Own a Franchise or Start a Business Franchise

Own a Franchise or Start a Business

Franchise Ownership • Franchise- legal agreement that gives an individual the right to market a company’s products or services in a particular area • Franchisee- person who purchases franchise agreement • Franchisor- person or company that offers the franchise for purchase • More than 500, 000 people in the United States own franchises

• Franchise opportunities can be found: • Consumer Guide to Buying a Franchisepublished by the Federal Trade Commission • Books on franchising from the public library • The Wall Street Journal • Magazines such as; Forbes, Business Start. Ups, Entrepreneur, or Inc.

Operating Costs of a Franchise • Initial franchise fee- paid in return for the right to run the franchise • Ranges from a few thousand to a few hundred thousand • Start-up costs- costs associated with beginning a business • They include the costs of renting a facility, equipping the outlet, and purchasing inventory

• Royalty fees- weekly or monthly payments made by the owner to the franchisor • Usually a percentage of the franchise’s income • Advertising fees- paid to support television, magazine, or other advertising of the franchise as a whole

Advantages of Owning a Franchise 1. An entrepreneur is provided with an established product or service- allows entrepreneurs to compete with giant companies 2. Franchisors offer management, technical, and other assistance- onsite training, aid with new business and handling daily operations, tips on crisis management, site selection, building design, equipment

3. Equipment and supplies can be less expensive- because a franchise is part of a large chain, they are able to purchase in large quantities to receive discounts 4. A guarantee of consistency attracts customers- franchise contracts mandate a level of quality so customers can trust the business

Disadvantages of Owning a Franchise 1. Franchises can cost a lot of money and cut down on profits- initial capital to purchase is high and profits are lost to royalty fees 2. Owners of franchises have less freedom to make decisions than other entrepreneursdecisions that entrepreneurs make themselves have already been made by the franchisor – Must offer certain products and charge set prices

3. Franchisees are dependent on the performance of other franchisees in the chain- successes of other locations can benefit the entrepreneur and failures of other locations can harm their business 4. The franchisor can terminate the franchise agreement- if the franchisee fails to pay royalty fees or meet other obligations, the investment in the franchise may be lost

Checkpoint>> • Personally, what do you feel is the greatest advantage and worst disadvantage of owning a franchise? Explain your answer. • A • D-

Evaluating a Franchise 1. 2. 3. 4. What is the projected demand for the franchised product or service in the area I want to locate in? Will I be guaranteed an exclusive territory for the duration of the franchise term or can the franchisor sell additional franchises in the same area? What are the costs and royalty fees associated with the franchise? How profitable have other franchises in the area been? What do other franchises think of the franchisor?

5. How long has the franchisor been in business? How profitable is the franchisor? 6. What services does the franchisor provide? Will the franchisor help me with marketing, merchandising, and site selection? 7. Are the benefits provided by the franchisor worth the loss of independence and the cost of purchasing the franchise? 8. What happens if I want to cancel the franchise agreement?

Checkpoint>> • In your own words, why is it important to ask the above questions before entering into a franchise agreement?

Starting Your Own Business • Sometimes, joining a family business or operating a franchise may not be an option. To be an entrepreneur, you must start your own business.

Advantages of a Starting Your Own Business • Make own decisions • Completely independent and create own destiny • Challenge of creating something entirely new • Triumph when business earns a profit

Checkpoint>> • Personally, what do you feel is the greatest advantage of starting your own business? Explain your answer.

Disadvantages of a Starting Your Own Business • Demand for product – Customers may not be interested in what you are selling • Responsible for all business decisions and the consequences for the decisions

Checkpoint>> • In your own words, why is it more difficult to start a new business than to take over an existing business or purchase a franchise?

Assignment • THINK CRITICALLY • #1 -3