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Fundamentals of Franchising

Fundamentals of Franchising. Started in 1960, the IFA is the world’s oldest and largest organization representing this unique way of doing business Mission: Enhance and safeguard the business environment for franchisors and franchisees worldwide

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Fundamentals of Franchising

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  1. Fundamentals ofFranchising

  2. Started in 1960, the IFA is the world’s oldest and largest organization representing this unique way of doing business Mission: Enhance and safeguard the business environment for franchisors and franchisees worldwide Currently have over 30,000 members, spanning 75 different industries, doing business in more than 100 countries International FranchiseAssociation

  3. Accounting/Tax Services Automotive Products/Services Business Services Children’s Services Clothing & Shoes Construction/Remodeling Cosmetics Educational Services Employment Services Environmental Services Restaurants Hair salons Home furnishings Hotels/Motels Janitorial Services Laundry/Dry Cleaning Lawn & Garden Maid Services Printing Services Real Estate Spans more than 75 industries

  4. More than 760,000 franchised businesses in the United States Accounts for 9.5% of the private sector output Directly provides jobs for almost 10 million Americans Combining both direct and indirect job activity, franchising generates one out of every seven jobs in the private sector U.S. Franchise Market

  5. A marketing method in which the owner of a product or service, known as the “franchisor”, offers the right to operate and manage his product & service to others, the “franchisees”, in return for a fee and ongoing royalty payments. What is Franchising? Franchisor - Know-How - Support- Trademark Franchisee - Initial Fee - Royalty,- Infrastructure

  6. Franchisor can expand without direct investment Store operators are usually owners, not managers Advantage to Franchisors

  7. In many cases, no previous experience required In business for yourself, but not by yourself Affiliate with a brand name Become part of a “proven system” Receive on-going training and support Access to product and equipment Advantage to Franchisees

  8. A guarantee of success Like any business, still risks For everyone Consistency is key to franchising A short-term commitment Average contract is 10 years Franchising is NOT...

  9. Evaluate yourself first Do you require a certain annual income level? How many hours are you willing to work? Do you want to operate business yourself or hire manager? How much can you invest? Is franchising for you? How to Evaluate a Franchise

  10. Research your options Attend franchise exhibitions and seminars Read franchise directories, articles and books Use the Internet (www.franchise.org) How to Evaluate a Franchise (Cont’d)

  11. How to Evaluate a Franchise (Cont’d) • Thoroughly investigate the franchise • Conduct market research • Evaluate strength of franchisor • Call existing and former franchisees • Get written substantiation for earnings claims • Hire a lawyer or accountant familiar with franchising • Read the Disclosure Document, or UFOC

  12. What is the UFOC? • Uniform Franchise Offering Circular (UFOC) • Disclosure Document required by Federal Trade Commission (FTC) • Purpose is to provide prospective franchisees with information about the franchisor, franchise system and the agreements they will need to sign so they can make an informed decision

  13. Experience of franchise management Bankruptcy and litigation history Initial and ongoing fees Territory rights Contact list of current and former franchisees Franchise Agreement you will be required to sign The UFOC contains...

  14. Initial Franchise Fee 70% of franchise systems have a fee of $30,000 or less Start-up Costs 75% of franchise systems require start-up capital of less than $250,000 Royalty Payments Typically 3-6% of monthly gross sales Pays for trademark usage, training, etc. How much does a franchise cost? Source: Profiles in Franchising Vol. III; IFA Educational Foundation; 2/00

  15. Small Business Administration (SBA) Loans Arranged through banks, part of loan guaranteed by SBA www.franchiseregistry.com Small Business Investment Companies (SBICs) - Provide equity capital and long-term debt financing Direct financing from franchisor Not all franchisors offer it Many have preferred lending relationships Financing Sources

  16. 15-40% of total capital needed Ideally, a net worth of 1 1/2 to 2 times the loan amount Solid business plan Good credit history What do lenders look for?

  17. Launched in 1991 during the Gulf War; re-launched in 2002. Supported by the IFA, U.S. Department of Veterans Affairs; Small Business Administration and the Veterans Corporation. Offers honorably discharged veterans financial discounts to own a franchise, I.e. reduced initial franchise fee. More than 140 franchise companies participating More than 100 franchises have been awarded through the program IFA’s Veterans Transition Franchise Initiative (VetFran)

  18. In business for yourself, but not by yourself Many opportunities in a wide variety of industries Evaluate yourself first Research your options Thoroughly investigate franchise Summary

  19. THANK YOU

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