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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
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

franchise ownership
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

franchise ownership1
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

operating costs of a franchise
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

advantages of owning a franchise
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

disadvantages of owning a franchise
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

evaluating a franchise
EVALUATING A FRANCHISE
  • Demand for product or service
  • Exclusive territory
  • Costs
  • Profitability
  • Longevity
  • Services provided by franchisor
  • Loss of independence
  • Cancellation

Chapter 4