INTRODUCTION

INTRODUCTIONA franchise is a license granted by a business to another business to make and sell goods/services.

A franchisor is the owner of the business who grants the license.

A franchisee is the person who purchases the business name.

FRANCHISE SYSTEM = FRANCHISE + FRANCHISOR + FRANCHISEE

What is Franchising? A franchise operation is a contractual relationship between the franchisor and franchisee in which the franchisor offers or is obliged to maintain a continuing interest in the business of the franchisee in such as know-how and training; where in the franchisee operates under a common trade name, form at and/or procedure owned or controlled by the franchisor, and in which the franchisee has or will make a substantial capital investment in his business from his own resources.WHAT IS ITNormally referred to asBusiness Format FranchisingA contractual long-term relationshipGrant of a licence to franchisee Franchisee gets:Tried and tested product/serviceProfitable proven business model to followExperience and know-how of the franchisorEntitlement to use the trade name / markEntire package4NEXT SLIDE:Look at some examples of well known and lesser known franchisesWhy Franchise?

Legal and commercial arrangement concerning the successful business of a franchisor Use of franchisors trade name, format, system and/or procedure under licenseMeans to raise capital and expand quicklyAssistance to franchiseeMarketing, management, advertising, store design, standards specificationsPayment by franchisee by way of royalty, licensee fee or other meansGroup Advertising powerOwning your business & making day to day decisions guided by franchisors experienceBenefit of identification of trademarks, proprietary information, patents & designsSystematic training from expertsLower risk of failure and/or loss of investmentsBeing a part of uniform operations throughout the countryAssistance in financial & accounting matters from the franchisor, as well as ongoing supportEnhancement of management abilities

TYPES OF FRANCHISEThree main types of franchise:

Product distribution franchise; Business format franchise; andManagement franchise.

PRODUCT DISTRIBUTION FRANCHISESA product distribution franchise model is very much like a supplier-dealer relationship.

Typically, the franchisee merely sells the franchisors products. However, this type of franchise will also include some form of integration of the business activities.

Examples of famous product distribution franchise:

BUSINESS FORMAT FRANCHISINGIn a business format franchise, the integration of the business is more complete.

The franchisee not only distributes the franchisors products and services under the franchisors trade mark, but also implements the franchisors format and procedure of conducting the business.

Famous Examples

MANAGEMENT FRANCHISEA form of service agreement.

The franchisee provides the management expertise, format and/or procedure for conducting the business.

Famous Examples

Other TypesJob FranchiseUsually a one-person business, operated by the franchisee from home. Home-delivery operations, such as lawn care, car repairs or furniture refurbishing, are examples of job franchises.

Management FranchiseA management franchise is where the franchisee will be responsible for both running the franchise and employing and managing a team of operatives.

13NEXT SLIDE:Look at the revenue streams for a business that franchises

Investment FranchiseInvestment franchises are operated by the fast-food and restaurant chains, as well as by some well-known hotels.The franchisee has overall control of the businessEmploys his or her own senior management and staff.

Executive FranchiseInvolves the provision of professional services, Financial advice, legal services or recruitment assistance.

14NEXT SLIDE:Look at the revenue streams for a business that franchises

Retail FranchiseThe franchisee runs the outlet, employs staff and displays goods approved by the franchisor. Distribution FranchiseA distribution franchise permits the franchisee to operate from a depot or central office that is usually owned by the franchisor.Depot FranchiseThe franchisee is the operator and sole occupant of the depot. This type of franchise is generally available to courier companies and parts suppliers, for whom a depot is an essential part of the business.

15NEXT SLIDE:Look at the revenue streams for a business that franchises

FranchisorFranchisee relationshipRegulated by contract which usually covers:

Initial feeRoyalty fee/Management feeCapital required from franchiseeTerritory/Area of operationDuration of license and renewalTermination

Advantages OF FRANCHISINGYour business is based on a proven idea. You can check how successful other franchises are before committing yourself. You can use a recognized brand name and trade marks. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'. The franchisor gives you support - usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice. You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory. Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation. [You benefit from communicating and sharing ideas with and receiving support from other franchisees in the network [[[Relationships with suppliers have already been established. Disadvantages OF FRANCHISINGCosts may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.

The franchise agreement usually includes restrictions on how you run the business. You might not be able to make changes to suit your local market.

The franchisor might go out of business.

Other franchisees could give the brand a bad reputation.

You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.

All profits are shared with the franchisor