Franchising

1. Franchising • Franchising • A marketing system revolving around a two-party agreement, whereby the franchisee conducts business according to the terms specified by the franchisor • Franchisee • An entrepreneur whose power is limited by a contractual agreement with a franchisor • Franchisor • The party in the franchise contract that specifies the methods to be followed and the terms to be met by the other party

2. What is a FRANCHISE? A form of business where the franchisor sells or provides to a franchisee: • the right to do business under a particular trade name or brand • the right to use/sell a proprietary product, process, or service • training and assistance in setting up the business • a business and marketing plan • economies of scale for purchasing and marketing • a financial (accounting) system • regular inspection and quality checks once the business is established

3. Top 20 Franchises for 2011 • Jan-Pro Franchising Intl • Hardee’s • Pizza Hut Inc • Kumon Math & Reading Cntrs • Dunkin’ Donuts • KFC Corp • Jazzercise Inc • Anytime Fitness • Matco Tools • Stratus Building Solutions • Hampton Hotels • ampm • McDonalds • 7-Eleven Inc • Supercuts • Days Inn • Vanguard Cleaning Syst • Servpro • Subway • Denny’s Inc Source: Entrepreneur.com,Top Franchises for 2011 Source: Entrepreneur.com “Top Low-Cost Franchises in 2011”

4. The 20 Fastest-Growing Franchises - 2011 • Stratus Building Solutions • Jan-Pro Franchising International • Subway • CleanNet USA Inc • Anago Cleaning Systems • Pizza Hut • Liberty Tax Service • Vanguard Cleaning Systems • Bonus Building Care • System4 • Chester’s • McDonalds • Anytime Fitness • Coldwell Banker Real Estate LLC • Jimmy John’s Sandwich Shops • ampm • 7-Eleven Inc • Choice Hotels Intl • Cruise Planners/Amer Express • Sears Home & Bsns Franchises Inc Source: Entrepreneur.com, 2011 Fastest-growing franchises

5. Top 12 Low-Cost Franchises - 2011 • Bonus Building Care Commercial cleaning 9.02K – 41.92K • System4 Commercial cleaning 5.46K – 37.75K • ServiceMaster Clean Commercial , home & disaster cleaning 47.86K – 161.13K • Cruise Planners/Amer Express Cruise & tour travel agency 1.6K – 19.29K • Chem-Dry Carpet Cleaning Carpet, drapery & upholstery cleaning; tile & stone care 27.85K – 122.65K • Vanguard Cleaning Commercial cleaning 8.2K - 38.1K • Jan-Pro Franchising Intl Commercial cleaning 3.15K – 50.41K • Kumon Math & Read Cntrs Supplemental education 67.76K – 145.32K • Jazzercise Inc Dance fitness classes 2.98K – 75.5K • Stratus Building Solutions Commercial cleaning 3.45K – 57.75K • CleanNet USA Inc Commercial cleaning 6.66K – 92.95K • H & R Block Tax preparation & electronic filing 34.44K – 110.03K Source: Entrepreneur.com “Top Low-Cost Franchises in 2011”

6. The Pros and Cons of Franchising • Advantages • Probability of success • Proven line of business • Pre-qualification of franchisee • Overall lower failure rates • Training • Franchisor-provided • Financial assistance • Loans & loan guarantees • Operating benefits • Location feasibility study • Marketing assistance • Quick start-up time • Limitations • Franchise costs • Initial franchise fee • Investment costs • Royalty payments • Advertising costs • Restrictions on business operations • Products sold • Hours of operation • Restrictions on expansion/growth • Franchisor only source of supplies • Loss of independence • Lack of franchisor support • Termination/renewal clauses

7. Franchisor Controls on Franchisees • Restricting of sales territory • Requiring site approval and imposing requirement on the outlet’s appearance • Restricting the goods/services that can be sold • Requiring specific operating hours • Controlling advertising

8. An Attractive Franchise Opportunity Includes: - 1 • Registered trademarks • Successful prototype stores with a track record of profitability and a positive reputation • A business that can be systematized so that it can be easily replicated. • A product or service that can be successful in many different geographic regions.

9. An Attractive Franchise Opportunity Includes: - 2 • An operations manual that specifies all the functions of the business and their associated policies • A training and support system • Site selection criteria and architectural standards • A detailed prospectus that spells out the franchisee’s rights, responsibilities, and risks. The Federal Trade Commission requires disclosure...Uniform Franchise Offering Circular [UFOC]

10. Franchise Disclosure Requirements • Rule 436 of the Federal Trade Commission • Uniform Franchise Offering Circular (UFOC) • A document accepted by the Federal Trade Commission as satisfying its franchise disclosure requirements • Litigation and bankruptcy history • Investment requirements • Conditions that would affect renewal, termination, or sale of the franchise • http://www.ftc.gov/bcp

11. Franchising Arrangements • Trade name franchise • agreement that provides to the franchisee the right to use the franchisor's trade name and/or trademarks • Product distribution franchise • agreement that provides specific brand name products which are resold by the franchisee in a specific territory • Business format franchise • agreement that provides a complete business format, including trade name, operating procedures, marketing, and products or services for sale • Piggyback Franchise • A retail franchise operation within the physical facilities of a host store • Area Developer/Master Licensee • Firms or Individuals that obtain the legal right to open several franchised outlets in a given area

12. Before Buying a Franchise ASK QUESTIONS

13. Questions to Ask Before Buying a Franchise • Does the franchisor have an excellent reputation in the industry? • Is the franchisor in partnership or any other legal relationship with another franchisor? If so, how will the franchisee be protected should that relationship fail? • Is the franchisee required to do anything that appears questionable from a legal or ethical perspective? • Under what circumstances can the franchisee or franchisor terminate the franchise agreement and what are the consequences to either party? • Will the franchisor grant an exclusive territory? Is that area subject to reduction or modification? If so, under what conditions?

14. Questions to Ask Before Buying a Franchise - 2 • Will the franchisor reveal the certified financial figures for one of its franchises and can those figures be verified with the franchisee? • Will the franchisor provide a management training program, an employee training program, public relations and advertising support, or credit? • Does the franchisor assist in finding a suitable location? • What is the financial health of the franchisor? Can financial statements be verified?

15. Questions to Ask Before Buying a Franchise - 3 • What is the track record of the franchise? • Does the franchisor conduct an in-depth investigation of the franchisee to assure that he or she has the necessary skills and financial requirements to operate the business successfully? • How much capital will be required to start and operate the business to a positive cash flow? Does the initial fee include an opening inventory of products and supplies? What do royalties pay for and how are they calculated?

16. Questions to Ask Before Buying a Franchise - 4 • Can you transfer your franchise license to someone else? When and how? • How can youterminate the contract? Under what circumstances can this be done? • Can the franchisorterminate the contract? Under what kind of conditions? • What disclosures are you required to make? What disclosures is the franchisor required to make?

17. Where to Find out about Franchises • www.franchise1.com • www.franchising.com • www.en.wikipedia.org/wiki/franchising • www.entrepreneur.com/franchiseopportunities/index.html • www.franchiseinfosite.com Getty Images