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Fundamentals of Franchising. Started in 1960, the IFA is the world’s oldest and largest organization representing this unique way of doing business Mission: Enhance and safeguard the business environment for franchisors and franchisees worldwide

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international franchise association
Started in 1960, the IFA is the world’s oldest and largest organization representing this unique way of doing business

Mission: Enhance and safeguard the business environment for franchisors and franchisees worldwide

Currently have over 30,000 members, spanning 75 different industries, doing business in more than 100 countries

International FranchiseAssociation
spans more than 75 industries
Accounting/Tax Services

Automotive Products/Services

Business Services

Children’s Services

Clothing & Shoes

Construction/Remodeling

Cosmetics

Educational Services

Employment Services

Environmental Services

Restaurants

Hair salons

Home furnishings

Hotels/Motels

Janitorial Services

Laundry/Dry Cleaning

Lawn & Garden

Maid Services

Printing Services

Real Estate

Spans more than 75 industries
u s franchise market
More than 760,000 franchised businesses in the United States

Accounts for 9.5% of the private sector output

Directly provides jobs for almost 10 million Americans

Combining both direct and indirect job activity, franchising generates one out of every seven jobs in the private sector

U.S. Franchise Market
what is franchising
A marketing method in which the owner of a product or service, known as the “franchisor”, offers the right to operate and manage his product & service to others, the “franchisees”, in return for a fee and ongoing royalty payments.What is Franchising?

Franchisor

- Know-How - Support- Trademark

Franchisee

- Initial Fee - Royalty,- Infrastructure

advantage to franchisors
Franchisor can expand without direct investment

Store operators are usually owners, not managers

Advantage to Franchisors
advantage to franchisees
In many cases, no previous experience required

In business for yourself, but not by yourself

Affiliate with a brand name

Become part of a “proven system”

Receive on-going training and support

Access to product and equipment

Advantage to Franchisees
franchising is not
A guarantee of success

Like any business, still risks

For everyone

Consistency is key to franchising

A short-term commitment

Average contract is 10 years

Franchising is NOT...
slide9
Evaluate yourself first

Do you require a certain annual income level?

How many hours are you willing to work?

Do you want to operate business yourself or hire manager?

How much can you invest?

Is franchising for you?

How to Evaluate a Franchise

how to evaluate a franchise cont d
Research your options

Attend franchise exhibitions and seminars

Read franchise directories, articles and books

Use the Internet (www.franchise.org)

How to Evaluate a Franchise (Cont’d)
how to evaluate a franchise cont d1
How to Evaluate a Franchise (Cont’d)
  • Thoroughly investigate the franchise
    • Conduct market research
    • Evaluate strength of franchisor
    • Call existing and former franchisees
    • Get written substantiation for earnings claims
    • Hire a lawyer or accountant familiar with franchising
    • Read the Disclosure Document, or UFOC
what is the ufoc
What is the UFOC?
  • Uniform Franchise Offering Circular (UFOC)
  • Disclosure Document required by Federal Trade Commission (FTC)
  • Purpose is to provide prospective franchisees with information about the franchisor, franchise system and the agreements they will need to sign so they can make an informed decision
the ufoc contains
Experience of franchise management

Bankruptcy and litigation history

Initial and ongoing fees

Territory rights

Contact list of current and former franchisees

Franchise Agreement you will be required to sign

The UFOC contains...
how much does a franchise cost
Initial Franchise Fee

70% of franchise systems have a fee of $30,000 or less

Start-up Costs

75% of franchise systems require start-up capital of less than $250,000

Royalty Payments

Typically 3-6% of monthly gross sales

Pays for trademark usage, training, etc.

How much does a franchise cost?

Source: Profiles in Franchising Vol. III; IFA Educational Foundation; 2/00

financing sources
Small Business Administration (SBA) Loans

Arranged through banks, part of loan guaranteed by SBA

www.franchiseregistry.com

Small Business Investment Companies (SBICs)

- Provide equity capital and long-term debt financing

Direct financing from franchisor

Not all franchisors offer it

Many have preferred lending relationships

Financing Sources
what do lenders look for
15-40% of total capital needed

Ideally, a net worth of 1 1/2 to 2 times the loan amount

Solid business plan

Good credit history

What do lenders look for?
ifa s veterans transition franchise initiative vetfran
Launched in 1991 during the Gulf War; re-launched in 2002.

Supported by the IFA, U.S. Department of Veterans Affairs; Small Business Administration and the Veterans Corporation.

Offers honorably discharged veterans financial discounts to own a franchise, I.e. reduced initial franchise fee.

More than 140 franchise companies participating

More than 100 franchises have been awarded through the program

IFA’s Veterans Transition Franchise Initiative (VetFran)
summary
In business for yourself, but not by yourself

Many opportunities in a wide variety of industries

Evaluate yourself first

Research your options

Thoroughly investigate franchise

Summary
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