Post on 12-Nov-2014
description
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
FRANCHISING AND ALTERNATIVE
BUSINESS EXPANSION TECHNIQUES
*******
SEMINAR
i
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
SEMINAR OUTLINE
ii
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
BUSINESS EXPANSION TECHNIQUES
SEMINAR OUTLINE
SECTION PAGE
1. OBJECTIVE OF THE PROGRAM 1
2. ALTERNATIVE TECHNIQUES OF EXPANSION 3
3. THE FRANCHISE VEHICLE 5
4. FRANCHISING IN THE ECONOMY 7
5. CAN YOUR BUSINESS BE FRANCHISED? 8
6. WHY FRANCHISE YOUR BUSINESS? 9
7. THE BENEFITS OF BEING A FRANCHISEE 10
8. THE FRANCHISE AGREEMENT 11
9. FRANCHISE REGISTRATION AND DISCLOSURE LAWS 17
10. FRANCHISE SALES PROGRAM 19
11. FINANCING REQUIREMENTS 20
12. SPECIAL CONCERNS 21
13. WHAT THE FRANCHISE DEVELOPMENT PROGRAM SHOULD INCLUDE 22
iii
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
1 OBJECTIVE OF PROGRAM
A. Planning and Establishing Goals for Your Company's Expansion ProgramI. Assess Feasibility of Product or Service That is the Subject of Expansion
Program
II. Evaluate and Determine Which Expansion Vehicle is Best
III. What Should the Expansion Program Include?
B. Evaluate Your Company's Operational, Financial and Human Resource CapabilitiesI. Prepare a Complete Set of Financial Projections
a. Source and Use of Funds Analysis for Franchisor and Franchisee
b. Pro-forma income Statement for Franchisor and Franchisee
c. Personnel Schedule Indicating Positions, Salaries, Timing
d. Territory or Area Allotment
1
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
II. Organization Charta. General Manager
b. Sales Manager
c. Training Director
d. Accountant
e. Secretary
III. Position Descriptions
2
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
2. ALTERNATIVE TECHNIQUES OF EXPANSION
A. Continue Current Program
B. Expand Through Vertically Integrated, Company-owned Units
C. Partnership or Joint Venture
D. Limited Partnership
E. Distributorship or Dealership
F. Trademark License
G. Management Incentive/Equity Participation
3
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
Expansion Techniques Chart
BE
NE
FIT
S
Les
s C
apit
al N
eed
ed
Elim
inat
es M
anag
er
Rec
ruit
men
t P
rob
lem
Inco
me
Bas
ed o
n G
ross
S
ales
of
Un
its
/ Eas
ier
to
Mo
nit
or
Gro
wth
Can
be
Acc
om
plis
hed
Fas
ter
Gro
up
Pu
rch
asin
g P
ow
er
Mo
re N
atio
nal
, Reg
ion
al
and
Lo
cal A
dve
rtis
ing
Mo
re R
esea
rch
an
d
Dev
elo
pm
ent
Cas
h F
low
Ava
ilab
le t
o
Dev
elo
p C
om
pan
y-O
wn
ed
Mar
ket
Pen
etra
tio
n F
aste
r an
d G
reat
er
Cre
ates
Exc
item
ent
Am
on
g E
mp
loye
es
Gen
erat
ed B
ette
r P
rod
uct
S
ervi
ce L
oya
lty
and
C
on
tro
l
EXPANSION TECHNIQUES
Company -Owned
Partnership or Joint Venture
Limited Partnership
Distributorship
Trademark License
Management Incentive
Franchise
Legend:Excellent 3Good 2Fair 1Poor 0
4
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
3. THE FRANCHISE VEHICLE
A. Definition:
B. Elements of a FranchiseI. Use of Name, Trademark or logo
II. Use of a Marketing Plan, System or Procedure on Which the Franchisee Relies and Submits to Control
III. Payment of Fee
C. Types of FranchisesI. Trade Name and Product
II. Business Format
III. Affiliate
D. Various Franchise StructuresI. Individual
II. Territorial or Areaa. Two-Tier
b. Three-Tier
E. Possible Sources of Revenue and How to DetermineI. Franchise Fee
II. Royalty
III. Profit on Sale of Product
IV. Rental or Lease Fees
V. Advertising Fee
VI. Equity Appreciation
VII. Unusual Profit Potential
5
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
FRANCHISE STRUCTURE CHARTS
INDIVIDUA
LFRANCHIS
E
AREADEVELOPMENT
FRANCHISE
MASTERFRANCHISE
SUBFRANCHISE
6
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
4. FRANCHISING IN THE ECONOMY
A. Retail Sales
B. Other Sales
C. Business Format Franchises
D. Product and Trade Name Franchises
E. Is There Room For More Franchises?
F. What Are The Future Prospects For Franchising?
7
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
5. CAN YOUR BUSINESS BE FRANCHISED
A. Risk Rating
B. Competition Rating
C. Industry, Service or Profession Rating
D. Company Longevity Rating
E. Company Growth Rating
F. Desirability Rating
G. Business Organization
H. Business Adaptable on a Nationwide Basis
I. Business Has Public Acceptance
J. Product or Service Differentiation
K. Can Others Learn Business
L. Financial Controls and Records
M. Credit Rating
N. Public Attention
0. Price of Opportunity
P. Integrity and History
Q. Monitor From Headquarters
R. Review by Independent Professional
S. Feasibility Study Should be Performed if in Doubt
8
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
6. WHY FRANCHISE YOUR BUSINESS?
A. Expansion Can Be Accomplished With Less Capital
B. Eliminates Manager Recruitment Problem and Day-to-Day Direct Management Responsibility
C. Income is Based on Franchisee's Gross Sales, Not Net, and is Easier to Monitor
D. Growth Can Usually Be Accomplished Faster
E. Group Purchasing Power Can Result in Savings
F More Funds are Available for National, Regional arid Local Advertising
G. More Funds are Available for Research and Development
H. Cash Flow From Franchise Fees and Royalties Can Be Utilized to Develop Company-Owned Units in the Future
I. Market Penetration is Faster and Greater
J. Creates Excitement Among Present Employees
K. Generates Better Product and Service Loyalty and Control
9
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
7. THE BENEFITS OF BEING A FRANCHISEE
A. "Own Your Own Business" Syndrome/The Great American Dream
B. In Most Cases No Previous Experience Is Necessary
C. Existing Complete System; Everything Established, Business Concept, Name, Patents, Formulas, Design, etc.
D. Proven Proto-type
E Identity
F. Lower Risk
G. Standard Products and Systems
H. Bookkeeping and Accounting Systems
I. Group Buying Power
J Initial Training Program
K. Ongoing Training, Supervision and Consulting
L. Local, Regional and National Advertising Programs
M. Ongoing Research; New Products, Ideas, etc.
N. Financing or Assistance in Obtaining Financing
0. Location and Site Selection
P. Use of Operations Manuel
Q. Marketing and Sales Techniques
R. Planning and Forecasting
S. Inventory Control Systems
T. Computer Systems
U. Begin Business With Less Capital
10
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
V. Equity Appreciation
11
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
8. THE FRANCHISE AGREEMENT
A The Reasons a Franchise Agreement is NeededI. The F.T.C. Rule 436 Requiring Full Disclosure Makes it Necessary to Have a
Written Agreement.
II. All the Parties Have an Understanding of the Basics on Which They Will Operate.
III. Equitable Relationship
IV. Insures Uniformity
V. Establishes Standards of Performance
VI. Protects All the Parties
VII. Provides For Remedies in the Event of Default
B. Who Should Draft the Franchise AgreementI. The Franchisor
II. Duplicate Another Company's Agreement
III. Attorney
IV. Consultant/Attorney
C. Content of Franchise AgreementI. Appointment and Franchise Fee
II. Territory/Locationa. Right to Approve Sites
b. Right to Prime Lease
c. Tie Lease to Franchise Agreement
d. Plans and Specifications
e. Equipment Must Conform to Specifications
12
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
III. Proprietary Marksa. Use of Name
b. Contest Name
c. Notification to Franchisor of Other's Use of Named. Conformance to Operating I-11anual
e. Use Products, Systems, Supplies, as Specified
f. Sign Requirements
IV. Training and Assistancea. Must Complete Training
b. Start-up Assistance
c. Continuing Advisory Service
d. Promotional Materials and Bulletins, Marketing Developments, Products and Techniques
V. Advertisinga. Approval of All Advertising Copy, Materials, Packaging, Promotional
Materials
b. Establishment of National Advertising Fund
c. Local Advertising
d. Co-op Advertising
VI. Operating Manuala. Must Adhere
b. Confidential
c. Property of Franchisor
d. Adopt Revisions
VII. Maintenance and Repairs
13
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
a. Maintain Interior and Exterior
b. Create Fund for Refurbishing
VIII. Accounting and Recordsa. Must Keep Complete Records as Prescribed
b. Provide for Reports
c. Allow for Inspection of Recordsd. Provide for Audited Statements
e. Weekly Reports and Payments of Royalty
IX. Standards of Qualitya. Establish Need for Uniformity
b. Provide for Purchases Which Conform to Specifications
X. Modification of Systema. Establish Right of Franchisor to Modify
b. Prohibit Franchisee from Unauthorized Modification
XI. Continuing Services and Royalty Feea. Establish Royalty
1. Determine Program Necessary to Provide Ongoing Support and Consulting Service
2. Project Total Direct and Indirect Costs of Providing Continuing Services
3. Establish Percentage of Royalty and Continuing Service Fee to Provide for Costs and Reasonable Return for Use of Franchisor’s Name, Concept and System
XII. Insurancea. Protection for Franchisee and Franchisor
b. Establish Amounts of Protection Necessary1. Worker’s Compensation
2. General Liability -- Product --Bodily Injury
14
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
3. Property Damage
4. Malpractice
5. Errors and Omissions
XIII. Terma. Determine Term
1. Renewal and Termination Provisions Must Comply with New Laws
2. Coordinate with Lease
3. Long Terma. Insures Royalty Longer to Franchisor
b. More Security for Franchisee
4. Short Terma. Adjust Royalty Upward if Desired
b. Eliminate Undesirable Franchisees
c. Allows for Earlier Execution of New Terms and Conditions
XIV. Restrictive Covenantsa. Establish Restrictions of Franchisee's Ability to Compete, Divert Business,
Hire Away Employees, Divulge Secrets -- Subject to State and Antitrust Laws'
XV. Termination and Defaultsa. Bankruptcy
b. Notice to Cure -- Varies from State to State
c. Failure to Pay Royalties or Fees
d. Failure to Submit Reports or Financial Data
e. Vacation or Abandonment of Premises
f. Failure to Comply with Franchise Agreement
g. Loss of License
15
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
XVI. Rights and Duties of Parties Upon Expiration or Terminationa. Franchisee Must Pal All Sums Owing
b. Franchisee Must ' Cease Using Name
c. Franchisor's Right to Purchase Physical Assets
XVII. Commencement and Hours of Operationa. Specify When Agreement Commences
b. Determine Hours and Days of Operation Short of Agency Relationship
XVIII. Transferability of Interesta. Provide Conditions Under Which Franchisee Can Sell
1. Transfer Fee
2. Rights of Approval
3. Payments of Fees and Sums Owed
4. Not Unreasonably Withheld
5. Require Training of New Franchisee
XIX. Death of Franchiseea. Survivors Can Apply to Continue
b. Survivors Can Sell
c. Franchisor Can Buy Assets and Real Estate
c. Provide Formula for Buy-Out
XX. Right of First Refusala. Franchisee Must Notify Franchisor of Bona Fide Offer
b. Franchisor Can Buy at Same Price as Buyer.
XXI. Operation In Event of Disability or Deatha. Franchisor's Right to Operate
b. Save Harmless
XXII. Taxes Permits
16
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
a. Require Payment of Taxes, Assessments, Liens, Equipment and Previous Accounts
b. Require Compliance with all Federal, State and Local Laws
c. Require Obtaining of All Permits, Certificates and Licenses Necessary
XXIII. Independent Contractora. Not Agent, Partner, Employee of Franchisor
b. Can't Incur Liability to Franchise
c. Franchisee Bears Cost of Defense of Claims
b. Receipt of Payments Not Waiver
XXIV. Non-Waivera. Non-enforcement by Franchisor is Not a Waiver
b. Receipt of Payments not Waiver
XXV. Noticea. Manner of Notice
b. Date of Notice
XXVI. Liability for Breacha. Payment of Costs, Attorneys' Fees by Party in Default
XXVII. Entire Agreementa. Overrides Any Previous Agreements
b. Provides for Amendments, Charges or Variance Only if in Writing
XXVIII.Severabilitya. Each Section of Agreement is Severable
c. Franchisor Can Terminate Agreement if Parts Found Illegal Affect Basic Consideration of Agreement
XXIX. Applicable Lawa. Specifies Which States' Laws Apply
XXX. Arbitration (Where Applicable)
17
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
a. Provides for Selection of Arbiters b. b. Binding Arbitration
XXXI. Franchisee Acknowledges Receipt of FTC or UFOC Documents
XXXII. Franchiseea. Define Term "Franchisee" to Include Successors
XXXIII. Caveata. Disclaimer as to Claims Made b. Franchisee Assumes Risks c. Success
of Business Cannot be Guaranteed d. Success of Business Also Depends on Franchisee's Ability
18
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
9. FRANCHISE REGISTRATION AND DISCLOSURE LAWS
A. Definition and Purpose -- Protect Franchisee and Franchisor
B. States in Which Registration is Required:
CaliforniaHawaiiIllinoisIndianaMarylandMichiganMinnesotaNew YorkNorth DakotaRhode IslandSouth DakotaVirginiaWashingtonWisconsin
C. Certain States Have Franchise Investment Laws
D. Federal Trade Commission Rule 436
E. Business Opportunity Laws
F. Penalties
G. Uniform Franchise Offering Circular
I. The Franchisor and Predecessors
II. Identity and Business Experience of Persons Affiliated with the Franchisor and Franchise Brokers
III. Litigation
IV. Bankruptcy
V. Franchisee's Initial Franchise Fee or Other Initial Payment
VI. Other Fees
19
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
VII. Franchisee's Initial Investment
VIII. Obligations of Franchisee to Purchase or Lease from Designated Sources
IX. Obligations of Franchisee to Purchase or Lease in Accordance with Specifications
X. Financing Arrangements
XI. Obligations of the Franchisor; other Supervision, Assistance or Services
XII. Exclusive Area or Territory
XIII. Trademarks, Service Marks, Trade Names, Logotypes and Commercial Symbols
XIV. Patents and Copyrights
XV. Obligation of the Franchisee to Participate in the Actual Operation of the Franchise Business
XV1. Restrictions on Goods and Services Offered by Franchisee
XVII. Renewal, Termination, Repurchase, Modification and Assignment of the Franchise Agreement and Related Information
XVIII. Arrangements With Public Figures
XIX. Actual, Average, Projected or Forecasted Franchisee Sales, Profits or Earnings
XX. Information Regarding Franchises of the Franchisor
XXI. Financial Statements
XXII. Contracts
Acknowledgement of Receipt by Prospective Franchisee
Exhibits:
I. Actual, Average, Projected or Forecasted Franchisee Sales, Profits or EarningsII. Financial Statements for Fiscal Year 2006III. Financial Statements for Fiscal Year 2007IV. Financial Statements for Fiscal Year 2008V. Franchise Agreement
20
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
VI. Equipment LeaseVII. Lease for PremisesVIII. Loan Agreement
21
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
10 FRANCHISE SALES PROGRAMA, Determine Buyer Profile
I. Entrepreneur as a Franchisee
II. Manager-Type
III. Sales-Type
IV. Technological or Professional Background
V. Financial Requirements
B. Determine Where Your Buyers Are Located
C. Develop Best Plan to Reach Them
D. Set Sales Goals and Prepare
E. How Many Can You Really Handle?
I. How Many Prospects Can You Follow-Up
II. Site Selection Assistance
III. Initial Training
IV. Start-Up Assistance
V. In-Field Support
F. Franchise Opportunity Brochure and Other Recruitment Materials
G. Advertising and Public Relations Programs
I. Establish Budget for Advertising and Public Relations
II. Determine Best Medium
a. Newspapers
b. Other Publications - Special Magazine, Trade Journals etc.
c. Business Opportunity Shows
22
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
d. Trade Shows
H. Follow Up….I. Complete Prospect Form
II. Send Literature
III. Salesperson Contacts Prospect
IV. Qualify Prospect ... Background, Experience, Interest, Available Cash
V. Answer Questions
VI. Ask Prospect to Complete Confidential Application
VII. Negative Selling Technique
VIII. Schedule Personal Interview/Visit
IX. Provide Offering Circular (Disclosure)
X. Close
I. In-House Franchise Sales OrganizationI. Control and Direction
II. CostsIII. Integrate into Total OperationIV. Other FunctionsV. Future Corporate Potential
J. Outside Franchise Sales OrganizationI. Possibly More Experienced Than In-House
II. Cost Less Initially
11. FINANCING REQUIREMENTS
A. Which Party Needs FinancingI. Franchisor
II. Franchisee
III. Customer of Franchisee
23
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
B. Capital Requirements of the Franchisor Occur in the Following Order:
I. Research and Development Stage
II. Prototype Development
III. Franchise Development Program
IV. Initial Recruitment and Selling Period
C. TypesI. Business Loan
II. Venture Capital
III. Receivables Financing
IV. Equipment Financing -- Add-On
V. SBA
VI. SBIC
VII. Public Stock Issuance
VIII. Private Placement
12. SPECIAL CONCERNS
A. Antitrust
B. New Laws
C. UFOC Interpretation and Applicability in Various States
D. Use of Pro Forma Statements and Projections on Earnings, Sales or Profits
E. Class Action Suits
13. WHAT FRANCHISE DEVELOPMENT PROGRAM SHOULD INCLUDEA. Conduct Research
B. Prepare Client Analysis Report
24
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
C. Prepare Definitive Time/Task Schedule
D. Review Prototype Unit
E. Systems, Forms and Controls
F. Operations Manual
G. Initial Training Program
H. Support Program
I. Determine Franchise Fees, Royalties, Advertising Fees and Other Revenue Sources
J. Franchise Agreement
K. Franchise Brochure
L. Disclosure Statement (UFOC or FTC)
M. Franchise Registration
N. Franchise Sales Program
0. Continuing Professional Assistance
THIS PUBLICATION HAS BEEN BROUGHT TO YOU BY:
CARL J. KOSNARTHE KOSNAR GROUP2306 WALES DRIVECARDIFF BY THE SEA, CA 92007PHONE: (760) 632-8402FAX: (760) 632-0772carl@kosnar.com www.kosnar.com
25
THE KOSNAR GROUP 2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632 0772carl@kosnar.com www.kosnar.com
COPYRIGHT/CONTACT INFO - The contents of this Franchise Seminar Newsletter may be copied, reproduced or freely distributed
for all nonprofit purposes without the consent of THE KOSNAR GROUP as long as OUR name and contact information are
included.
If you wish to UNSUBSCRIBE from our TKG Newsletter: e-mail us at carl@kosnar.com with UNSUBSCRIBE or REMOVE in the subject.
****
26