Roland G.

Justo BSBAFM-3 MGT 11 (10:00 AM- 1:00 PM)

FRANCHISING

1. What is franchising?

 A franchise (or franchising) is a method of distributing products or services

involving a franchisor, who establishes the brand's trademark or trade name
and a business system, and a franchisee, who pays a royalty and often an
initial fee for the right to do business under the franchisor's name and
system.

2. What are the two main types of franchising?

 Two main types of franchising, known as Product Distribution Franchising

(Traditional Franchising) and Business Format Franchising, which are
conducted under a variety of franchise relationships.

3. What are the 4 types of Franchising?

 Area Developer
Area developer franchises allow a business owner to own all franchises
within one location. The location can include a city or neighborhood. The
franchisee often has to open a certain number of businesses within a specific
time period or follow other stipulations set by the parent company or
franchisor. Area development contracts typically require development in an
area within five years.

 Tax-Service Franchise
Tax-services businesses help consumers complete their tax forms and
offer financial guidance. For example, the Liberty Tax Service chain offers
franchising in specific territories. The area developer earns money through
franchise fees from other franchisees who manage stores within the area.
Developer earnings also are based on revenues from all stores within their
own territory. Liberty Tax Service offers training on franchising for area
developers.

 Master Franchise
The master franchise is a popular way to spread American businesses to
international territories. This method allows one entity to find many
franchisees in an overseas area. The master franchisor is responsible for
training and providing support to the new franchisees within the large area,
which can include an entire country. Master franchisers often establish
training centers for new franchisees.
Roland G. Justo BSBAFM-3 MGT 11 (10:00 AM- 1:00 PM)

FRANCHISING

 Single-Unit Franchise
In a single-unit franchise system, one person buys a store from the main
company and operates it according to the company's rules. Operating one
store at a time is a good choice for new business owners. Some successful
operators of one store eventually buy more stores

4. How does Franchising work?

 In Business Format Franchising, a company licenses its trademarks and

proven business methods to others in exchange for a recurring payment, a
percentage of gross sales or a fixed fee. A company that licenses its
trademarks and methods is called a franchisor. An individual who pays to use
a franchisor’s trademarks and methods is called a franchisee. Franchisees
open clones of the franchisor’s business, and run them with the continual
assistance of the franchisor for a pre-determined period.

5. What are the main benefits of Franchising?

 CAPITAL
The franchisor’s capital requirements will be lower because the
franchisees provide the capital to open each franchised outlet.

 MOTIVATED AND EFFECTIVE MANAGEMENT

The local management of each franchised unit will be highly motivated
and very effective. They treat the franchise units as their own and that will
usually lead to higher sales and profit levels.

 FEWER EMPLOYEES
The number of employees which a franchisor needs to operate a
franchise network is much smaller than they would need to run a network of
company owned units.

 SPEED OF GROWTH
The franchise network can grow as fast as the franchisor can develop its
infrastructure to recruit, train and support its franchisees.

 REDUCED INVOLVEMENT IN DAY-TO-DAY OPERATIONS

The franchisor will not be involved in the day-to-day operations of each
franchised outlet.

 LIMITED RISKS AND LIABILITY

Roland G. Justo BSBAFM-3 MGT 11 (10:00 AM- 1:00 PM)

FRANCHISING

The franchisor will not risk its capital and will not have to sign lease
agreements, employment agreements, etc.

 INCREASING BRAND EQUITY

Levereging off the assets of franchisees helps franchisors grow their
market share and brand equity more quickly and effectively.

 ADVERTISING AND PROMOTION

Franchisor will reach the target customer more effectively through co-
operative advertising and promotion initiatives.

 CUSTOMER LOYALTY
Franchisors use the power of franchising as a system to build customer
loyalty- to attract more customers and to keep them.

 INTERNATIONAL EXPANSION
International expansion is easier and faster, since the franchisee posesses
the local market knowledge.

6. What are the advantages and disadvantages of Franchising?

 The primary advantages for most companies entering the realm of

franchising are capital, speed of growth, motivated management, and risk
reduction, Staffing Leverage, Ease of Supervision, Increased
ProfitabilityImproved Valuations, Penetration of Secondary and Tertiary
Markets and many others as well.

 THE DISADVANTAGES OF FRANCHISING

At first, it might seem that franchising has only benefits; however, there are
some drawbacks to be considered as well.
Developing a franchise network can be expensive, in terms of management
time and initial capital outlay.
Your investment cannot be recovered until franchisees are appointed and
you start to receive fees from them.
As your franchisees are independent business people, they might sometimes
disregard their obligations related to the franchise system.
There are certain risks involved at each stage of franchising; therefore,
developing a successful franchise requires careful planning, continuous
monitoring and support from professionals.

7. What's the purpose of franchising?

Roland G. Justo BSBAFM-3 MGT 11 (10:00 AM- 1:00 PM)

FRANCHISING

1. Most entrepreneurs turn to franchising is that it allows them to expand without

the risk of debt or the cost of equity. First, since the franchisee provides all the
capital required to open and operate a unit, it allows companies to grow using
the resources of others.
8. Differentiate Franchisor, Franchisee, and Franchise.

 The “franchisor” is the person or corporation that owns the trade-marks and
business model. The franchisor licenses the use of the trade-mark and
business model to the franchisee, usually in exchange for an upfront
payment and ongoing royalty payments. The “franchisee” is the person or
Corporation that owns and operates the business using the trade-mark and
business model system licensed from the franchisor. Franchise is A franchise
(or franchising) is a method of distributing products or services involving a
franchisor, who establishes the brand's trademark or trade name and a
business system, and a franchisee, who pays a royalty and often an initial fee
for the right to do business under the franchisor's name and system.

9. You select a company LOCAL or INTERNATIONAL that you intend to

research and study. There should be no duplication of company. Make
sure that the company you selected has available data for study.
Comment your selected company in the GC created for this class.

 7 ELEVEN
Roland G. Justo BSBAFM-3 MGT 11 (10:00 AM- 1:00 PM)

FRANCHISING