1. chapter Buying a Franchise 14 Or Franchising Your Business
Small Business: An Entrepreneur's Plan
Buying a Franchise
Or Franchising Your Business
chapter 14
Prepared by
Ron Knowles
Algonquin College
& Jennifer Rouse Barbeau
Canadore College
Copyright © 2011 Nelson Education Ltd.

2. chapter Chapter Overview 14 Chapter 14 will:
Small Business: An Entrepreneur's Plan
Chapter Overview
Chapter 14 will:
Introduce you to the world of franchising.
Help you decide if buying a franchise or becoming a franchisor is right for you.
chapter 14
Copyright © 2011 Nelson Education Ltd.

3. Learning Opportunities
Small Business: An Entrepreneur's Plan
Learning Opportunities
Appreciate the vast world of franchising.
Understand the key franchising terms and conditions in an agreement.
Understand the relationship between franchisor and franchisee.
Learn the benefits and liabilities of owning and operating a franchise.
Learn how to become a master franchisee.
Learn the process involved in purchasing a franchise.
Understand what it takes to become a franchisor.
Decide whether buying a franchise is the right step for you.
chapter 14
Copyright © 2011 Nelson Education Ltd.

4. What is a Franchise? A franchise is: A franchisor is: A franchisee is:
Small Business: An Entrepreneur's Plan
What is a Franchise?
A franchise is:
A special kind of partnership in which one company (the franchisor) grants the right to sell its products or services to another company or individual (the franchisee).
A franchisor is:
A firm that sells the rights to do business under its name and continues to control the business.
A franchisee is:
The individual operator who is licensed to operate under the franchisor’s rules and directives.
Copyright © 2011 Nelson Education Ltd.

5. The Franchising Industry
Small Business: An Entrepreneur's Plan
The Franchising Industry
Franchised businesses account for 40% of all retail sales.
78,000 franchises across Canada
Canadian Franchise Association membership grows 10% yr
Franchising directly employs 1,000,000 people
Every year, thousands of Canadians are improving their lives by becoming franchisees
Franchising accounts for $90 billion/yr in nation sales & 10% of Canada’s Gross Domestic Product (GDP)
Franchising accounts for 1 out of 5 consumer dollars spent in Canada on goods & services
Copyright © 2011 Nelson Education Ltd.

6. Franchise Systems A business format franchise is:
Small Business: An Entrepreneur's Plan
Franchise Systems
A business format franchise is:
A type of franchise in which the product, method of distribution, sales and management procedures are highly controlled.
Example: GOT JUNK?
A type of franchise in which the franchisee buys the right to distribute a franchisor’s product or service.
Example: Home Hardware or PropertyGuys.com
Copyright © 2011 Nelson Education Ltd.

7. Franchise Networks Direct franchising is: Master franchising is:
Small Business: An Entrepreneur's Plan
Franchise Networks
Direct franchising is:
A business arrangement in which a franchisee deals directly with the franchisor.
Example: Anna Babin dealt directly with PropertyGuys.com.
Master franchising is:
A business arrangement or network in which a franchisor sells the rights of an area or territory to a franchisee who is normally required to sell (or establish) and service a specified number of franchises in a specified time period within its area.
Example: Don Swanston and Matt Eldridge purchased 18 franchise units in British Columbia’s Greater Vancouver Area.
Copyright © 2011 Nelson Education Ltd.

8. What the Customer Receives
Small Business: An Entrepreneur's Plan
What the Customer Receives
Key reasons for buying a franchise:
Customer satisfaction & brand loyalty
A consistent standard of service and product.
A sense of security and familiarity.
A perception that the owner is close by and ready to help.
Copyright © 2011 Nelson Education Ltd.

9. What the Franchisee Receives
Small Business: An Entrepreneur's Plan
What the Franchisee Receives
The franchisee expects to receive:
Brand-name recognition
Support from the corporation (franchisor)
Training
Financial support
A business template—a proven plan and business strategy
Purchasing power
Corporate monitoring and assistance
Less risk of failure
National/regional promotion
Additional units—an opportunity to grow
Copyright © 2011 Nelson Education Ltd.

10. What the Franchisor Receives
Small Business: An Entrepreneur's Plan
What the Franchisor Receives
The franchisor expects to receive:
Franchise fees
Royalty fee
Profit on items sold to franchisee
Volume rebates
Advertising fees
Growth and market
penetration
Copyright © 2011 Nelson Education Ltd.

11. Small Business: An Entrepreneur's Plan
Franchise Agreement
You will likely be required to sign a contract that could be 50 pages long.
This contract lays out the system, rules and regulations that you will be bound by.
Get legal and financial advice.
Do not deposit any money until you have consulted with a lawyer.
Do your research. (Complete Action Step 62 and Box 14.4).
Copyright © 2011 Nelson Education Ltd.

12. Purchasing a Franchise: The Process
Small Business: An Entrepreneur's Plan
Purchasing a Franchise: The Process
Explore franchising
Contact and pre-qualification
Application
Franchisor contact and review
Franchise agreement provided
Negotiate terms
Agreements signed and business begins
Copyright © 2011 Nelson Education Ltd.

13. Buyer Beware Issues that plague the franchising industry: Encroachment
Small Business: An Entrepreneur's Plan
Buyer Beware
Issues that plague the franchising industry:
Encroachment
Ground-floor opportunities
Renewal period
Verbal agreements
Minimum franchise legislation
Signing personally
Few facts
Saturated markets
Poor training
Supplies stipulation
Insiders first
Non-refundable deposits
Copyright © 2011 Nelson Education Ltd.

14. Evaluating a Franchise
Small Business: An Entrepreneur's Plan
Evaluating a Franchise
Ask additional questions
Choose your product or service with care
Reasons for not buying a franchise
You know the business as well as the franchisor
Why pay a franchise fee?
Your individuality may be stifled
See textbook for more
A final word about franchises
Can you work under the franchise controls?
Copyright © 2011 Nelson Education Ltd.

15. Small Business: An Entrepreneur's Plan
Become the Franchisor
Aileen Reid franchised her A.P. Reid Insurance Stores Ltd. business.
Ken LeBlanc franchised his PropertyGuys.com business.
Your business must:
Have a proven and profitable business track record.
Have a competitive advantage.
Be credible, teachable and transferable.
Not be dependent on your personality
You must have the time, money and expertise to develop and grow the franchise system.
Copyright © 2011 Nelson Education Ltd.

16. Business Plan Building Block
Small Business: An Entrepreneur's Plan
Business Plan Building Block
Chapter 14 introduces you to the world of franchising:
Buying a Franchise
Becoming a Franchisor
Copyright © 2011 Nelson Education Ltd.

17. Checklist for Your Business Plan
Small Business: An Entrepreneur's Plan
Checklist for Your Business Plan
Why have you selected a franchise as your method of start-up?
What were your lawyer’s comments on the franchise agreement?
Do your personal vision, goals, and personality match a franchise form of ownership?
Have you considered a master franchise?
Is there a possibility you can franchise your business in the future?
Copyright © 2011 Nelson Education Ltd.

18. Small Business: An Entrepreneur's Plan
PropertyGuys.com
Case
Study
PropertyGuys.com is a successful, high-growth Canadian franchise system.
Answer Chapter 14 case study questions to learn:
What was PropertyGuys.com major driving force or competitive strategy?
Which franchise system and network did PropertyGuys.com use?
Begin a franchise checklist.
What are the most important franchise evaluation criteria?
Are you ready to franchise your business? What questions should you be asking?
Copyright © 2011 Nelson Education Ltd.