buying a franchise or franchising your business 14-1copyright © 2011 nelson education ltd. chapter...
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Buying a Franchise
Or Franchising Your BusinessOr Franchising Your Business
14-1Copyright © 2011 Nelson Education Ltd.
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Prepared byRon KnowlesAlgonquin College
& Jennifer Rouse BarbeauCanadore College
Chapter OverviewChapter 14 will: Introduce you to the world of
franchising. Help you decide if buying a franchise
or becoming a franchisor is right for you.
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Learning Opportunities Appreciate the vast world of franchising. Understand the key franchising terms and
conditions in an agreement. Understand the relationship between franchisor
and franchisee. Learn the benefits and liabilities of owning and
operating a franchise. Learn how to become a master franchisee. Learn the process involved in purchasing a
franchise. Understand what it takes to become a franchisor. Decide whether buying a franchise is the right
step for you.
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What is a Franchise?A franchise franchise is:
A special kind of partnership in which one company (the franchisor) grants the right to sell its products or services to another company or individual (the franchisee).
A franchisor franchisor is:A firm that sells the rights to do business under
its name and continues to control the business.
A franchisee franchisee is:The individual operator who is licensed to
operate under the franchisor’s rules and directives.
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The Franchising Industry Franchised businesses account for 40% of all retail sales. 78,000 franchises across Canada Canadian Franchise Association membership grows 10% yr Franchising directly employs 1,000,000 people Every year, thousands of Canadians are improving their
lives by becoming franchisees Franchising accounts for $90 billion/yr in nation sales &
10% of Canada’s Gross Domestic Product (GDP) Franchising accounts for 1 out of 5 consumer dollars spent
in Canada on goods & services
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Franchise SystemsA business format business format franchise is:
A type of franchise in which the product, method of distribution, sales and management procedures are highly controlled.
Example: 1-800-GOT JUNK?
A type of franchise in which the franchisee buys the right to distribute a franchisor’s product or service.
Example: Home Hardware or PropertyGuys.com
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Franchise NetworksDirect franchising Direct franchising is:A business arrangement in which a franchisee deals directly
with the franchisor. Example: Anna Babin dealt directly with PropertyGuys.com.
Master franchising Master franchising is:A business arrangement or network in which a
franchisor sells the rights of an area or territory to a franchisee who is normally required to sell (or establish) and service a specified number of franchises in a specified time period within its area. Example: Don Swanston and Matt Eldridge purchased 18
franchise units in British Columbia’s Greater Vancouver Area.
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What the Customer Receives
Key reasons for buying a franchise: Customer satisfaction & brand loyaltyCustomer satisfaction & brand loyalty
A consistent standard of service and product.
A sense of security and familiarity.
A perception that the owner is close by and ready to help.
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The franchiseefranchisee expects to receive:Brand-name recognition Support from the corporation (franchisor)Training Financial supportA business template—a proven plan and
business strategyPurchasing powerCorporate monitoring and assistance Less risk of failureNational/regional promotionAdditional units—an opportunity to grow
14-9Copyright © 2011 Nelson Education Ltd.
What the Franchisee Receives
The franchisorfranchisor expects to receive: Franchise feesRoyalty feeProfit on items sold to franchiseeVolume rebatesAdvertising feesGrowth and market penetration
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What the Franchisor Receives
Franchise Agreement You will likely be required to sign a contract that
could be 50 pages long. This contract lays out the system, rules and
regulations that you will be bound by. Get legal and financial advice. Do not deposit any money until you have
consulted with a lawyer. Do your research. (Complete Action Step 62
and Box 14.4).
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Purchasing a Franchise:The Process Explore franchising Contact and pre-qualification Application Franchisor contact and review Franchise agreement provided Negotiate terms Agreements signed and business begins
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Buyer BewareIssues that plague the franchising industry: Encroachment Ground-floor opportunities Renewal period Verbal agreements Minimum franchise legislation Signing personally Few facts Saturated markets Poor training Supplies stipulation Insiders first Non-refundable deposits
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Evaluating a Franchise Ask additional questions Choose your product or service with
care Reasons for not buying a franchise
You know the business as well as the franchisorWhy pay a franchise fee?Your individuality may be stifled See textbook for more
A final word about franchisesCan you work under the franchise controls?
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Become the Franchisor Aileen Reid franchised her A.P. Reid Insurance
Stores Ltd. business. Ken LeBlanc franchised his PropertyGuys.com
business. Your business must:
Have a proven and profitable business track record. Have a competitive advantage. Be credible, teachable and transferable. Not be dependent on your personality
You must have the time, money and expertise to develop and grow the franchise system.
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Chapter 14 introduces you to the world of franchising:Buying a FranchiseBecoming a Franchisor
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Business Plan Business Plan Building Block
Why have you selected a franchise as your method of start-up?
What were your lawyer’s comments on the franchise agreement?
Do your personal vision, goals, and personality match a franchise form of ownership?
Have you considered a master franchise? Is there a possibility you can franchise your
business in the future?
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Checklist for Your Business PlanYour Business Plan
PropertyGuys.comPropertyGuys.com is a successful, high-growth
Canadian franchise system.
Answer Chapter 14 case study questions to learn: What was PropertyGuys.com major driving force or
competitive strategy? Which franchise system and network did
PropertyGuys.com use? Begin a franchise checklist. What are the most important franchise evaluation
criteria? Are you ready to franchise your business? What
questions should you be asking?
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CaseStudy