INTRODUCTION
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Founded in 1988
First franchise in 1995
Quick growth:
( late 1990s to mid-2000s)
Stores number doubled
from 2003 to 2005
• 1400 franchise stores
SITUATIONS
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Financial difficulties
Up to 60 closed stores in 2006
100 closed stores in 2007
Disgruntled franchisees
Owners: success depends on operating a store
Question 1
If you were thinking about buying a franchise, like a Cold Stone
Creamery store, what financial information would you look at and
analyze before you completed the purchase?
- Initial and Ongoing Costs
The costs involved in starting and operating a franchise, including
deposits or franchise fees that may be non-refundable, and costs for initial
inventory, signs, equipment, leases, or rentals. It also explains ongoing
costs, like royalties and advertising fees.
- Estimate your operating expenses for the first year and your personal
living expenses for up to two years. Compare your estimates with what
other franchisees have paid and with competing franchise systems. You
may be able to get a better deal with another franchisor. An accountant
can help you evaluate this information.
Question 1
If you were thinking about buying a franchise, like a Cold Stone
Creamery store, what financial information would you look at and
analyze before you completed the purchase?
- Earnings Information
You might want to know how much money you can make if you invest
in a particular franchise system. Look at some figures of both your
future franchisor and it’s franchisees: Sample size, Average
Incomes, Gross Sales, Net profits…
Question 1
If you were thinking about buying a franchise, like a Cold Stone
Creamery store, what financial information would you look at and
analyze before you completed the purchase?
- Financial History
Find explanatory information about the franchisor’s financial status in
notes to the financial statements. Investing in a financially unstable
franchisor is a significant risk; the company may go out of business or
into bankruptcy after you have invested your money.
It’s a good idea to hire a lawyer or an accountant to review the
franchisor’s financial statements, audit report, and notes. They can help
you understand whether the franchisor:
•has steady growth
•has a growth plan
•makes most of its income from the sale of franchises or from continuing
royalties
•devotes sufficient funds to support its franchise system
Question 2.After reading the case, are you sympathize with
disgruntled Cold Stone franchisees, or do you
believe the company explanation?
• Franchisor
• The ultimate success of an individual store depends on how
well it’s operated
• For-sale number of franchise as “at par with industry
expectations”
• Franchisees
• High prices in tough economy: rent issue
• Saturated market: shops too close, competitor
• Believing the hype
• Franchisor control: Pepsi bottles issue, 2-for-1 coupon $40,000
OUR CONLUSION
• Both sides (franchisees and franchisor) need to work together
• Franchisees need to do better job in financial management to
ensure profitability in highly competitive market.
• Franchisors need to reconsider their franchising management
for sustainable development.
Question 3
Do you think that some businesses that have
financial trouble might never have had a
chance to begin with?
If so, what can a business owner (including a
franchisor of a Cold Stone Creamery) do
ahead of time to make sure the business is
financially feasible? Use the concepts
conveyed in this chapter and Chapter 3 to
formulate the answer
Primary financial objectives of
Entrepreneurial Firms
Business Owner or Franchisor can use this method to
make sure the business financial feasibility
Forecasts
The process of financial management
Question 4
Answer of question 4