FRANCHISING

HARVEY MACKAY

"Find something you love to do and you'll never have to work a day in your life."

FRANCHISE OPERATION

'a contractual relationship between the franchisor and franchisee in which the franchisor offers or is obliged to maintain, a continuing interest in the business of the franchisee in such areas as knowhow and training; wherein the franchisee operates under a common trade name, format, or procedure owned by or controlled by the franchisor, and in which the franchisee has made or will make a substantial capital investment in his business from his own resources'.

HARVEY MACKAY

Find something you love to do and you'll never have to work a day in your life.", who said this statement

✔ satisfy a need or ✔ solve a problem or ✔ respond to a trend

All successful businesses must:

• training • national and regional advertising • operating procedures and operational assistance • ongoing supervision and management support • increased spending power and access to bulk purchasing (in some cases)

Franchises offer ongoing support

TRUE

Once you make the decision to start your own business, you need to decide whether you want to be an independent business owner or a franchisee. TRUE/FALSE

start a new business buy a new franchise buy an existing franchise

Options for beginning a business

TRUE

Some distribution arrangements are similar to franchises, and vice versa. TRUE/FALSE

DISCLOSURE DOCUMENT

which may be in the format known as the UFOC.

AREA DEVELOPMENT FRANCHISE

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

DISCLOSURE PART OF DOCUMENT, THE UFOC

includes the actual franchise agreement as well as other agreements the franchisee will be required to sign, along with the franchisor's financial statements.

FRANCHISING

is a French term, which when translated means 'a granting of right' or 'an exemption' (Williamson, 1992).

MULTI-UNIT FRANCISE

is an agreement where the franchisor grants a franchisee the rights to open and operate MORE THAN ONE unit.

THE UFOC

is designed to give you some of the information you need in order to make an informed decision about investing in a particular franchise.

UNIFORM FRANCHISE OFFERING CIRCULAR

is one format for the disclosure document which provides information about the franchisor and franchise system to the prospective franchisee

support elements fall into four main categories:

location, initial training, marketing and continuing education.

DISTRIBUTOR

may be subject to many controls by the supplier/producer and begin to resemble a franchise.

DISTRIBUTOR

may do business with many companies, more than just the supplier/producer

DISTRIBUTOR

may not receive contractual support and training from the supplier/producer like a franchisee

BUSINESS FORMAT FRANCHISES

not only use a franchisor's product, service and trademark, but also the complete method to conduct the business itself, such as the marketing plan and operations manuals.

fast food retail service automotive restaurants maintenance building and construction retail—food business services lodging

10 most popular franchising opportunities are in these industries:

A franchise is a legally separate enterprise operating in some way under the umbrella of another organization. All franchises involve setting up using a complete format developed by another company, including trade name etc.* 1st statement is True, 2nd statement is False 1st statement is False, 2nd statement is True Both statements are True Both statements are False

1st statement is True, 2nd statement is False

TRUE

A damaged, system-wide image can result if other franchisees are performing poorly or the franchisor runs into an unforeseen problem. TRUE/FALSE

TRUE

A franchise provides an established product or service which already enjoys widespread brand name recognition. TRUE/FALSE

FALSE / INDEPENDENCE

A franchise provides franchisees with a certain level of dependence where they can operate their business. TRUE/FALSE

PRODUCT DISTRIBUTION FRANCHISE

A franchise where the franchisee simply sells the franchisor's products without using the franchisor's method of conducting business

LOCATION SUPPORT

For a franchise with a brick-and-mortar location, the selection and development of your site is one of the most important (and complex) elements. A typical franchisor will provide a list of suggestions and/or requirements, so you know what to look for.

Which is NOT true of the disclosure statement? Is required by the Trade Commission Is also called the prospectus Is the same document as the franchise agreement Gives information on 23 specified topics

Is the same document as the franchise agreement

Franchise Disclosure Document (FDD)

It was updated by the trade commission in 2007 and became the

LICENSING

Unlike franchises, in which the franchisor exerts significant control over the franchisee's operations, licensors are mainly interested in collecting royalties and supervising the use of the license rather than influencing the operations of the business.

TRUE

Your opening day is not your franchisor's first rodeo. TRUE/FALSE

MASTER FRANCHISE

gives the franchisee more rights than an area development agreement.

DISTRIBUTOR

has a contractual relationship with the supplier

MASTER FRANCHISE

has the right to sell franchises to other people within the territory, known as sub-franchises.

MASTER FRANCHISE

having the right and obligation to open and operate a certain number of units in a defined area

INTIAL TRANING SUPPORT

often includes a combination of coursework and on-the-job training. It can take days or weeks, depending on the depth of the training and the complexity of the business. This training will cover the operations of your franchise, from start to finish - it's everything you need to know to run the business from day one.

BUSINESS FORMAT FRANCHISE

this type of franchise includes not only a product, service and trademark, but also the complete method to conduct the business itself, such as the marketing plan and operations manuals

PURPOSE OF UFOC

to provide prospective franchisees with information about the franchisor, the franchise system and the agreements they will need to sign so that they can make an informed decision.

DISCLOSURE DOCUMENT FRANCHISE AGREEMENT

two main franchising legal documents are the:

DISTRIBUTORSHIP AND LICENSING

two other popular methods by which businesses expand their market and distribution channels:

FRANCHISOR

who establishes the brand's trademark or trade name and a business system,

FRANCHISEE

who pays a royalty and often an initial fee for the right to do business under the franchisors name and system.

FALSE/ INCREASES

A franchise decreases your chances of business success because you are associating with proven products and methods. TRUE/FALSE

Franchisers generally do which of the following regarding financial assistance to franchisees?*

Assist in finding financing and occasionally provide direct assistance in a specific area

MARKETING SUPPORT

Support from your brand will typically include a full marketing plan for the first few months of operation, from a grand opening promotion, to advertising, and to promotional material.

TRUE

The first examples of franchising are to be found in mid-nineteenth century Germany where brewers set up contracts with tavern owners to sell their beer exclusively in their taverns (Shane, 2008) TRUE/FALSE

FALSE/ NOT COMPLETELY

The franchisee is completely independent. TRUE/FALSE

TRUE

The franchisee turnover rate is the rate at which franchisees leave a franchise system TRUE/FALSE

The francisor

The most important single element for the prospective franchisee to investigate is:*

TRUE

The term (duration) of a franchise agreement is usually limited and the franchisee may have little or no say about the terms of a termination. TRUE/FALSE

SINGLE UNIT (DIRECT UNIT) FRANCHISE

This is the simplest and most common type of franchise.

UFOC (Uniform Franchise Offering Circular)

created in 1979 by the Federal Trade Commission.

SINGLE UNIT (DIRECT UNIT) FRANCHISE

franchise is an agreement where the franchisor grants a franchisee the rights to open and operate ONE franchise unit.

AREA DEVELOPMENT FRANCHISE

franchisee may agree to open 5 units over a five year period in a specified territory.

DISTRIBUTOR

is familiar with local markets and customers

TRUE

offered, pricing and geographic territory. For some people, this is the most serious disadvantage to becoming a franchisee. TRUE/FALSE

PRODUCT DISTRIBUTION FRANCHISES

sell the franchisor's products and are supplier-dealer relationships.

Benefits of involvement in a franchise experience include:* management training and support. brand name appeal and standardization of goods and services. national advertising exposure and financial assistance. All of the above Other

All of the above

When deciding which franchise to purchase, which of the following aspects should be considered? Whether you enjoy that line of work Profitability of the business Potential business growth All of the above

All of the above

Which of the following fees are NOT associated with a franchise?* Royalty All of these fees are associated with a franchise Advertising Fee Franchise Fee

All of these fees are associated with a franchise

TRUE

Although product distribution franchising represents the largest percentage of total retail sales, most franchises available today are business format opportunities. TRUE/FALSE

A franchise is an arrangement in which semi-independent business owners pay fees and royalties to a parent company in return for the right to sell its products or services and often to use its business format and system. A Franchise contract defines the right and obligations of both parties and set the guidelines that govern the franchise relationship.* 1st statement is True, 2nd statement is False 1st statement is False, 2nd statement is True Both statements are True Both statements are False

Both statements are True

FALSE / 23

Every franchisor is required to include information on 20 specific items in their FDD. TRUE/FALSE

FALSE/ ARE REQUIRED ; FOUR

Franchisees are not required to operate their businesses according to the procedures and restrictions set three by the franchisor in the franchise agreement. TRUE / FALSE

TRUE

Franchisees must be careful to balance restrictions and support provided by the franchisor with their own ability to manage their business. TRUE/FALSE

FALSE/ IT IS MANDATED

Franchises may offer consumers the attraction of a certain level of quality and consistency because it is not mandated by the franchise agreement. TRUE/FALSE

site selection design and construction financing (in some cases) training grand-opening program

Franchises offer important pre-opening support:

TRUE

In addition to the initial franchise fee, franchisees must pay ongoing royalties and advertising fees. TRUE/FALSE

TRUE

In order to start a business, you have to have money! TRUE/FALSE

TRUE

In order to stay in business, you have to make money! TRUE/FALSE

You'll find out just how much this brand will cost up front*

Initial Fees

TRUE

Owning a franchise allows you to go into business for yourself, but not by yourself. TRUE/ FALSE

Both statements are False

Quality is so important in franchising that most franchisers retain the right to terminate the franchise contract and to repurchase the outlet if a franchisee fails to maintain quality standards. The failure rate for franchises is lower than the average rate for new businesses*

TRUE

Sometimes people start a business because they think they'll make a lot of money, only to find out that they do not enjoy the business. TRUE/FALSE

FALSE

The bigger the franchise, the more successful the franchisees will be. TRUE/FALSE

single-unit (direct-unit) franchise ✔ multi-unit franchise: -area development -master franchise (sub-franchising)

Two types of franchising arrangements

TRUE

The term (duration) of a franchise agreement is usually limited and the franchisee may have little or no say about the terms of a termination. This is one of the disadvantage of franchising. TRUE/FALSE

TRUE

The trade commission requires franchisors to disclose specific "essential information," in the form of the FDD, to the potential buyer at least two weeks before signing any contract. TRUE/FALSE

CONTINUING EDUCATION SUPPORT

This aspect of support covers issues like recruiting and retaining employees, a range of office support, new product training and employee training. Some brands even have an organized network of franchisees that can lean on each other to share tips and tricks. An annual convention, where franchisees can connect with each other and reconnect with brand staff, are also an excellent resource offered by many franchisors.

TRUE

This gives the franchisee the benefits of customer awareness which would ordinarily take years to establish. TRUE/FALSE

FRANCHISING

a form of business arrangement, which originated from Western Europe in the Middle Ages, at a time when feudal lords initiated the practice of selling the rights to collect taxes and operate markets on their behalf.

PRODUCT DISTRIBUTION FRANCHISE

a franchise where the franchisee simply sells the franchisor's products without using the franchisor's method of conducting business

FRANCHISE

a license that describes the relationship between the franchisor and franchisee including use of trademarks, fees, support and control

FRANCHISING

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

What is a royalty?*

a percentage of the revenue generated by the sale of each unit that is paid to the owner of a license, or to a franchise developer

Which of the following is an indication of a dishonest franchiser?* A high-pressure sale. A "get-rich-quick" scheme. Attempts to discourage you from getting an attorney to review the contract. All of the above

all of the above

LICENSING

allows a licensee to pay for the rights to use a particular trademark.

DISCLOSURE STATEMENT

also known as the UFOC, or Uniform Franchise Offering Circular

AN AREA DEVELOPMENT FRANCHISE OR A MASTER FRANCHISE

are two ways a multi-unit franchise can be achieved:

DISTRIBUTOR

buys from the supplier in bulk and sells in smaller quantities

MASTER FRANCHISE

takes over many of the tasks, duties and benefits of the franchisor, such as providing support and training, as well as receiving fees and royalties.

FRANCHISE

the agreement or license between two legally independent parties

DISCLOSURE STATEMENT

the disclosure document provides information about the franchisor and franchise system

PRODUCT DISTRIBUTION FRANCHISING

the franchisor licenses its trademark and logo to the franchisees but typically does not provide them with an entire system for running their business.

TRADEMARK

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

FRANCHISE AGGREEMENT

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

BUSINESS FORMAT FRANCHISES

the most common type of franchise.

FRANCHISEE

the person or company that gets the right from the franchisor to do business under the franchisor's trademark or trade name

FRANCHISOR

the person or company that grants the franchisee the right to do business under their trademark or trade name

ROYALTY

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