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Franchising

Franchising is a business model where a franchisor grants a franchisee the rights to sell its products or services in exchange for fees and royalties. It offers advantages such as established brand recognition and support, but also comes with disadvantages like loss of independence and high costs. Key considerations for both franchisees and franchisors include fees, quality control, advertising, and operational guidelines.

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21 views9 pages

Franchising

Franchising is a business model where a franchisor grants a franchisee the rights to sell its products or services in exchange for fees and royalties. It offers advantages such as established brand recognition and support, but also comes with disadvantages like loss of independence and high costs. Key considerations for both franchisees and franchisors include fees, quality control, advertising, and operational guidelines.

Uploaded by

saru
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Franchising

Form of business ownership created by contract whereby a


company grants a buyer the rights to engage in selling or
disturbing its products or services in exchange for royalties or
share of profits.
Buyer is franchisee
Franchisee enters into an agreement with a franchisor to sell
the goods or services for a specified fee.
What is a franchise?
License to use an established brand
Use is very restrictive – many rules to be
followed.
Provide a proven successful business format
Entrepreneurship for people that are not
particularly entrepreneurial.
Advantages of
Franchising Disadvantages of Franchising

Buying a name/reputation Loss of independence


Established markets High initial fees
Technical/management High royalties and
assistance advertising allowances
Standardized procedures Contractual restrictions
Quality standards Inapplicable advertising
Termination clauses
Selection of location
Not receiving promised
Facility design
help
Quicker cash flow Lack of competitive
advantage
The Franchisee’s Perspective Things to Look
For
• Proven operating location
• Credible top management
• Skilled field support staff
• A trade identity
• Effective training programs
• Plans for advertising, marketing, PR and promotion
• A communications system
• Sufficient capital
Franchising Agreements
Issue Questions to Resolve
Franchise fee Amount? One time? Per unit?
Royalties Amount? Percentage of net or gross? Sliding scale?
Quality control Quality specs? Monitoring practices? Rewards? Sanctions?
Advertising Fee? Local budget? National? Intensity? Messages?
Offerings Product line? Product mix? Requirements? Alternatives?
Equipment Required? Additional? Financing?
Location Site selection requirements? Franchisor aid? Financing?
Operations Signs? Hours? Maintenance? Décor? Personnel policies?
Reporting Types? Frequency? Auditing? Sanctions?
Disputes Resolution methods? Equity of resolution process?
Termination Timing? Causes? Sanctions? Recourse?
Franchisee Guidelines
 Perform a self-evaluation
 Investigate the franchisor
 Study the industry and competition
 Study the Uniform Franchise Offering Circular
 Investigate the franchisor’s disclosure
 Know your legal rights and retain counsel
The Franchisor’s Perspective

Advantages Disadvantages
Faster growth Reduced control
Lower capital Profit sharing
requirements Greater commitment to
Motivation – franchisors operating support
are owners of the
franchise
Control of locations
Revenue stream –
franchise fees/royalties
Recent Type
Business format franchising
Franchisor offers a wide range of services to
the franchisee
Includes::: Marketing, advertising, training,
strategic planning, quality control guidance.

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