Franchising and the Entrepreneur

@danielcgold

Franchising: system of distribution of semi-independent businesses. Owners and franchisees pay fees/ royalties to parent company (franchisor) to be identified (licensed within trademark) to sell its product/ service and to use business format and system

• buy “success package” from franchisor who shows them how to use it/ no free range of business decisions

• franchisor provides business model/ expertise/ training & support/ name recognition

• franchisee brings the investment/ spirit/ drive necessary to implement model successfully/ pays royalties

Types of Franchising:

• Trade name: franchisee purchases the right to use franchisors trade name without distributing products exclusively

• Prod. distribution: franchisor licenses franchise to sell products under brand name through limited distribution network

• Pure (comprehensive/ business format): franchisor sells franchisee a complete business format/ system

Benefits of buying a franchise: Successful business system/ management training & support/ brand name appeal/ standard quality of goods & services/ national advertising & marketing assistance/ financial assistance/ proven products, processes and business formats/ centralized buying power (bigger volume @ low price)/ site selection & area protection

• greater chance for success: requires franchise to have prior industry experience/ actively manage stores/ build strong brand name/ offers training programs to improve skills and knowledge

• Risk involved (success/ failure) depends on managerial skills/ motivation/ business experience/ system and support

Drawbacks of buying a franchise: fees & royalties/ strict policies/ purchasing and price restrictions/ limited product line/ contract terms & renewal/ unsatisfactory training programs/ market saturation/ less freedom

Franchising and the Law

• requires franchisors to register for a uniform franchise offering circular (UFOC)/ send to potential buyers

• Franchise disclosure doc (FDD) give to prospective franchisees before sale (23 important pieces of info)

Right way to buy a franchise

• best defenses against franchisors are preparation/ common sense/ patience/ right questions/ not rushing it

• evaluate self/ research market/ consider franchise options/ talk to existing franchises/ ask tough questions

• Get a copy of franchisors FDD: following characteristics make franchise stand out

  • unique concept or marketing approach/ profitability/ registered trademark/ successful business system/ solid training program/ affordability/ positive relationship with franchisees

  • Franchisee turnover rate- rate at which franchisees leave the franchise system (good is less than 5%)

  • FDD outlines the rights/ obligations of each party/ setting guidelines/ long term (10 years)

  • unusual number of lawsuits on same issue is concerning

  • judging how well you fit into company culture/ initially working for them

• Trend shaping Franchising: changing face (diversity)/ international opportunities/ multi-unit franchising (growth)

  • Smaller non traditional locations: intercept marketing- putting up a franchise products/ services for potential customers

  • Conversion franchising: independent owners become franchisees to gain name recognition

  • Refranchising: franchisors sell their company owned outlets to franchisees

  • Area development: franchisee earns exclusive right to open multiple units in an area/ time

  • Master franchise: gives franchisee right to create semi-independent organization in specific area to recruit/ sell/ support other franchises

Co-Branding: 2+ franchises team up to sell complementary products under one roof