Franchising Reviewer

Buying an existing franchise: advantages

-business is already up and running -risk and uncertainty may be reduced -basic infrastracture: -established location -existing customers and reputation -employees -vendors -policies and procedures =cash flows -no start-up period -easier to obtain financing

Buying a new franchise: disadvantage

-cost more(fees,royalties,supplies) -smaller profit margins -lack of independence and freedom -difficult to achieve redress if franchisor fails to meet onligation -a franchisor's problem may become your problem

Criteria for selecting a franchise

-costs -your abilities -demand and competition -brand name -training and support -franchisor's experience -expansion plans

Franchisor provide support such as

-financing (sometimes) -advertising and marketing -training

Key Items in the Disclosure document

-initial investment -franchisor's obligations -renewal, termination, transfer and dispute resolution -earnings claims -list of franchise outlets -contracts

starting a new business advantages

-lower start-up cost -independence and creative freedom -freedom with location and procedures -no inherited problems

Disadvantage of owning a franchise

-not completely independent/ has rules and restrictions -must pay ongoing royalties and ads fees -must be careful to balance restrictions and support -damaged,system-wide image can result if others are perdorming poorly -may have little or no say about the terms of a termination

starting a new business disadvantage

-requires more time and energy -high risk of failure -takes longer to become profitable -financing may be more difficult to obtain

Important pre-opening support

-site selection -design and construction -financing -training -grand-opening program

Ongoing support

-training -ntl and regional ads -operating procedures/operational assistance -ongoing supervision and management support -increased spending power and access to bulk purchasing

Two main franchising legal documents

1. Disclosure document (UFOC) 2. Franchise Agreement

alternative to franchising

1. Distributorships: has a contactual relationships with the supplier 2. Licensing: allows a licensee to pay for the rights to use a particular trademark

Franchise Agreement include

1. franchise system: trademarks and products 2. territory 3. rights and obligation of the parties 4. term of the franchise 5. payments made by the franchisee to the franchisor 6. termination and/or the right to transfer the franchise

UFOC includes

1. franchisor 2. company's key staff 3. management's experience in franchise management 4. franchisor's bankcruptcy and litigation history 5. inititial and ongoing fees 6. required investments and purchases 7. territory rights 8. responsibilities of the franchisor and franchisee 9. other franchisees in the system with contact information

Information found in the UFOC

1. franchisor, it's predecessor and affiliate 2. Business experience 3. Litigation 4. Bankruptcy 5. Initial franchise fees 6. Other fees 7. Initial investment 8. Restriction on source of products and services 9. Franchisee's obligations 10. Financing available 11. Franchisor's obligations 12. Territory 13. Trademarks 14. Patents, copyrights and proprietary information 15. Obligations to participate in the actual operation of the franchise business 16. Restriction on what the franchisee may sell 17. Renewal, termination, transfer and dispute resolution 18. Public figures 19. Earnings claims 20. List of franchise outlets 21. Financial statements 22. Contracts 23. Receipt ​

Types of Franchises

1. product distribution franchises 2. business format franchises

Types of Franchise Arrangements

1. single unit (direct unit) franchise 2. multi-unit franchise: -area development -master franchise(sub-franchising)

Key subjects in the Franchise Agreement

1. use of trademark 2. location of the franchise 3. term of the franchise 4. franchisee's fees and other payments 5. Obligations and duties of the franchisees 6. Restriction on goods/services offered 7. Renewal, termination and transfer of franchise agreement

Income Statement

A financial statement that reports a company's revenues and expenses and resulting net income or net loss for a specific period of time.

Multi-Unit Franchise

Under this structure, the franchisor grants the franchisee the right to own and operate more than one unit at the outset of the relationship.

UFOC

Uniform Franchise Offering Circular, UFOC, is one format for the disclosure document which provides information about the franchisor and franchise system to the prospective franchisee

Steps for beginning a business

What business Is there a market Can you afford it Can you make enough money to make it worthwhile

business format franchise

a broad franchise agreement in which the franchisee pays for the right to use the name, trademark, and business and production methods of the franchisor

master's franchise agreement

gives franchisee more rights than an ADA. Has the right to sell franchises to other people within the territory, known as sub-franchises.

Franchisor

owns trademark or trade name receive fees

Franchisee

uses trademark or trade name expands business with franchisor's support pays fees

Manufacturer-Wholesaler relationship

where the franchisee under license, manufactures and distributes the franchiser's product

Manufacturer-Retailer relationship

where the retailer, as franchisee, sells the franchiser's product directly to the public

Retailer-Retailer relationship

franchiser markets a service or product under a common name and standardized system, through network of franchisees

disclosure statement

- also known as the UFOC, or Uniform Franchise Offering Circular, the disclosure document provides information about the franchisor and franchise system

Single-unit franchise

-Franchisor grants a franchisee the rights to open and operate ONE unit. -Simplest and most common type -Can purchase additional units—ONE at a time

Advantage of owning a franchise

-Go into business for yourself, but not by yourself -provides franchisees with a certain level of independence where they can operate -provides an established product or service -increases chance of business success

product distribution franchise

Business organization in which the franchisee gains preferred or exclusive access to the products manufactured or supplied by the franchisor, but not the franchisor's system of doing business.

Area Development franchise

Franchisee has the right to open more than one unit during a specific time, within a specified area.

Franchising

a method of business expansion characterized by a trademark license, payment of fees, and significant assistance and/or control

Franchise

agreement or licence between two legally independent parties which gives: -a person/group (franchisee) the right to market a product/service using the trademark or trade name of another business (franchisor)

Commercial marriage

between franchiser and franchisee is ultimately a legal relationship with the full obligations and responsibilities

Buying a new franchise: advantage

reduced risk of failure ◆ proven methods and products ◆ start-up assistance ◆ on-going training and support ◆ local, regional and national advertising franchisor fails to meet obligations ◆ collective purchasing power ◆ research and development ◆ association and synergy with other franchisees ◆ easier to obtain financing

Wholesaler-Retailer relationship

retailer, as franchisee, purchases products for retail sale from a franchiser-wholesaler who have formed a wholesaling company through they are contractually obliged to purchase

Balance sheet

snapshot summary of how much a company is worth on a given day Includes: assets, liabilities and stockholders equity

Buying an existing franchise: Disadvantages

tangible limitations -design problems -location problems -merchandise problems Intagible limitations -customer or employee ill will -pricing problems -inadequate procedures -lease problems Potentially higher costs to buy Legal liability in inheriting lawsuits

Trademark

the franchisor's identifying marks, brand name and logo that are licensed to the franchisee

franchise agreement

the legal, written contract between the franchisor and franchisee which tells each party what each is supposed to do

Royalty

the regular payment made by the franchisee to the franchisor, usually based on a percentage of the franchisee's gross sales