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• What is a franchise?
• How does it operate?
• What’s the difference between productdistribution franchises and businessformat franchises?
• What are some of the advantages and
disadvantages of franchising?
• How does one evaluate a potential
franchise?
• What about an “international” franchise?
Entrepreneur’s Top Ten
Franchises in 2004
1. SUBWAY
2. Curves for Women
3. Quizno’s Franchise Co.
4. 7-Eleven, Inc.
5. Jackson Hewitt Tax Service
6. The UPS Store
7. McDonald’s
8. Jani-King
9. Dunkin’ Donuts
10. Baskin-Robbins USA Co.
Copyright © Houghton Mifflin
Company. All rights reserved.
Entrepreneur’s Top-10 Franchises
2013
2012
2011
FRANCHISE NAME
Ranking Ranking Ranking
STARTUP COSTS
1
1
1
Hampton Hotels
$3.7M - 13.52M
2
2
9
Subway
$85.2K - 260.35K
3
4
5
6
7
8
9
10
15
3
14
11
4
7
6
9
5
8
10
Jiffy Lube Int’l Inc.
7-Eleven Inc.
Supercuts
Anytime Fitness
Servpro
Denny's Inc.
McDonald's
Pizza Hut Inc.
Days Inn
H & R Block
Dunkin' Donuts
$196.5K – 304 K
$30.8K - 1.64M
$103.55K – 196.5K
$56.3K – 353.9K
$133.05K - 181.45K
$1.18M - 2.4M
$1M - 2.16M
$295K - 2.15M
$187.37K - 6.99M
$31.51K - 138.7K
$368.9K - 1.74M
4
8
10
3
13
6
27
15
5–2
Entrepreneur’s Top Ten
Fastest Growing Franchises for 2012
RANK
2011 FRANCHISE NAME
STARTUP COSTS
1
1
Stratus Building Solutions
$3.45K - 57.75K
2
3
4
5
6
7
8
9
10
3
4
8
63
29
11
7
17
13
Subway
CleanNet USA Inc.
Vanguard Cleaning Systems
H & R Block
Dunkin' Donuts
Chester's
Liberty Tax Service
7-Eleven Inc.
Anytime Fitness
$85.2K - 260.35K
$9.76K - 97.95K
$9.85K - 39.4K
$31.51K - 138.7K
$368.9K - 1.74M
$6.14K - 344.5K
$56.8K - 69.9K
$30.8K - 1.64M
$56.3K - 353.9K
http://www.entrepreneur.com/franchises/rankings/fastestgrowing-115162/2012,-1.html
About Franchising
• Franchise – contractual license to operate an
individually owned business as part of a larger
chain
• Franchisor – parent company that develops a
product or business process and sells the rights
to franchisees
• Franchisee – small business person who
purchases the franchise in order to sell the
product or service of the franchisor
Copyright © Houghton Mifflin
Company. All rights reserved.
Franchising: Background
• Existence since the early 1800s (reapers
& sewing machines)
• Experienced growth since the 1950s
• Evolved past exclusive use of agents
• Represented in almost every industry
• Interest in international franchising is
growing quickly
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Franchising Systems
Types of Franchises
Product-Distribution Franchising –
A type of franchising in which the
franchisee agrees to purchase the
products of the franchisor or to
use the franchisor’s name.
Business-Format Franchising - A
type of franchising in which the
franchisee adopts the
franchisor’s entire method of
operation.
Source: PricewaterhouseCoopers, “Economic Impact of Franchised Businesses”
Franchising Systems
Product-Distribution Franchising
• Allows the franchisee (dealer) to buy products from the
franchisor (supplier) or to license the use of its trade
name
• Typically connects a single manufacturer with many
dealers
• Idea is to make products available to consumers in a
specific geographic region through exclusive dealers
• Examples: Soft-drink bottlers, gasoline stations,
car dealerships
Franchising Systems
Business-Format Franchising
• More of a turnkey approach
– Franchisee purchases not only the franchisor’s
product to sell, but also the entire way of doing
business, including operation procedures, marketing
packages, physical building and equipment, and full
business services
• Commonly used in quick-service restaurants,
lodging, retail food, and table/full-service
restaurants
– Examples: Hotel and motel chains, McDonald’s
5–9
The Advantages and
Disadvantages of Franchising
Debate Issue: Is franchising the
best way to own a business?
YES
NO
The advantages of franchising far
outweigh the disadvantages. The
franchisee can start the business
with limited capital but, at the
same time, make use of the
business experience of others.
This experience usually means
the franchise name is widely
recognized. Therefore,
franchised outlets are generally
more successful than
independently owned
businesses. A franchisee usually
receives important training
regarding operations
management.
A true entrepreneur desires
ultimate control over business
operations. Franchising does
not allow for such independence
and, in many cases, franchisees
are not allowed to make crucial
decisions. Beside the lack of
control, the franchisee is, in
effect, working for the
franchisor. The more successful
the franchisee, the greater the
royalties paid to the franchisor.
Owning any business is hard
work but, with franchising, the
franchisee is never justly
compensated for the franchise’s
success.
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Getting In (Dated, for example only)
Selecting a Franchise
Evaluate Your Needs
• How much equity capital will you need to
purchase the franchise and operate it until
your income equals your expenses?
• Where are your going to get it?
• Are you prepared to give up some
independence of action to secure the
advantages offered by the franchise?
Selecting a Franchise
Evaluate Your Needs (continued)
• Do you really believe you have the innate ability,
training, and experience to work smoothly and
profitable with the franchisor, your employees,
and your customers?
• Are you ready to make a long-term commitment
to working with this franchisor, offering its
product or service to your public?
Do Your Research
• General Business Periodicals
– Inc., Fortune Small Business, Wall Street Journal,
Success, Entrepreneur
• Specialized Journals & Magazines
– Franchise, Franchising Opportunities World, and
Quarterly Franchising World
• Trade Associations
– International Franchise Association (IFA)
– Canadian Franchise Association (CFA)
Other Information Sources
• American Franchise Association (AFA)
• American Association of Franchisees and
Dealers (AAFD)
• Online information – FranNet, Franchise
Handbook Online, etc.
• Better Business Bureau
• Institute of Management and
Administration
Before Signing the Contract
• Ask questions
• Analyze the market
• Review disclosure statements
– Some (but not all) states requires franchisors
to have UFOCs. (Uniform Franchise Offering Circular)
• Review the general scope of
required information
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The Franchise Agreement
•
•
•
•
•
The Franchise Agreement
Remember
Franchise, Royalty, and Advertising Fees
Termination of the Franchise Agreement
Terms and Renewal of Agreement
Exclusive Territory
Get Professional Advice
• The franchisor wrote the contract and that
most of the conditions contained in it are
weighted in their favor
• NEVER sign a franchise agreement
without getting a lawyer’s opinion.
• MAKE SURE that an attorney and
accountant have experience with
franchising
Get Professional Advice
International Franchising
• Do not assume that the disclosure
statement tells you everything you need to
know about the franchise. That is not the
intent of the document.
United
Kingdom
2,843
Asia
2,897
Continental
Europe
4,975
Japan
8.975
Caribbean
Central
792
America
Australia
179 South
2,858
America
521
New Zealand
420
Africa
641
Near
East
339
Franchising companies...approx. 4,500
Number of franchising outlets...approx. 560,000
Small Business Globalization
by the Numbers
Source: Allbusiness.com/Focus Magazine/Going Global, U.S. Department of Commerce, and SBA Office of Advocacy.
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