Topic: Franchising as the
strategy of starting small
business
1.
2.
3.
4.
Summary of the lesson:
What is Franchising? Franchising Today.
Franchising Systems. Advantages and
Disadvantages to Franchisee and
Franchisor.
Selecting a Franchise.
International Franchising
.
What is Franchising? Franchising Today.
• A franchise is an agreement that binds a franchisor (a parent company
of the product, service, or method) with a franchisee (a small business
that pays fees and royalties for exclusive rights to local distribution of
the product or service).
• Through the franchise agreement, the franchisee gains the benefit of the
parent company’s expertise, experience, management systems,
marketing, and financial help. Franchisors benefit because they can
expand their operations by building a base of franchisees rather than by
using their own capital and resources.
Background
• Franchises have experienced considerable growth since the 1950s.
However, contrary to popular belief, the concept did not originate
with McDonald’s. In fact, franchises have existed since the early
1800s.
• In the 1830s, Cyrus McCormick was making reapers, and Isaac Singer
began manufacturing sewing machines.
Franchising Today
Today franchising is found in almost every industry
Franchising Systems. Advantages and
Disadvantages to Franchisee and Franchisor.
There are two 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.
Selecting a Franchise.
Choosing the right franchise is a serious decision. Investing in a
franchise represents a major commitment of time and money. Before
taking the plunge into franchising, determine what you need in a business
and evaluate what several different franchises can offer you and your
customers.
• Disclosure statements. Information that franchisors are required to
provide to potential franchisees.
• Franchise agreement. The legal contract that binds both parties involved
in the franchise
• Franchise fee. The one-time payment made to become a franchisee.
• Royalty fees. The ongoing payments that franchisees pay to franchisors—
usually a percentage of gross sales.
• Franchise fee. The one-time payment made to become a franchisee.
• Royalty fees. The ongoing payments that franchisees pay to
franchisors—usually a percentage of gross sales.
International Franchising.
Franchises are rapidly exploring
opportunities
for
international
expansion when faced with saturated
domestic markets. Foreign markets
are often less crowded and more
underserved.
•The success of U.S. franchises is
spreading all over the globe. In
response, many governments are
enacting legislation to regulate
franchise operations. Following are
some highlights of franchise
legislation from a variety of countries:
•United States. This chapter has
highlighted the federal laws
covering disclosure statements,
registration requirements, and
restrictions on the sale and offering
of franchises.