1. Franchising Opportunities
part 3
Pursuing New Venture Opportunities 6
Franchising Opportunities
PowerPoint Presentation by Charlie Cook
12e
Copyright © 2003 South-Western College Publishing.
All rights reserved.

2. Looking Ahead After studying this chapter, you should be able to:
Explain franchising terms and the structure of the industry.
Identify the major pros and cons of franchising
Describe the process for evaluating a franchise opportunity.
Discuss certain legal considerations in franchising.
Copyright © by South-Western College Publishing. All rights reserved.

3. Franchising Terms Franchising Franchise contract Franchise
A marketing system revolving around a two-party agreement, whereby the franchisee conducts business according to the terms specified by the franchisor
Franchise contract
The legal agreement between franchisor and franchisee
Franchise
The privileges conveyed in the franchise contract
Copyright © by South-Western College Publishing. All rights reserved.

4. Franchising Terms (cont’d)
Franchisee
An entrepreneur whose power is limited by a contractual agreement with a franchisor
Franchisor
The party in the franchise contract that specifies the methods to be followed and the terms to be met by the other party
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5. Types of Franchises Product and Trade Name Franchise
Grants the right to use a widely recognized product or name
Business Format Franchise
Provides an entire marketing system and ongoing guidance from the franchisor
Piggyback Franchising
The operation of a retail franchise within the physical facilities of a host store
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6. Types of Franchises (cont’d)
Master Licensee
An independent firm or individual acting as a sales agent with the responsibility for finding new franchises within a specified territory
Multiple-Unit Ownership
Holding by a single franchisee of more than one franchise from the same company
Area Developers
Individuals or firms that obtain the legal right to open several franchised outlets in a given area
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7. The Structure of Franchising
Franchisee- Owned Operating Units
Franchisor
Company- Owned Stores
Franchise Parties
Master Licensee/ Area Developers
Industry Associations (example: IFA)
Business/Consulting Firms (example: Franchise Connections)
Federal/State Agencies (example: FTC)
Franchise Facilitators
Fig. 6-1
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8. The Pros and Cons of Franchising
Advantages
Probability of success
Proven line of business
Pre-qualification of franchisee
Training
Franchisor-provided
Financial assistance
Franchisor assistance
Operating benefits
Franchisor-aided
Limitations
Franchise costs
Initial franchise fee
Investment costs
Royalty payments
Advertising costs
Restrictions on Business Operations
Loss of independence
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9. Franchisor Controls on Franchisees
Restricting of sales territory
Requiring site approval and imposing requirement on the outlet’s appearance
Restricting the goods/ services that can be sold
Requiring specific operating hours
Controlling advertising
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10. The Pros and Cons of Franchising
Pluses
Minuses
Formalized training
Financial assistance
Proven marketing methods
Managerial assistance
Quicker startup time
Overall lower failure rates
Franchise fees
Royalties
Restrictions on growth
Less independence in operations
Franchisor may be sole supplier of some supplies
Termination/renewal clauses
Fig. 6-2
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11. Evaluating Franchise Opportunities
Locating a Franchise Opportunity
Investigating the Potential Franchise
Information sources
Independent, third-party sources
Franchisors themselves
Existing and previous franchisees
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12. The Nation’s Top Fifteen New Franchises
Curves for Women
Ace America’s Cash Express
Home Instead Senior Care
Cash Converters Int’l Franchise Group
The Mad Science Group
Mister Money—USA Inc.
House Doctors
Atlanta Bread Company
Bennigan’s Grill & Tavern
Wetzel’s Pretzels
Sport Clips
Dealer Specialties
Tilden for Brakes Car Care Centers
MilliCare Environmental Services
Talking Book World
Source: By permission of Entrepreneur magazine, 2445 McCabe Way, Irvine, California For subscription information call #8788 Reprinted by Reprint Management Services, (717) ,
Copyright © by South-Western College Publishing. All rights reserved.

13. Franchising from the Franchisor’s Perspective
Benefits
Reduction of capital requirements
Increase in management motivation
Speed of expansion
Drawbacks
Reduction in control
Sharing of profits
Increase in operational support costs
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14. Legal Considerations in Franchising
The Franchising Contract
Signed with legal counsel present
Contains a termination and transfer provision
Contains statement of rights to renew contract
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15. Franchise Disclosure Requirements
Basic Requirement: Franchisors must furnish potential franchisees with written disclosures providing important information about the franchisor, the franchised business and the franchise relationship, and give them at least ten business days to review it before investing.
Disclosure Option: Franchisors may make the required disclosures by following either the Rule’s disclosure format or the Uniform Franchise Offering Circular Guidelines prepared by state franchise law officials.
Coverage: The Rule primarily covers business-format franchises, product franchises, and vending machine or display rack business opportunity ventures.
No Filing: The Rule requires disclosure only. Unlike state disclosure laws, no registration, filing, review or approval of any disclosures, advertising or agreements by the FTC is required.
Remedies:The Rule is a trade regulation rule with the full force and effect of federal law. The courts have held it may only be enforced by the FTC, not private parties. The FTC may seek injunctions, civil penalties and consumer redress for violations.
Fig. 6-3
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16. Items Covered in the Uniform Franchise Offering Circular (UFOC)
The franchisor, its predecessors and affiliates
Business experience
Litigation
Bankruptcy
Initial franchise fee
Other fees
Initial investment
Restrictions on sources of products and services
Franchisee’s obligations
Financing
Franchisor’s obligations
Territory
Trademarks
Patents, copyrights, and proprietary information
Obligation to participate in the actual operation of the franchise
Restrictions on what the franchisee may sell
Renewal, termination, transfer, and dispute resolution
Public figures
Earnings claims
List of outlets
Financial statements
Contracts
Receipt
Fig. 6-2
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