BCEN 2900ENTREPRENEURSHIPChapter 6Franchising

Franchises

One firm already has a successful product or service

Offers its trademarks and patented business processes to another for… Initial franchise fee and Ongoing royalties

Growth in Franchise Impact

Source: McGrow Consulting, www.mcgrow.com/growth.htm

Entrepreneurs

Franchisees can be entrepreneurs The ones opening the franchise in their

local market

Franchisors can be entrepreneurs Different role of being a manager of

managers

EmbroidMe Franchise Video

Three Types of Franchises

Trademark franchise Franchisee can buy right to use trademarked business

name – does not have to buy product from parent

Distribution Franchise Use the trade name, sell the parents’ products

exclusively GM and Ford dealerships

Business Format Franchise Formula for doing business Training, support, advertising

Franchise Agreements

Single unit agreements Open one store

Area agreements Open several stores in one area, up to a

maximum Master franchisee: Can also sell

franchises to others in that area

How to Get Started - Franchisor

Develop a business plan for the franchises.

Consult an attorney or consultant that specializes in franchising

Prepare your policies, advertising, strategy, and management

Start to recruit and help franchisees!

Developing a Franchise

Franchise fee ($25,000-$100,000) Capital Requirements

Land Building Inventory Licenses

Royalty payment on gross income Advertising fees (on top of your ads) Other fees as agreed upon

How to Get Started - Franchisee

Decide on a good franchise opportunity Visit several outlets across its territory

and talk Visit an attorney Check the franchise’s references

Uniform Franchise Offering Circular Sign agreement and begin training Start your business!

Pros and Cons of Franchising Pros

Training provided Brand name

recognition Quality control Proven business

models Site selection help

Cons Fees for franchise Required startup

capital Restrictions on

management methods

Purchasing requirements

Rules and Regulations

FDD (Franchise disclosure document) must be offered to potential franchisees to review Dunkin Donuts FDD

Franchise agreements and documents must be attached to the circular as well

State laws for franchising apply as well

Beyond regulation: the ethics problems

Food for Thought

Two People Person A

Creative, spontaneous, thrives on adventure Person B

Disciplined, structured, organized

Which of these would be best suited for a franchise? Why?