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Transcript of Computer Science Corporation LTD
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 11
Franchising and the
Entrepreneur
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 22
The FranchisingThe Franchising
Boom!!!Boom!!! Sales exceeding $1 trillion from virtuallySales exceeding $1 trillion from virtually
every product or service imaginable.every product or service imaginable.
One out of 12 retail businesses in theOne out of 12 retail businesses in theU.S. is a franchised operation.U.S. is a franchised operation.
Franchise sales account for 40% of totalFranchise sales account for 40% of totalretail sales.retail sales.
A new franchise opens somewhere in A new franchise opens somewhere inthe world every sixthe world every six--andand--aa--half minuteshalf minutesand in the United States every eight and in the United States every eight minutes.minutes.
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 33
274,265
290,605
310,044
341,579 337,693351,459
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
N u m b e r o f F r a n c h i s e d
U n i t s ( i n
T h o u s a n d s )
2000 2001 2002 2003 2004 2005
Year
Franchising Growth
Number of Units (in Thousands)
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 44
FranchisingFranchising FranchisingFranchising semisemi--independent businessindependent business
owners pay fees and royalties to a parent owners pay fees and royalties to a parent
company in exchange for the right to sell itscompany in exchange for the right to sell itsproducts and services under the franchisersproducts and services under the franchiserstrade name and often to use its businesstrade name and often to use its businessformat and system.format and system.
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 55
Types ofTypes of
FranchisingFranchising TradenameTradename
Product distributionProduct distribution
Pure (Business format)Pure (Business format)
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 66
W
hy Buy a Franchise?W
hy Buy a Franchise? Franchisees benefit from the franchisersFranchisees benefit from the franchisers
experience.experience.
Franchisees get a proven business system andFranchisees get a proven business system andavoid having to learn by trialavoid having to learn by trial--andand--error.error.
Franchisees earn a great deal of satisfactionFranchisees earn a great deal of satisfactionfrom their work.from their work.
Before buying, ask: What can a franchise doBefore buying, ask: What can a franchise dofor me that I cannot do for myself?for me that I cannot do for myself?
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 77
Benefits of FranchisingBenefits of Franchising
Business systemBusiness system
Management training and support Management training and support
Brand name appealBrand name appeal
Standardized quality of goods andStandardized quality of goods andservicesservices
National advertising programNational advertising program
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 88
Benefits of FranchisingBenefits of Franchising
Financial assistanceFinancial assistance
Proven products and businessProven products and businessformatsformats
Centralized buying powerCentralized buying power
Site selection and territorialSite selection and territorial
protectionprotection
Greater chance for successGreater chance for success
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 99
Drawbacks of FranchisingDrawbacks of Franchising
Franchise fees and profit sharingFranchise fees and profit sharing
Strict adherence to standardizedStrict adherence to standardized
operationsoperations Restrictions on purchasingRestrictions on purchasing
Limited product lineLimited product line
Unsatisfactory training programsUnsatisfactory training programs Market saturationMarket saturation
Less freedomLess freedom
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 1010
Ten Myths of FranchisingTen Myths of Franchising
1.1. Franchising is the safest way to goFranchising is the safest way to gointo business because franchisesinto business because franchises
never fail.never fail.
2.2. Ill be able to open my franchise forIll be able to open my franchise forless money than the franchiserless money than the franchiser
estimates.estimates.3.3. The bigger the franchise organization,The bigger the franchise organization,
the more successful Ill be.the more successful Ill be.
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 1111
Ten Myths of FranchisingTen Myths of Franchising
4.4. Ill use 80 percent of the franchisersIll use 80 percent of the franchisersbusiness system, but Ill improvebusiness system, but Ill improve
upon it by substituting myupon it by substituting myexperience and knowexperience and know--how.how.
5.5. All franchises are the same. All franchises are the same.
6.6. I dont have to be a handsI dont have to be a hands--ononmanager. I can be an absenteemanager. I can be an absenteeowner and be very successful.owner and be very successful.
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 1212
Ten Myths of FranchisingTen Myths of Franchising
7.7. Anyone can be a satisfied, successful Anyone can be a satisfied, successfulfranchise owner.franchise owner.
8.8. Franchising is the cheapest way to get Franchising is the cheapest way to get into business for yourself.into business for yourself.
9.9. The franchiser will solve my businessThe franchiser will solve my business
problems for me; after all, thats why Iproblems for me; after all, thats why Ipay an onpay an on--going royalty.going royalty.
10.10. Once I open my franchise, Ill be ableOnce I open my franchise, Ill be ableto run things the way I want to.to run things the way I want to.
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What Do Franchisers LookWhat Do Franchisers Look
for in a Franchisee?for in a Franchisee? Experienced?Experienced?
Hard Working?Hard Working?
Team Player?Team Player?
Leadership & Management Skills?Leadership & Management Skills?
Risk Averse?Risk Averse?
Educated?Educated? Financially Stable?Financially Stable?
A Desire to Succeed? A Desire to Succeed?
Yes No Maybe
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Experienced?Experienced?
Hard Working?Hard Working?
Team Player?Team Player?
Leadership & Management Skills?Leadership & Management Skills?
Risk Averse?Risk Averse?
Educated?Educated? Financially Stable?Financially Stable?
A Desire to Succeed? A Desire to Succeed?
Yes No Maybe
What Do Franchisers LookWhat Do Franchisers Look
for in a Franchisee?for in a Franchisee?
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Experienced?Experienced?
Hard Working?Hard Working?
Team Player?Team Player?
Leadership & Management Skills?Leadership & Management Skills?
Risk Averse?Risk Averse?
Educated?Educated? Financially Stable?Financially Stable?
A Desire to Succeed? A Desire to Succeed?
Yes No Maybe
What Do Franchisers LookWhat Do Franchisers Look
for in a Franchisee?for in a Franchisee?
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Experienced?Experienced?
Hard Working?Hard Working?
Team Player?Team Player?
Leadership & Management Skills?Leadership & Management Skills?
Risk Averse?Risk Averse?
Educated?Educated? Financially Stable?Financially Stable?
A Desire to Succeed? A Desire to Succeed?
Yes No Maybe
What Do Franchisers LookWhat Do Franchisers Look
for in a Franchisee?for in a Franchisee?
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Experienced?Experienced?
Hard Working?Hard Working?
Team Player?Team Player?
Leadership & Management Skills?Leadership & Management Skills?
Risk Averse?Risk Averse?
Educated?Educated? Financially Stable?Financially Stable?
A Desire to Succeed? A Desire to Succeed?
Yes No Maybe
What Do Franchisers LookWhat Do Franchisers Look
for in a Franchisee?for in a Franchisee?
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Experienced?Experienced?
Hard Working?Hard Working?
Team Player?Team Player?
Leadership & Management Skills?Leadership & Management Skills?
Risk Averse?Risk Averse?
Educated?Educated? Financially Stable?Financially Stable?
A Desire to Succeed? A Desire to Succeed?
Yes No Maybe
What Do Franchisers LookWhat Do Franchisers Look
for in a Franchisee?for in a Franchisee?
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Experienced?Experienced?
Hard Working?Hard Working?
Team Player?Team Player?
Leadership & Management Skills?Leadership & Management Skills?
Risk Averse?Risk Averse?
Educated?Educated? Financially Stable?Financially Stable?
A Desire to Succeed? A Desire to Succeed?
Yes No Maybe
What Do Franchisers LookWhat Do Franchisers Look
for in a Franchisee?for in a Franchisee?
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Experienced?Experienced?
Hard Working?Hard Working?
Team Player?Team Player?
Leadership & Management Skills?Leadership & Management Skills?
Risk Averse?Risk Averse?
Educated?Educated? Financially Stable?Financially Stable?
A Desire to Succeed? A Desire to Succeed?
Yes No Maybe
What Do Franchisers LookWhat Do Franchisers Look
for in a Franchisee?for in a Franchisee?
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Experienced?Experienced?
Hard Working?Hard Working?
Team Player?Team Player?
Leadership & Management Skills?Leadership & Management Skills?
Risk Averse?Risk Averse?
Educated?Educated? Financially Stable?Financially Stable?
A Desire to Succeed? A Desire to Succeed?
Yes No Maybe
What Do Franchisers LookWhat Do Franchisers Look
for in a Franchisee?for in a Franchisee?
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 2222
Franchising and the LawFranchising and the Law
K ey protection is the Uniform FranchiseK ey protection is the Uniform FranchiseOffering Circular (UFOC).Offering Circular (UFOC).
FranchisersFranchisers must must deliver a copy of deliver a copy of UFOC before any offer or sale of aUFOC before any offer or sale of afranchise.franchise.
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 2323
Franchising and the LawFranchising and the Law
The UFOC contains information on 23The UFOC contains information on 23topics, including:topics, including:
Franchisers business experienceFranchisers business experience
Franchise fees and costsFranchise fees and costs
Lawsuits involving the franchiserLawsuits involving the franchiser
Financial assistance availableFinancial assistance available Territorial protection grantedTerritorial protection granted
Restrictions on purchasingRestrictions on purchasing
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 2424
Detecting DishonestDetecting Dishonest
FranchisersFranchisers Claims that the contract is standard;Claims that the contract is standard;
no need to read it.no need to read it.
Failure to provide a copy of theFailure to provide a copy of therequired disclosure documents.required disclosure documents.
Marginally successful prototype or noMarginally successful prototype or noprototype.prototype.
Poorly prepared operations manual.Poorly prepared operations manual.
Unsolicited testimonial from a highlyUnsolicited testimonial from a highlysuccessful franchisee.successful franchisee.
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 2525
Unusual amount of litigation byUnusual amount of litigation byfranchisees.franchisees.
Promises of future earnings with noPromises of future earnings with nodocumentation.documentation.
High franchisee turnover or terminationHigh franchisee turnover or terminationrate.rate.
Attempts to discourage your attorney Attempts to discourage your attorneyfrom evaluating the contract beforefrom evaluating the contract beforesigning it.signing it.
(Continued)(Continued)
Detecting DishonestDetecting Dishonest
FranchisersFranchisers
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 2626
No written documentation.No written documentation. High pressure sale.High pressure sale.
Claims to be exempt from federalClaims to be exempt from federaldisclosure laws.disclosure laws. "Get rich quick" schemes, promising"Get rich quick" schemes, promising
huge profits with minimal effort.huge profits with minimal effort. Reluctance to provide a list of existingReluctance to provide a list of existing
franchisees.franchisees. Evasive, vague answers to yourEvasive, vague answers to your
questions.questions.
Detecting DishonestDetecting Dishonest
FranchisersFranchisers (Continued)(Continued)
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 2727
How to Buy a FranchiseHow to Buy a Franchise
Preparation, common sense, and patiencePreparation, common sense, and patienceare vital ingredients in choosing the right are vital ingredients in choosing the right franchise.franchise.
Evaluate yourself Evaluate yourself -- What do you like andWhat do you like anddislike?dislike?
Research the market.Research the market.
Consider your franchise options.Consider your franchise options. Get a copy of the franchisers UniformGet a copy of the franchisers Uniform
Franchise Offering Circular (UFOC) andFranchise Offering Circular (UFOC) andstudy it.study it.
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 2828
What Should You LookWhat Should You Look
For?For? A unique concept or marketing A unique concept or marketing
approachapproach
ProfitabilityProfitability
A registered trademark A registered trademark
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 2929
What Should You LookWhat Should You Look
For?For? A business system that A business system that
worksworks
A solid training program A solid training program
Affordability Affordability
A positive relationship A positive relationshipwith franchiseeswith franchisees
(Continued)(Continued)
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 3030
How to Buy a FranchiseHow to Buy a Franchise
Talk to existing franchisees.Talk to existing franchisees.
Ask the franchiser some tough Ask the franchiser some toughquestions.questions.
Make your choice.Make your choice.
(Continued)(Continued)
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Table 4.4 Advantages and Disadvantages of Buying a New vs.
an Established Franchise
Pros Cons
New
Franchise
yCan be new and exciting
yBusiness concept can be fresh and
different in the market
yPossibility of getting lower fees as
a ³pioneer´ of the concept
yPotential for a high return oninvestment
yBusiness is not tested or
established in the market
yUnknown brand and trademark
yPossibility that the concept is a fad
with no staying power
yFranchiser may lack theexperience to deliver valuable
services to franchisees
EstablishedFranchise
yBusiness concept likely is well-
known to consumers and market for
the products or services is already
established.yFranchiser has experience in
delivering services to franchisees
yFranchiser has had time to work
the ³bugs´ out of the business
system
yHigh franchise fees and costs that
often are non-negotiable
yConcept may be on the wane in the
marketyFranchiser¶s brand and trademark
may remind customers of an
outdated concept
yFranchiser¶s ³trade dress´ may be
in need of updating and redesigning
Source: Based on Andrew A. Caffey, Age Issues, Entrepreneur , January 2002. p. 118.
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 3232
Franchise ContractsFranchise Contracts
Note clauses covering:Note clauses covering:
Termination
Termination
RenewalRenewal
Transfers and BuybacksTransfers and Buybacks
40% of New Franchisees Sign40% of New Franchisees Sign
Contracts Without Reading Them !!!Contracts Without Reading Them !!!
Contract
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 3333
Trends ShapingTrends Shaping
FranchisingFranchising International opportunitiesInternational opportunities
Smaller, nontraditional locationsSmaller, nontraditional locations
Conversion franchisingConversion franchising
MultipleMultiple--unit franchisingunit franchising
Master franchisingMaster franchising
Piggybacking (Combination franchising)Piggybacking (Combination franchising)
Serving aging baby boomersServing aging baby boomers
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Chapter 4 FranchisingChapter 4 Franchising Copyright 2006 Prentice Hall Publishing CompanyCopyright 2006 Prentice Hall Publishing Company 3434
FranchisingWeb SitesFranchisingWeb Sites
EntrepreneursEntrepreneurs Franchise ZoneFranchise Zonehttp://www.entrepreneur.com/Franchihttp://www.entrepreneur.com/Franchi
se_Zone/FZ_FrontDoor/0,4670,,00.ht se_Zone/FZ_FrontDoor/0,4670,,00.ht mlml
Subway Sandwiches and SaladsSubway Sandwiches and Salads
http://www.subway.com/http://www.subway.com/ Auntie Annes Pretzels Auntie Annes Pretzels
http://www.auntieannes.com/http://www.auntieannes.com/