number is growing. • Franchising opportunities are available in virtually every field, from motels to pet stores to video outlets • Sources you can find information about franchises include • Consumer Guides • Books • Wall Street Journal • Magazines Chapter 4

  4. OPERATING COSTS OF A FRANCHISE • Initial franchise fee • Fee the franchise owner pays in return for the right to run the franchise • Usually non-refundable and a few thousand to a few hundred thousand dollars • Start-up costs • Costs associated with beginning a business • Royalty fees • Weekly or monthly paymnets made by the owner of the franchise to the seller of the franchise • Usually a percentage of the franchises income • Advertising fees • Fees paid to support TV, magazine or other advertising of the franchise as a whole Chapter 4

  5. ADVANTAGES OF OWNING A FRANCHISE • An entrepreneur is provided with an established product or service. • Can compete with giant companies • Franchisors offer management, technical, and other assistance. • Onsite training or classes and tips • Equipment and supplies can be less expensive. • Because franchises are part of large chains, they are able to purchase in huge quantities • Discounts passed on to individual franchisee • A guarantee of consistency attracts customers. • Customers know quality of franchise Chapter 4

  6. DISADVANTAGES OF OWNING A FRANCHISE • Franchises can cost a lot of money and cut down on profits. • Initial capital to buy franchise is high • Often profits you receive as franchisee must be reutrned to franchisor as royalty fees • Owners of franchises have less freedom to make decisions than other entrepreneurs. • Franchisees can only offer certain products and services that have already been decided by franchisor • Franchisees are dependent on the performance of other franchisees in the chain. • Customers opinions and other franchise reputations follow you around • The franchisor can terminate the franchise agreement. • If franchisee fails to pay royalty fees, or meet other agreements, the franchise can be lost Chapter 4

  7. EVALUATING A FRANCHISE • Demand for product or service • Exclusive territory • Costs • Profitability • Longevity • Services provided by franchisor • Loss of independence • Cancellation Chapter 4

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