Lesson 1 FRANCHISING Introduction Converted 1
Lesson 1 FRANCHISING Introduction Converted 1
What is a franchise?
What are common franchise terms?
What are the alternatives to franchising?
What are the advantages and disadvantages
of owning a franchise?
What are the legal issues in franchising?
A franchise is the agreement or license between
two legally independent parties which gives:
• a person or group of people (franchisee) the
right to market a product or service using the
trademark or trade name of another business
(franchisor)
• the franchisee has the right to market a product
or service using the operating methods of the
franchisor
• the franchisee has the obligation to pay the
franchisor fees for these rights
• the franchisor has the obligation to provide
rights and support to franchisees
Product distribution franchises simply sell the franchisor’s products and
are supplier-dealer relationships.
In product distribution franchising, the franchisor licenses its trademark
and logo to the franchisees but typically does not provide them with an
entire system for running their business. The industries where you most
often find this type of franchising are soft drink distributors, automobile
dealers and gas stations.
Some familiar product distribution franchises include:
✔ Pepsi ✔ Ford Motor Company ✔Apple ✔Shell Gasoline
A manufacturer grants a franchisee the rights to sell its products, but
with no method of doing business.
Although product distribution franchising represents the largest
percentage of total retail sales, most franchises available today are
business format opportunities.
Business format franchises, on the other hand, not only use a
franchisor’s product, service and trademark, but also the complete
method to conduct the business itself, such as the marketing plan and
operations manuals. Business format franchises are the most common
type of franchise.
Under an area development franchise, a franchisee has the right to open more than one unit
during a specific time, within a specified area. For example, a franchisee may agree to open 5
units over a five year period in a specified territory.
A master franchise agreement gives the franchisee more rights than an area development
agreement. In addition to having the right and obligation to open and operate a certain
number of units in a defined area, the master franchisee also has the right to sell franchises to
other people within the territory, known as sub-franchises. Therefore, the master franchisee
takes over many of the tasks, duties and benefits of the franchisor, such as providing support
and training, as well as receiving fees and royalties.
business format franchise – this type of franchise includes not
only a product, service and trademark, but also the complete
method to conduct the business itself, such as the marketing
plan and operations manuals
franchisor – the person or company that grants the franchisee the right to do
business under their trademark or trade name
product distribution franchise – a franchise where the franchisee simply sells the
franchisor’s products without using the franchisor’s method of conducting
business
royalty – the regular payment made by the franchisee to the franchisor, usually
based on a percentage of the franchisee’s gross sales
trademark – the franchisor’s identifying marks, brand name and logo that are
licensed to the franchisee
UFOC – the Uniform Franchise Offering Circular, UFOC, is one format for the
disclosure document which provides information about the franchisor and
franchise system to the prospective franchisee
Advantages:
✔ franchise agreement
The UFOC The purpose of the UFOC is to provide
prospective franchisees with information about the
franchisor, the franchise system and the agreements
they will need to sign so that they can make an
informed decision.
• Terms of agreement
• Renewal
• Territory
• Termination
The franchise agreement is the legal, written document that governs the relationship
and specifies the terms of the franchise purchase. Like the UFOC, the franchise
agreement also enjoys a “cooling off” period. Prospective franchisees are legally entitled
to have the final franchise agreement for at least 5 business days before they are
allowed to sign. This gives them time to review and consider the terms of the
agreement.
Working with the franchising system
The risk
False expectations
attendance today.