CHAPTER 6
FRANCHISES
CHAPTER OBJECTIVES!
¾ To explain the importance of franchises to the
economy.
¾ To discuss why franchising thrives.
¾ To explain the advantages and disadvantages of
franchise.
¾ To detail a procedure for evaluating a franchise
opportunity.
¾ To explain why contracts are the backbone of any
franchiser-franchisee relationships.
LECTURE OUTLINE!
I.
A.
B.
C.
D.
E.
F.
History and definition of franchising.
General motors began franchising dealerships in 1898.
There were many oil, grocery, motel, and fast-food
franchises by the early part of the twentieth century.
The definition of a franchise varies from industry to
industry.
Franchising benefits the franchiser also.
Today’s franchising has invaded most industries.
As franchising matures, bigness will follow.
LECTURE OUTLINE!
II. Kinds of franchising systems.
A. Manufacturer and manufacturer.
B. Manufacturer and wholesaler.
C. Manufacturer and retailer.
D. Wholesaler and wholesaler.
E. Wholesaler and retailer.
F. Retailer and retailer.
G. Services and services.
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III. Myths about franchising.
A. The promise of instant wealth has spawned many
get rich quick franchising schemes.
B. It is a myth that franchisees are independent
businesspersons.
C. Another myth is that franchises are risk free.
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IV. Selecting a franchise.
A. Before buying a franchise, an entrepreneur should follow
a step-by-step evaluation procedure.
Do a self analysis.
1.
Choose a product or service.
2.
Seek out likely franchises.
3.
B. The entrepreneur should use a checklist to thoroughly
analyze a franchise opportunity.
The franchise opportunity itself.
1.
The franchiser.
2.
The franchisee.
3.
4
The market
SELECTING A FRANCHISE!
B. The entrepreneur should use a checklist to
thoroughly analyze a franchise opportunity.
1. The franchise opportunity itself.
2. The franchiser.
3. The franchisee.
4. The market.
C. An entrepreneur should ask the franchiser for it’s
disclosure statement.
D. An entrepreneur should hire a lawyer.
SELECTING A FRANCHISE!
E. It is vital that both franchiser and franchisee behave
ethically.
1.Definition of good faith.
2. Example of good faith and fair play.
F. The entrepreneur must be sure to understand the franchise
contract.
It is crucial to know under what conditions the
1.
franchisee may pull out of a franchise contract.
A franchisee’s must know under what conditions the
2.
franchiser may cancel a contract.
The franchisee’s right concerning sale or transfer to the
3.
franchise must be clear.
SELECTING A FRANCHISE!
G. Evaluating the franchiser’s training
program is crucial.
H. Entrepreneurs must be sure to get an
accurate estimate of what a franchise will
cost.
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V. Franchising opportunities.
A. There are many minority franchisees now
than in the past.
B. Minorities have a long way to go before
they own their proportionate share of
franchises.
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VI. Women in franchising.
A. Until the 1980’s Few franchisees were
women.
B. The number of franchises owned by
women is growing but is still small.
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VII. Global franchising.
A. There is a global boom in franchising.
B. Global franchising is a two way process,
with foreign franchisers seeking
opportunities in the U.S.
DISCUSSION AND REVIEW
QUESTIONS!
Why would someone choose to buy a franchise rather
than start a venture from scratch or buy out an
existing business.
This question requires a personal response from
students, with little comment from the instructor.
DISCUSSIONAND REVIEW
QUESTIONS!
How would you evaluate a franchise opportunity?
Students generally respond by repeating the step by
step procedure suggested in the chapter.
¾ Do a self analysis.
¾ Choose a product or service.
¾ Search out likely franchise candidates.
¾ Review a checklist of questions.
¾ Hire a lawyer.
¾ Compare franchises and pick out the best one.
DISCUSSION AND REVIEW
QUESTIONS!
Describe the various franchising arrangements between
franchiser and franchisee.
Students generally respond by repeating the franchising
arrangements.
¾ Business format franchises.
¾ Piggyback franchises.
¾ Conversion franchises.
¾ Distributors.
¾ Area franchises.
> Trade name franchises
¾ Single unit franchises.
Multi unit franchises.
> Sub franchises
DEFINE THESE TERMS!
FRANCHISE
FRANCHISOR
FRANCHISEE
UFOC
FRANCHISE FEE
WORKING CAPITOL
ROYALTIES
FRANCHISE!
A continuing relationship between the
franchiser and the franchisee in which the
sum total of the franchiser's knowledge,
image, success, and manufacturing and
marketing techniques are supplied to the
franchisee for a fee.
FRANCHISOR!
The seller of rights to market a product or
service. A franchisor may also be one who
sells the rights to use a process for
manufacturing a product.
UFOC
A statement giving detailed information about a
franchise. All franchisers are now required by
federal law to provide disclosure statements giving
such information as:
¾ Financial statements.
¾ A description of any lawsuits in which the franchiser
has been involved.
¾ A list of names of other franchisers
¾ A complete statement of the basis of any profit
claims made to the would be franchisee.
FRANCHISE FEE!
A payment to the franchiser that gives the franchisee
the right to do business at a specific site or in a
specific territory.
WORKING CAPITOL!
The money needed to buy inventory and pay
salaries until costumers pay up.
ROYALTIES!
Payments made to the franchiser throughout
the life of the franchise to cover such
services supplied by the franchiser as
advertising, financial statements, and
management advice. Royalties Generally
range from 0 to 15 percent of sales revenue.
KICK BACK NOW, RELAX,
GET READY FOR CHAPTER
7
REVIEW YOUR NOTES ALSO!!