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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

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franchising
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
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
top 20 franchises for 2011
Top 20 Franchises for 2011
  • Jan-Pro Franchising Intl
  • Hardee’s
  • Pizza Hut Inc
  • Kumon Math & Reading Cntrs
  • Dunkin’ Donuts
  • KFC Corp
  • Jazzercise Inc
  • Anytime Fitness
  • Matco Tools
  • Stratus Building Solutions
  • Hampton Hotels
  • ampm
  • McDonalds
  • 7-Eleven Inc
  • Supercuts
  • Days Inn
  • Vanguard Cleaning Syst
  • Servpro
  • Subway
  • Denny’s Inc

Source: Entrepreneur.com,Top Franchises for 2011

Source: Entrepreneur.com “Top Low-Cost Franchises in 2011”

the 20 fastest growing franchises 2011
The 20 Fastest-Growing Franchises - 2011
  • Stratus Building Solutions
  • Jan-Pro Franchising International
  • Subway
  • CleanNet USA Inc
  • Anago Cleaning Systems
  • Pizza Hut
  • Liberty Tax Service
  • Vanguard Cleaning Systems
  • Bonus Building Care
  • System4
  • Chester’s
  • McDonalds
  • Anytime Fitness
  • Coldwell Banker Real Estate LLC
  • Jimmy John’s Sandwich Shops
  • ampm
  • 7-Eleven Inc
  • Choice Hotels Intl
  • Cruise Planners/Amer Express
  • Sears Home & Bsns Franchises Inc

Source: Entrepreneur.com, 2011 Fastest-growing franchises

top 12 low cost franchises 2011
Top 12 Low-Cost Franchises - 2011
  • Bonus Building Care

Commercial cleaning 9.02K – 41.92K

  • System4

Commercial cleaning 5.46K – 37.75K

  • ServiceMaster Clean

Commercial , home & disaster cleaning 47.86K – 161.13K

  • Cruise Planners/Amer Express Cruise & tour travel agency 1.6K – 19.29K
  • Chem-Dry Carpet Cleaning Carpet, drapery & upholstery cleaning; tile & stone care 27.85K – 122.65K
  • Vanguard Cleaning

Commercial cleaning 8.2K - 38.1K

  • Jan-Pro Franchising Intl Commercial cleaning 3.15K – 50.41K
  • Kumon Math & Read Cntrs

Supplemental education 67.76K – 145.32K

  • Jazzercise Inc

Dance fitness classes 2.98K – 75.5K

  • Stratus Building Solutions Commercial cleaning 3.45K – 57.75K
  • CleanNet USA Inc

Commercial cleaning 6.66K – 92.95K

  • H & R Block

Tax preparation & electronic filing 34.44K – 110.03K

Source: Entrepreneur.com “Top Low-Cost Franchises in 2011”

the pros and cons of franchising
The Pros and Cons of Franchising
  • Advantages
    • Probability of success
      • Proven line of business
      • Pre-qualification of franchisee
      • Overall lower failure rates
    • Training
      • Franchisor-provided
    • Financial assistance
      • Loans & loan guarantees
    • Operating benefits
      • Location feasibility study
      • Marketing assistance
      • Quick start-up time
  • Limitations
    • Franchise costs
      • Initial franchise fee
      • Investment costs
      • Royalty payments
      • Advertising costs
    • Restrictions on business operations
      • Products sold
      • Hours of operation
      • Restrictions on expansion/growth
      • Franchisor only source of supplies
    • Loss of independence
    • Lack of franchisor support
      • Termination/renewal clauses
franchisor controls on franchisees
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
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 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
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
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
questions to ask before buying a franchise
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
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
Questions to Ask Before Buying a Franchise - 3
  • What is the track record of the franchise?
  • Does the franchisor conduct 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
Questions to Ask Before Buying a Franchise - 4
  • Can you transfer your franchise license to someone else? When and how?
  • How can youterminate the contract? Under what circumstances can this be done?
  • Can the franchisorterminate the contract? Under what kind of conditions?
  • What disclosures are you required to make? What disclosures is the franchisor required to make?
where to find out about franchises
Where to Find out about Franchises
  • www.franchise1.com
  • www.franchising.com
  • www.en.wikipedia.org/wiki/franchising
  • www.entrepreneur.com/franchiseopportunities/index.html
  • www.franchiseinfosite.com

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