History and Background of Franchising Most rapid growth in North America since the 1950s. 1960s: Franchisee associations formed and legislation to protect rights of franchisees and franchisors. More than 40% of all retail sales resulted from franchising in North America in the last decade.
What Is Franchising? Manufacturer-Directed Franchise ____________ Wholesaler-Retailer-Directed Franchise ____________ Franchising Company ____________
Franchising Terms ____________ An entrepreneur whose power is limited by a contractual agreement with a franchisor Franchisor The party in the ____________ contract that specifies the methods to be followed and the terms to be met by the other party
Franchising Terms Product and Trade Name Franchise Grants the right to use a widely recognized product or name Business _______ Franchise Provides an entire marketing system and ongoing guidance from the _______ Piggyback Franchising The operation of a retail franchise within the physical facilities of a host store
Reading the Fine print Briefly discuss the advantages and disadvantages of franchising that are identified in this example. What could prospective franchisees do to reduce the risks of the problem identified in this example?
Advantages of Franchising Proven _______ for the product or service. Services the Franchisor May Provide 1. Selection of _______ 2. Purchase or Construction of Site, Buildings, and Equipment 3. Provision of _______
Advantages of Franchising Services the Franchisor May Provide (cont.) 4. Standardized _______ of Operating 5. Advertising 6. Purchasing _______ 7. Training
Potential Disadvantages of Franchising Lack of _______ Cost of the Franchise Unfulfilled _______ Restrictions of the Contract Product or Service Offered Line Forcing Termination
Potential Disadvantages of Franchising (cont) Saturation of the _______ Lack of Security Cost of _______ Effectiveness of Promotion Exaggeration of _______ Success
Evaluation of a Franchise Opportunity Franchisor Industry _______ Professionals Other Franchisees Government Agencies Additional _______ to Investigate
The Entrepreneur as Franchisor What businesses can be franchised?
The Entrepreneur as Franchisor How does one become a franchisor? 1. Establish a prototype. 2. Prepare the necessary information. 3. Investigate the legal requirements. 4. Develop a planned and standardized program of operations. 5. Obtain adequate financing.
Franchising in the Future “Piggybacking”: Two or more franchise operating in one outlet. “Branchising”: Converting existing chain outlets to franchises. “Mini-franchises”: Small satellite versions of larger franchises. Growth of service-based and home- based franchises
Franchising Frauds The Rented Rolls Royce Syndrome The Hustle The Cash-Only Transaction The Boast The Big-Money Claim The Couch Potato’s Dream Location, Location, Location The Disclosure Dance
Appendices A. A Sampling of Franchises Operating in Canada B. Trade Associations and Government Departments that Assist Franchisors and Franchisees C. A Checklist for the Potential Franchisee; Questions to Answer Affirmatively before Going into Franchising D. Franchise Contract Clauses