Chapter 5: Franchising (Part Two)
no standard form of franchise agreemenT
Although franchise agreements follow a certain format, there is _______ because the terms, conditions, and methods of operations of various franchises may vary, depending on the type of franchise.
Franchise Agreement
An essential franchise document is the __________, a legally binding document executed by franchisor and franchisee which sets forth what a franchisee is obligated to do in the operation of their franchise and what a franchisor is obligated to do to support franchisees.
Franchise Agreement
Goes into detail to explain all aspects of the franchisee/franchisor relationship. This includes information regarding operational standards, proprietary statements, and franchisee responsibilities such as site maintenance, remodeling requirements, and franchisee financial obligations
Item 11: Franchiser Obligations
One of the lengthier and more important disclosure items is the franchisor obligations, including the services it provides to franchisees. The franchise agreement, are legally binding.
Item 6: Royalties and Other Fees
One of the more important Items describes continuing fees that the franchisee is obligated to pay as stipulated in the franchise agreement. These fees can be based on a percent of revenues, a fixed dollar amount, or a combination of both.
Franchise Disclosure Document
Provides an overview and description of key components of the franchise program
staff member
Some franchise use consultants as a ____ who can provide marketing services and construct training manuals.
Franchise Development:
This is a critical and unique component of the franchise business plan that presents a strategy for growing the franchise system. It should provide an overview of the marketing strategy for developing a franchise network, targeted markets and advertising, and promotional programs used to recruit qualified candidates.
Item 12: Territory
This item describes the territory where franchisee customers, revenues, and future growth will originate.
Item 5: Initial Franchise Fee
This item highlights the fees a franchisee must pay before a franchised business opens for business. It includes franchise rights, use of the brand, training, operations manual, and grand opening support.
business plan
Without a________, a potential franchisor would lack a detailed plan to navigate the launch and development of a successful franchise.
A franchisee territory
______ may be exclusive, protected, or open. If the territory is too small, generating revenue can be difficult, and franchisees must compete for customers within a territory.
The unit franchise model
_________is important because it conforms to most franchise concepts that require an onsite owner-operator.
The basis of a franchisee-franchisor relationship
_________is royalties a franchisee must pay for the right to operate under the franchise brand, operating system, and territory.
business plan
can be used to raise capital and prompt franchise management to answer questions pertaining to the franchise venture.
business plan
can help manage the franchise operation and identify important timelines and goals.
Franchise Opening
describes how many days before a franchise opens for business.
The Franchise Territory
describes the area a franchise can operate within, where franchisees can open a location and sell their products or services. It can prevent potential conflicts among franchisees.
Grant of the Franchise
describes the franchise and products or services it provides, the products a franchisee is allowed to sell and the product/service characteristics that must be maintained in order to achieve system-wide standards.
Franchisee Defaults
details the specific items under which a franchise can be placed in default of their franchise agreement, how many days are required to cure the default; if not cured, the franchise may be terminated.
Item 9: Franchisee's Obligations
discloses principal obligations for operating a franchise. This item is essential, as the highlighted obligations, which are also presented in the franchise agreement, are legally binding.
Franchise consultants
have experience as a franchise executive or former owner of a franchise company, so they understand the process of launching and implementing a franchising strategy.
Due diligence
is needed when choosing a franchise consultant.
The franchise attorney
is one of the most important members of the franchise team
Franchise consultant
offers advice on the non-legal components of franchising, such as how to determine the initial franchise fee, royalties, and structure the franchise territory.
The Franchise Attorney
provide an overview of the franchise process, ask questions regarding the franchise operation, and recommend how a franchise should be structured.
franchise business plan
represents an important strategic document that describes and summarizes how a new franchisor will meet its operational and financial goals.
Royalties and fees
specify the amount of money the franchisee is obligated to pay along with frequency and payment method. It contractually binds a franchisee to pay royalty and other fees on a continuing basis.
The Franchise Term
states the length of an initial franchise and renewal terms. Can range from 5 years to as long as 20 years, in the case of hotel and certain fast-food franchises.
eight
there are_______ FDD items that may require further explanation.
attorney
Because the franchise industry is regulated by the Federal Trade Commission and several states, it is important to consult with an ________ familiar with franchisor compliance, regulatory requirements, and the franchise business model.
amended or clarified
Certain obligations and requirements may be________in the Franchise Operations Manual, excluding material provisions of the franchise agreement such as royalty payments, fees, franchise term and renewal, and default and termination provisions.
Item 4: Franchising Model
The franchising business model is used to develop the franchise system.
Item 7: Estimated Initial Investment
The franchisor must disclose minimum and maximum investments of all fees, costs, and expenses that a franchisee will incur prior to operating the franchised business.
10 years with a 5-year renewal term
The most common franchise term is __________.
unit franchise and multi-franchise
The two most popular models are the __________ and _________.
Brand strategy:
This describes the marketing plan for the franchise, highlighting how the franchise will be marketed, to whom, and where. This is an important element because it describes the specific methods used to develop brand recognition.
Competition:
This section contains an in-depth analysis of potential competitors, including both franchise systems and non-franchise businesses. It highlights the strengths and weaknesses of competitors and elaborates on how potential franchisees may deal with them effectively by highlighting counter strategies and approaches to allay major concerns that may hinder success.
Franchise Concept:
This section describes the core business idea of the franchise system and what makes it appealing. It should explain what sets the business apart from the competition. A reader should be able to understand the products or services a franchise will offer its customers and how these may differ from those of competitors.
Product features and benefits:
This section describes the key features of the franchise, products, or services. It is important to be clear not only about distinguishing features of a product or service but to delineate customer benefits.
The Market:
This section describes the potential market size and specifies the local or national scope and strategies that a franchise system will focus on in company-operated locations. Most importantly, it highlights the trends in a particular market and whether the market is growing, stable, or shrinking.
Franchise Leadership:
This section highlights individual profiles of the management team and specifies key responsibilities. It may describe the characteristics of the management team that contribute to the success of the franchise launch and development.
Financial Projections:
This section should include franchisor and franchisee pro forma financials which include projected revenue/ income streams: This is an important component of any business plan because it represents projected cash flow and income statements, i.e., how much a franchise stands to earn.
The Executive Summary:
This should be short and concise - one page is ideal. It is perhaps the most important section, as most readers often do not read the entire plan. It should include a brief overview of the business strategy and describe the franchise product or service, market and major competitors, why the product or service has promise, and what distinguishes them from other franchises
Item 19: Financial Performance Representation
Under Federal Trade Commission rules, information about the financial performance of a franchise such as average franchisee revenues or profits can only be disclosed in Item 19 to be given to a prospective franchisee.
