INTRODUCTION TO FRANCHISING AND ITS

IMPORTANCE TO ENTREPRENEURS &

SMALL & MEDIUM ENTERPRISES

Qurat-ul-ain Abro
WHAT IS FRANCHISING?
 An arrangement whereby a party (franchisor), who
has developed a way of running a business
format/system successfully, licenses the rights to
operate that format/system using his trademark,
name or other IP rights to another party (franchisee)

 The licence involves the franchisor granting a right

to use the format/system, trademark, name or other
IP rights in exchange for an initial fee and annual
royalty.

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WHY FRANCHISE?
 A recognised brand name.

 Enhanced business image.

 Consistent quality.

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WHY FRANCHISE?

 Franchises offer important pre-opening

support:
 site selection

 design and construction

 financing (in some cases)

 training

 grand-opening program

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WHY FRANCHISE?
 Franchises offer ongoing support
 training

 national and regional advertising

 operating procedures and operational

assistance
 supervision and management support

 increased spending power, access to bulk

purchasing and economies of scale

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DISADVANTAGES

 The franchisee is not completely independent.

 In addition to the initial franchise fee, franchisees

must pay ongoing royalties and advertising fees.

 Franchisees must be careful to balance

restrictions and support provided by the franchisor
with their own ability to manage their business

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DISADVANTAGES

 A damaged, system-wide image can result if

other franchisees are performing poorly or the
franchisor runs into an unforeseen problem.

 The term (duration) of a franchise agreement

is usually limited and the franchisee may have
little or no say about the terms of a
termination

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ASSESSING
FRANCHISING OPPORTUNITY

 Successful franchising essentially involves

trust and understanding between the
franchisor and franchisee
 Franchisor’s financial position and track
record
 How thoroughly has the business been
market tested

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HOW TO ASSESS A PROSPECTIVE
FRANCHISE?

 Assess the reputation and reliability of the

franchisor
 Find out the demand for the goods/services offered
in the franchise
 Do sales projection
 Find out from other franchisees the support
services provided
 Work out the amount of capital that is needed
upfront

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HOW TO ASSESS A PROSPECTIVE
FRANCHISE?

 Work out the amount of cash that is needed

under the worst case scenario
 Go through the contract thoroughly with a lawyer
concerning , in particular,
 rights of the franchisee
 obligations of the franchisor
 terms of termination
 restriction on business entered after termination
 resolution of disputes
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WHAT IS INVOLVED IN FRANCHISING?

 Tenure/Period of contract
 Initialfee
 Royalty/management fee

 Renovation cost

 Territory

 Supply of goods and services

 Compliance with contract

 Terms of termination

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STEPS INVOLVED IN FRANCHISING?

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WHAT SHOULD A COMPANY DO TO GET
READY TO BE A FRANCHISEE?

 Conduct feasibility study

 Set up systems/procedures and support
functions
 Study the operations manual
 Register trademarks and other IP rights

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TYPES OF FRANCHISE

 Generally there are 2 main types of

franchises:

 Product distribution franchises; and

 Business format franchises.

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PRODUCT DISTRIBUTION
FRANCHISES

 A product distribution franchise model is

very much like a supplier-dealer
relationship.

 Typically, the franchisee merely sells the

franchisor’s products. However, these type
of franchises will also include some form of
integration of the business activities.

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PRODUCT DISTRIBUTION
FRANCHISES

 Examples of famous product distribution

franchises include:

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PRODUCT DISTRIBUTION
FRANCHISES

Produces the syrup

concentrate

Sells the syrup

concentrate

Produces the final

FRANCHISEE drink

Retail Stores
Restaurants & Vending
F&B Outlets Machine
Operators
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BUSINESS FORMAT
FRANCHISING
 In business format franchises, on the other
hand, the integration of the businesses is
more complete.

 The franchisee not only distributes the

franchisor’s products and services under
the franchisor’s trademark, but also
implements the franchisor’s complete
method to conduct the business itself.

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BUSINESS FORMAT
FRANCHISING
 Examples of famous business format
franchises include:

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 BUSINESS FORMAT
FRANCHISING -

outlet in outlet in
Sale, Australia Marseille, France
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FRANCHISING

 About 350 active franchises, such as

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SMALL BUSINESS, ENTREPRENEURSHIP &
FRANCHISING

Join a small business? Start my own

business?
Choices that you will be available to you.

Business students have many options upon graduation –

some choose to start their own businesses, find
employment in small businesses, or perhaps, join a
franchise.
ENTREPRENEURSHIP & SMALL BUSINESS

Entrepreneurship

The process of creating and managing a business

to achieved desired objectives is our working
definition for entrepreneurship.
ENTREPRENEURSHIP & SMALL BUSINESS

Entrepreneurship & Entrepreneurs

Ability to see emerging trends & create company that

satisfies those consumer needs. (Dell Computers)

Create new markets (Amazon.com)

Improve or re-package existing products (Starbucks)

ENTREPRENEURSHIP & SMALL BUSINESS

What is a Small Business?

“Smallness” is relative. Defined, small business is

any independently owned and operated business,
not dominant in its competitive area, employing
less than 500 people.
ENTREPRENEURSHIP & SMALL BUSINESS

Supporting Small Business

The Small Business Administration (SBA) is an

independent agency of the federal government
that offers managerial and financial assistance to
small businesses.
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