Lesson 4.2
OWN A FRANCHISE
OR START A BUSINESS
GOALS
Chapter 4
• Evaluate franchise ownership.
• Recognize the advantages and
disadvantages of starting a
new business.
Slide 1
FRANCHISE OWNERSHIP
• A franchise is a legal agreement that gives an
individual the right to market a company’s
products or services in a particular area.
• A franchisee is the person who purchases a
franchise agreement.
• A franchisor is the person or company that
offers a franchise for purchase.
Chapter 4
Slide 2
Franchise Ownership
• More than 500,000 people in the US owne franchises
and the number is growing.
• Franchising opportunities are available in virtually
every field, from motels to pet stores to video outlets
• Sources you can find information about franchises
include
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Chapter 4
Consumer Guides
Books
Wall Street Journal
Magazines
Slide 3
OPERATING COSTS OF A FRANCHISE
• Initial franchise fee
– Fee the franchise owner pays in return for the right to run the
franchise
– Usually non-refundable and a few thousand to a few hundred
thousand dollars
• Start-up costs
– Costs associated with beginning a business
• Royalty fees
– Weekly or monthly paymnets made by the owner of the franchise to
the seller of the franchise
– Usually a percentage of the franchises income
• Advertising fees
– Fees paid to support TV, magazine or other advertising of the franchise
as a whole
Chapter 4
Slide 4
ADVANTAGES
OF OWNING A FRANCHISE
• An entrepreneur is provided with an established product or
service.
– Can compete with giant companies
• Franchisors offer management, technical, and other
assistance.
– Onsite training or classes and tips
• Equipment and supplies can be less expensive.
– Because franchises are part of large chains, they are able to purchase
in huge quantities
• Discounts passed on to individual franchisee
• A guarantee of consistency attracts customers.
– Customers know quality of franchise
Chapter 4
Slide 5
DISADVANTAGES
OF OWNING A FRANCHISE
• Franchises can cost a lot of money and cut down on profits.
– Initial capital to buy franchise is high
– Often profits you receive as franchisee must be reutrned to franchisor as
royalty fees
• Owners of franchises have less freedom to make decisions than other
entrepreneurs.
– Franchisees can only offer certain products and services that have already
been decided by franchisor
• Franchisees are dependent on the performance of other franchisees in the
chain.
– Customers opinions and other franchise reputations follow you around
• The franchisor can terminate the franchise agreement.
– If franchisee fails to pay royalty fees, or meet other agreements, the franchise
can be lost
Chapter 4
Slide 6
EVALUATING A FRANCHISE
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Demand for product or service
Exclusive territory
Costs
Profitability
Longevity
Services provided by franchisor
Loss of independence
Cancellation
Chapter 4
Slide 7