BCEN 2900Entrepreneurship

Chapter 6Franchising

To Get Started Starting exercise:

Read the information on Shep Bostin, page 189

What do you think a franchise is? What types of products/services

would work well as a franchise? Why would you franchise your idea

out? Take on a franchise?

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

Franchises Represent 44% of total U.S. sales!

More than $1 trillion

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200

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1980 1983 1988 1993 1998 2000 2001 2002 2003 2004 2005

Year

Franchising GrowthNumber of Units (in Thousands)

20051980

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

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 UFOC must be offered to potential

franchisees to review (p. 373)

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?