SMALL BUSINESS MANAGEMENT Chapter 6 Franchising

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