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Franchise Business Overview Presented by Jon Gregory February 2, 2006

Franchise Business Overview Presented by Jon Gregory February 2, 2006. Franchise Basics. A legal and commercial relationship between the owner of a trademark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business.

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Franchise Business Overview Presented by Jon Gregory February 2, 2006

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  1. Franchise Business Overview Presented by Jon Gregory February 2, 2006

  2. Franchise Basics • A legal and commercial relationship between the owner of a trademark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. • Each franchise business has been authorized by a parent company, or franchisor, to sell their goods and/or services either in a retail space or a designated geographical area. • The franchise governs the method of conducting business between the two parties. This relationship is regulated by FTC laws. • Generally, a franchisee sells goods or services supplied by the franchisor or that meet the franchisor's quality standards.

  3. Franchise Options • There are three main types of franchising: • Product/trade name franchising: A franchisor owns the right to the name or trademark and sells that right to a franchisee. • Business format franchising: Franchisors provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing. • Distributorships: A parent company grants the right to a franchisee to sell their products.

  4. Disadvantages • Loss of independence • Franchisee is required to operate the business according to the franchisor's manuals and procedures • Other franchisees • Poorly performing fellow franchisees or company- owned locations damage a franchisee's business even where they do not share the same market • Income expectations • Added costs for royalties, advertising, additional training, and other services potentially reduce a franchisee's earnings • Franchising inelasticity • Franchise systems are bound together through legal agreements between franchisors and franchisees

  5. Advantages • Overall benefits • Quality and consistency • Brand recognition • Built-in customer base • Pre-opening benefits • Franchise fee includes training, operations manuals, site selection tools, store design, construction programs • Network of other franchisees and parent company • Ongoing benefits • Access to training programs • Purchasing power that comes from joining with others • Professionally designed marketing materials • Combined advertising spending

  6. Reasons Franchises Fail • SBA reports 30% of independent, non-franchise companies fail during their first year • Conversely, the U.S. Dept. of Consumer Affairs reported that less than 5% franchises fail • The idea. Make sure business model can be duplicated in your community. • Bad location. "Location, location, location." • Poor marketing/advertising. Local and national efforts. • Competition. Is there market saturation? • Unrealistic expectations. Prepare for profits later. • Other issues • Must expect long hours • Must manage employees • Must enjoy dealing with people

  7. Franchise Arrangements • Single-unit or direct-unit franchises • Multi-unit franchises • Multiple single-unit operators (many franchisees, one area) • Area development (one franchisee, one area) • Master franchises (ability to re-sell)

  8. Due Diligence • Know your market • Comparison shop • Study the franchisor's offering • Find out what training and support the franchisor provides • Talking to existing franchisees • Uniform Franchise Offering Circular • disclosure document or offering prospectus

  9. Questions For Franchisees • Are you happy with your franchisor? • How long did it take for you to realize a return on investment? • What are your approximate earnings and are they in line with your expectations? • Did your franchisor adequately estimate the amount of operating cash that you needed? • Was the training your franchisor provided thorough and did it sufficiently prepare you to run this business? • Were there any hidden franchise fees or unexpected costs? • Is your territory big enough to hit your goals? • Are there restrictions on the products you sell and use in your business? Are you required to use designated vendors? • Does the franchisor advertise as much as it said it would? • What type of business experience, education and skills did you possess before buying this franchise?

  10. Top 10 Fastest Growing Franchises • Subway • Pizza Hut • Quiznos Sub • Jan-Pro Franchising Int’l, Inc. • Curves • Jani-King • Jackson Hewitt Tax Service • UPS Store • Coveall Cleaning Concepts • CleanNet USA, Inc. Source: Entrepreneur.com

  11. Top 10 Low-Cost Franchises • Curves • Jackson Hewitt Tax Service • Jan-King • Re/MAX Int’l, Inc. • Liberty Tax Service • Jan-Pro Franchising Int’l, Inc. • ServiceMaster Clean • Kumon Math & Reading Centers • Jazzercise, Inc. • Chem-Dry Carpet Drapery & Upholstery Cleaning Source: Entrepreneur.com

  12. Top 10 New Franchises • Geeks on Call America • Moe’s Southwest Grill • EmbroidMe • Chester’s Int’l, LLC • ISold It • United Shipping Solutions • Super Wash • Handyman Matters Franchise, Inc. • Robeks Fruit Smoothies & Healthy Eats • 1-800 Water Damage Source: Entrepreneur.com

  13. Franchise Costs • Franchise fees • Amount you pay the franchisor to offset the franchisor's cost of locating, screening, negotiating with, and training you • May also cover the costs involved in site selection, promotions, grand opening events, and ongoing support • Franchise fees can be more than $100,000 • The franchise fee typically range between $20,000 to $25,000. • Training Costs • Cost of tuition for initial training is usually included in your franchise fee; Likely need to pay for staff training • Start-up costs • Total start-up costs can be as low as $20,000 to $1M • Typical investment for a single-unit franchisee is usually $100,000 to $300,000, including franchise fee and start-up costs • The average investment is detailed in the UFOC • Most franchisors want to see a liquid (read cash) capital investment of 35 to 50% of the total franchise cost (that's the franchise fee plus all start-up costs)

  14. Franchise Resources • Franchise-Zone.com • International Franchise Association • Franchise.com • FranchiseSolutons.com • FranchiseGator.com • FranchiseOpportunities.com • FranchiseSystems.com • FranchiseAdvantage.com • BizBuySell.com • FranchiseWorks.com

  15. Golden Capital Network Thank you. Contact: Jon Gregory Golden Capital Network jon@goldencapital.net 530-893-8828

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