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Franchise Business Overview
Presented by
Jon Gregory
February 2, 2006
Franchise Basics
A legal and commercial relationship between the owner of
a trademark, trade name, or advertising symbol and an
individual or group wishing to use that identification in a
business.
Each franchise business has been authorized by a parent
company, or franchisor, to sell their goods and/or services
either in a retail space or a designated geographical area.
The franchise governs the method of conducting business
between the two parties. This relationship is regulated by
FTC laws.
Generally, a franchisee sells goods or services supplied by
the franchisor or that meet the franchisor's quality
standards.
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Franchise Options
There are three main types of franchising:
– Product/trade name franchising: A franchisor owns
the right to the name or trademark and sells that right to
a franchisee.
– Business format franchising: Franchisors provide a
full range of services, including site selection, training,
product supply, marketing plans, and even assistance
in obtaining financing.
– Distributorships: A parent company grants the right to
a franchisee to sell their products.
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Disadvantages
Loss of independence
– Franchisee is required to operate the business according to the
franchisor's manuals and procedures
Other franchisees
– Poorly performing fellow franchisees or company- owned
locations damage a franchisee's business even where they do
not share the same market
Income expectations
– Added costs for royalties, advertising, additional training, and
other services potentially reduce a franchisee's earnings
Franchising inelasticity
– Franchise systems are bound together through legal agreements
between franchisors and franchisees
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Advantages
Overall benefits
– Quality and consistency
– Brand recognition
– Built-in customer base
Pre-opening benefits
– Franchise fee includes training, operations manuals, site selection
tools, store design, construction programs
– Network of other franchisees and parent company
Ongoing benefits
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Access to training programs
Purchasing power that comes from joining with others
Professionally designed marketing materials
Combined advertising spending
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Reasons Franchises Fail
SBA reports 30% of independent, non-franchise
companies fail during their first year
Conversely, the U.S. Dept. of Consumer Affairs reported
that less than 5% franchises fail
– The idea. Make sure business model can be duplicated in
your community.
– Bad location. "Location, location, location."
– Poor marketing/advertising. Local and national efforts.
– Competition. Is there market saturation?
– Unrealistic expectations. Prepare for profits later.
Other issues
– Must expect long hours
– Must manage employees
– Must enjoy dealing with people
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Franchise Arrangements
Single-unit or direct-unit franchises
Multi-unit franchises
– Multiple single-unit operators (many
franchisees, one area)
– Area development (one franchisee, one area)
– Master franchises (ability to re-sell)
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Due Diligence
Know your market
Comparison shop
Study the franchisor's offering
Find out what training and support the
franchisor provides
Talking to existing franchisees
Uniform Franchise Offering Circular
– disclosure document or offering prospectus
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Questions For Franchisees
Are you happy with your franchisor?
How long did it take for you to realize a return on investment?
What are your approximate earnings and are they in line with
your expectations?
Did your franchisor adequately estimate the amount of operating
cash that you needed?
Was the training your franchisor provided thorough and did it
sufficiently prepare you to run this business?
Were there any hidden franchise fees or unexpected costs?
Is your territory big enough to hit your goals?
Are there restrictions on the products you sell and use in your
business? Are you required to use designated vendors?
Does the franchisor advertise as much as it said it would?
What type of business experience, education and skills did you
possess before buying this franchise?
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Top 10 Fastest Growing Franchises
Subway
Pizza Hut
Quiznos Sub
Jan-Pro Franchising Int’l, Inc.
Curves
Jani-King
Jackson Hewitt Tax Service
UPS Store
Coveall Cleaning Concepts
CleanNet USA, Inc.
Source: Entrepreneur.com
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Top 10 Low-Cost Franchises
Curves
Jackson Hewitt Tax Service
Jan-King
Re/MAX Int’l, Inc.
Liberty Tax Service
Jan-Pro Franchising Int’l, Inc.
ServiceMaster Clean
Kumon Math & Reading Centers
Jazzercise, Inc.
Chem-Dry Carpet Drapery & Upholstery Cleaning
Source: Entrepreneur.com
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Top 10 New Franchises
Geeks on Call America
Moe’s Southwest Grill
EmbroidMe
Chester’s Int’l, LLC
ISold It
United Shipping Solutions
Super Wash
Handyman Matters Franchise, Inc.
Robeks Fruit Smoothies & Healthy Eats
1-800 Water Damage
Source: Entrepreneur.com
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Franchise Costs
Franchise fees
– Amount you pay the franchisor to offset the franchisor's cost of
locating, screening, negotiating with, and training you
– May also cover the costs involved in site selection, promotions,
grand opening events, and ongoing support
– Franchise fees can be more than $100,000
– The franchise fee typically range between $20,000 to $25,000.
Training Costs
– Cost of tuition for initial training is usually included in your franchise
fee; Likely need to pay for staff training
Start-up costs
– Total start-up costs can be as low as $20,000 to $1M
– Typical investment for a single-unit franchisee is usually $100,000 to
$300,000, including franchise fee and start-up costs
– The average investment is detailed in the UFOC
– Most franchisors want to see a liquid (read cash) capital investment
of 35 to 50% of the total franchise cost (that's the franchise fee plus
all start-up costs)
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Franchise Resources
Franchise-Zone.com
International Franchise Association
Franchise.com
FranchiseSolutons.com
FranchiseGator.com
FranchiseOpportunities.com
FranchiseSystems.com
FranchiseAdvantage.com
BizBuySell.com
FranchiseWorks.com
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Golden Capital Network
Thank you.
Contact:
Jon Gregory
Golden Capital Network
[email protected]
530-893-8828
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