11

SMALL BUSINESS MANAGEMENT

Chapter SixChapter Six

FranchisingFranchising

22

History and Background of Franchising

33

What is Franchising?

Manufacturer Directed FranchiseManufacturer Directed Franchise Wholesaler-Retailer-Directed FranchiseWholesaler-Retailer-Directed Franchise Franchising CompanyFranchising Company

44

Advantages of Franchising

Proven Market fort he Product or ServiceProven Market fort he Product or Service Services the Franchisor may provide.Services the Franchisor may provide.

– 1. Selection of Location1. Selection of Location– 2. Purchase or Construction of Site, Buildings, 2. Purchase or Construction of Site, Buildings,

and Equipmentand Equipment– 3. Provision of Financing3. Provision of Financing

55

Advantages of Franchising

Services ….Services ….– 4. Standardized Methods of Operating4. Standardized Methods of Operating– 5. Advertising5. Advertising– 6. Purchasing Advantages6. Purchasing Advantages– 7. Training7. Training

66

Potential Disadvantages of Franchising

Lack of IndependenceLack of Independence Cost of the FranchiseCost of the Franchise Unfulfilled PromisesUnfulfilled Promises Restrictions of the ContractRestrictions of the Contract

– Product or Service OfferedProduct or Service Offered– Line ForcingLine Forcing– TerminationTermination

77

Potential Disadvantages of Franchising

Saturation of the MarketSaturation of the Market Lack of SecurityLack of Security Cost of MerchandiseCost of Merchandise Effectiveness of PromotionEffectiveness of Promotion Exaggeration of Financial SuccessExaggeration of Financial Success

88

Evaluation of a Franchise Opportunity

FranchisorFranchisor Industry AssociationsIndustry Associations ProfessionalsProfessionals Other FranchiseesOther Franchisees Government AgenciesGovernment Agencies

99

The Entrepreneur as Franchisor

What Businesses can be Franchised?What Businesses can be Franchised?

1010

The Entrepreneur as Franchisor

How does one become a Franchisor?How does one become a Franchisor?– 1. Establish a Prototype1. Establish a Prototype– 2. Prepare the necessary Information.2. Prepare the necessary Information.– 3. Investigate the Legal Requirements3. Investigate the Legal Requirements– 4. Develop a Planed and Standardized Program 4. Develop a Planed and Standardized Program

of Operationsof Operations– 5. Obtain Adequate Financing5. Obtain Adequate Financing

1111

Franchising in the Future

1212

Appendices

A. A Sampling of Franchises Operating in A. A Sampling of Franchises Operating in CanadaCanada

B. Trade Associations that Assist B. Trade Associations that Assist Franchisees and FranchisorsFranchisees and Franchisors

C. A Checklist for the Potential Franchisee; C. A Checklist for the Potential Franchisee; Questions to Answer before Going into Questions to Answer before Going into FranchisingFranchising

D. Franchise Contract ClausesD. Franchise Contract Clauses

1313

Concept Checks

1. Why is franchising enjoying such rapid 1. Why is franchising enjoying such rapid

growth in the Canadian economy?growth in the Canadian economy?

2. What are the three general categories of 2. What are the three general categories of

franchises?franchises?

3. What are the potential advantages of 3. What are the potential advantages of

franchising?franchising?

1414

Concept Checks 4. What are the potential disadvantages of 4. What are the potential disadvantages of

franchising?franchising? 5. When investigating purchasing a 5. When investigating purchasing a

franchise what sources of information are franchise what sources of information are available to assist in making the decision?available to assist in making the decision?

6. What steps are involved in becoming a 6. What steps are involved in becoming a successful franchisor?successful franchisor?