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8/9/2019 Chap04 Franchising and the Entrepreneur
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Chapter 4: Franchising 1Copyright 2003 Prentice Hall Publishing Company
Franchising and theEntrepreneur
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Chapter 4: Franchising 2Copyright 2003 Prentice Hall Publishing Company
The Franchising Boom!!!
Sales of $1 trillion from virtually everyproduct or service imaginable.
More than 5,000 franchisers operatingsome 600,000 outlets worldwide.
Franchise sales account for 50% of totalretail sales.
A new franchise opens somewhere in the
world every six-and-a-half minutes, andin the United States, every eightminutes.
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Chapter 4: Franchising 3Copyright 2003 Prentice Hall Publishing Company
Franchising
Franchisingsemi-independent business
owners pay fees and royalties to a parentcompany in exchange for the right to sell
its products and services under thefranchisers trade name and often to use
its business format and system.
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Types of Franchising
Trade name
Product distribution
Pure (Business format)
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Chapter 4: Franchising 5Copyright 2003 Prentice Hall Publishing Company
Why Buy a Franchise?
Franchisees benefit from the franchisers
experience.
Franchisees get a proven business systemand avoid having to learn by trial-and-error.
Franchisees earn a great deal of satisfaction
from their work.Before buying, ask: What can a franchise
do for me that I cannot do for myself?
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Chapter 4: Franchising 6Copyright 2003 Prentice Hall Publishing Company
Benefits of Franchising
Management training and support Brand name appeal
Standardized quality of goods and services
National advertising program Financial assistance
Proven products and business formats
Centralized buying power
Site selection and territorial protection
Greater chance for success
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Drawbacks of Franchising
Franchise fees and profit sharing Strict adherence to standardized
operations
Restrictions on purchasing Limited product line
Unsatisfactory training programs
Market saturation
Less freedom
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Ten Myths of Franchising
1. Franchising is the safest way to go intobusiness because franchises never fail.
2. Ill be able to open my franchise for lessmoney than the franchiser estimates.
3. The bigger the franchise organization,
the more successful Ill be.
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Ten Myths of Franchising
4. Ill use 80 percent of the franchisersbusiness system, but Ill improve uponit by substituting my experience andknow-how.
5. All franchises are the same.
6. I dont have to be a hands-on
manager. I can be an absentee ownerand be very successful.
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What Do Franchisers Look for in
a Franchisee?
Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
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What Do Franchisers Look for in
a Franchisee?
Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
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What Do Franchisers Look for in
a Franchisee?
Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
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What Do Franchisers Look for in
a Franchisee?
Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
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What Do Franchisers Look for in
a Franchisee?
Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
8/9/2019 Chap04 Franchising and the Entrepreneur
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What Do Franchisers Look for in
a Franchisee?
Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
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What Do Franchisers Look for in
a Franchisee?
Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
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What Do Franchisers Look for in
a Franchisee?
Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
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What Do Franchisers Look for in
a Franchisee?
Experienced?
Hard Working?
Team Player? Leadership & Management Skills?
Risk Averse?
Educated? Financially Stable?
A Desire to Succeed?
Yes No Maybe
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Chapter 4: Franchising 20Copyright 2003 Prentice Hall Publishing Company
Franchising and the Law
Key protection is the Uniform FranchiseOffering Circular (UFOC).
Franchisers mustdeliver a copy of UFOC
before any offer or sale of a franchise. The UFOC contains information on 23
topics, including:
franchisers business experience franchise fees and costs
lawsuits involving the franchiser
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Chapter 4: Franchising 22Copyright 2003 Prentice Hall Publishing Company
Detecting Dishonest Franchisers
Promises of future earnings with no
documentation.
High franchisee turnover or termination rate.
Unusual amount of litigation by franchisees.
Attempts to discourage your attorney
from evaluating the contract beforesigning it.
No written documentation.
(Continued)
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Chapter 4: Franchising 23Copyright 2003 Prentice Hall Publishing Company
Detecting Dishonest Franchisers
Claims to be exempt from federaldisclosure laws.
"Get rich quick" schemes, promisinghuge profits with minimal effort.
Reluctance to provide a list of existingfranchisees.
Evasive, vague answers to yourquestions.
(Continued)
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Chapter 4: Franchising 24Copyright 2003 Prentice Hall Publishing Company
How to Buy a Franchise
Preparation, common sense, and patience are
vital ingredients in choosing the right franchise.
Evaluate yourself - What do you like and dislike?
Research the market.
Consider your franchise options.
Get a copy of the franchisers Uniform Franchise
Offering Circular (UFOC) and study it.
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Chapter 4: Franchising 25Copyright 2003 Prentice Hall Publishing Company
What Should You Look For?
A unique concept or marketing approach
Profitability
A registered trademark A business system that works
A solid training program
Affordability
A positive relationship with franchisees
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Chapter 4: Franchising 26Copyright 2003 Prentice Hall Publishing Company
How to Buy a Franchise
Preparation, common sense, and patience are
vital ingredients in choosing the right franchise.
Evaluate yourself - What do you like and dislike?
Consider your franchise options.
Get a copy of the franchisers Uniform Franchise
Offering Circular (UFOC) and study it.
Talk to existing franchisees. Ask the franchiser some tough questions.
Make your choice.
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Chapter 4: Franchising 27Copyright 2003 Prentice Hall Publishing Company
Franchise Contracts
Note clauses covering: Termination
Renewal
Transfers and Buybacks
40% of New Franchisees Sign
Contracts Without Reading Them
!!!
Contract
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Chapter 4: Franchising 28Copyright 2003 Prentice Hall Publishing Company
Trends Shaping Franchising
International opportunities
Smaller, nontraditional locations
Conversion franchising
Multiple-unit franchising
Master franchising
Piggybacking (Combination franchising) Serving aging baby boomers
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Ch 4 F hi i 29
Franchising Web Sites
Entrepreneurs Franchise Zonehttp://www.entrepreneur.com/Franchise_
Zone/FZ_FrontDoor/0,4670,,00.html Subway Sandwiches and Salads
http://www.subway.com/
Auntie Annes Pretzelshttp://www.auntieannes.com/
http://www.entrepreneur.com/Franchise_Zone/FZ_FrontDoor/0,4670,,00.htmlhttp://www.entrepreneur.com/Franchise_Zone/FZ_FrontDoor/0,4670,,00.htmlhttp://www.subway.com/http://www.auntieannes.com/http://www.auntieannes.com/http://www.subway.com/http://www.entrepreneur.com/Franchise_Zone/FZ_FrontDoor/0,4670,,00.htmlhttp://www.entrepreneur.com/Franchise_Zone/FZ_FrontDoor/0,4670,,00.html