1 SMALL BUSINESS MANAGEMENT Chapter 6 Franchising

2 History and Background of Franchising u Most rapid growth in North America since the 1950s. u 1960s: Franchisee associations formed and legislation to protect rights of franchisees and franchisors. u More than 40% of all retail sales resulted from franchising in North America in the last decade.

3 What Is Franchising? u Manufacturer-Directed Franchise u Wholesaler-Retailer-Directed Franchise u Franchising Company

4 Advantages of Franchising u Proven market for the product or service. u Services the Franchisor May Provide 1. Selection of Location 2. Purchase or Construction of Site, Buildings, and Equipment 3. Provision of Financing

5 Advantages of Franchising u Services the Franchisor May Provide (cont.) 4. Standardized Methods of Operating 5. Advertising 6. Purchasing Advantages 7. Training

6 Potential Disadvantages of Franchising u Lack of Independence u Cost of the Franchise u Unfulfilled Promises u Restrictions of the Contract –Product or Service Offered –Line Forcing –Termination

7 Potential Disadvantages of Franchising (cont) u Saturation of the Market u Lack of Security u Cost of Merchandise u Effectiveness of Promotion u Exaggeration of Financial Success

8 Evaluation of a Franchise Opportunity u Franchisor u Industry Associations u Professionals u Other Franchisees u Government Agencies u Additional Areas to Investigate

9 The Entrepreneur as Franchisor u What businesses can be franchised?

10 The Entrepreneur as Franchisor u 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.

11 Franchising in the Future u “Piggybacking”: Two or more franchise operating in one outlet. u “Branchising”: Converting existing chain outlets to franchises. u “Mini-franchises”: Small satellite versions of larger franchises. u Growth of service-based and home-based franchises

12 Concept Checks u 1. Why is franchising enjoying such rapid growth in the Canadian economy? u 2. What are the three general categories of franchises? u 3. What are the potential advantages of franchising?

13 Concept Checks u 4. What are the potential disadvantages of franchising? u 5. When investigating purchasing a franchise what sources of information are available to assist in making the decision? u 6. What steps are involved in becoming a successful franchisor?

14 Appendices u A. A Sampling of Franchises Operating in Canada u B. Trade Associations and Government Departments that Assist Franchisors and Franchisees u C. A Checklist for the Potential Franchisee; Questions to Answer Affirmatively before Going into Franchising u D. Franchise Contract Clauses