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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
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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
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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
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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
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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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