SMALL BUSINESS MANAGEMENT

Chapter 6Franchising

History and Background of Franchising

Most rapid growth in North America since the 1950s.

1960s: Franchisee associations formed and legislation to protect rights of franchisees and franchisors.

More than 40% of all retail sales resulted from franchising in North America in the last decade.

What Is Franchising?

Manufacturer-Directed Franchise ____________

Wholesaler-Retailer-Directed Franchise ____________

Franchising Company ____________

Franchising Terms

____________

An entrepreneur whose power is limited by a contractual agreement with a franchisor

Franchisor The party in the ____________ contract

that specifies the methods to be followed and the terms to be met by the other party

Franchising Terms

Product and Trade Name Franchise Grants the right to use a widely recognized

product or name Business _______ Franchise

Provides an entire marketing system and ongoing guidance from the _______

Piggyback Franchising The operation of a retail franchise within the

physical facilities of a host store

Reading the Fine print

Briefly discuss the advantages and disadvantages of franchising that are identified in this example.

What could prospective franchisees do to reduce the risks of the problem identified in this example?

Advantages of Franchising

Proven _______ for the product or service.

Services the Franchisor May Provide1. Selection of _______2. Purchase or Construction of Site,

Buildings, and Equipment3. Provision of _______

Advantages of Franchising

Services the Franchisor May Provide (cont.)4. Standardized _______ of Operating5. Advertising6. Purchasing _______7. Training

Potential Disadvantages of Franchising

Lack of _______ Cost of the Franchise Unfulfilled _______ Restrictions of the Contract

Product or Service Offered Line Forcing Termination

Potential Disadvantages of Franchising (cont)

Saturation of the _______ Lack of Security Cost of _______ Effectiveness of Promotion Exaggeration of _______ Success

Evaluation of a Franchise Opportunity

Franchisor Industry _______ Professionals Other Franchisees Government Agencies Additional _______ to Investigate

The Entrepreneur as Franchisor

What businesses can be franchised?

The Entrepreneur as Franchisor

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.

Franchising in the Future

“Piggybacking”: Two or more franchise operating in one outlet.

“Branchising”: Converting existing chain outlets to franchises.

“Mini-franchises”: Small satellite versions of larger franchises.

Growth of service-based and home-based franchises

Franchising Frauds

The Rented Rolls Royce Syndrome The Hustle The Cash-Only Transaction The Boast The Big-Money Claim The Couch Potato’s Dream Location, Location, Location The Disclosure Dance

Appendices

A. A Sampling of Franchises Operating in Canada

B. Trade Associations and Government Departments that Assist Franchisors and Franchisees

C. A Checklist for the Potential Franchisee; Questions to Answer Affirmatively before Going into Franchising

D. Franchise Contract Clauses