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by: Noelle Wiggins

Franchising ENTP 102

Noelle Wiggins
GPA 3.8

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About this Document

These notes cover the business models and principles underlying successful franchising and how this applies to entrepreneurial ventures.
Life Strategies 2
Zahed Subhan
Class Notes
Entrepreneurship, business
25 ?




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This 3 page Class Notes was uploaded by Noelle Wiggins on Friday February 26, 2016. The Class Notes belongs to ENTP 102 at Drexel University taught by Zahed Subhan in Winter 2016. Since its upload, it has received 19 views. For similar materials see Life Strategies 2 in Entrepreneurship at Drexel University.

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Date Created: 02/26/16
Thursday, February 4, 2016 Franchising Franchising - Entrepreneurial alliance between the franchisor and the franchisee - Franchisor creates concept and uses it as a growth strategy - Franchisee may use it as a life style entrepreneurial venture or as a growth venture Data - US 5000 franchise businesses with 650,000 outlets (franchises) - 40% of all retail sales nationwide are from franchises - Just 10% in Europe - US History - Product Franchise (1840s) • Complex durable goods • Built their own distribution systems • John Deere, Anheuser Busch, Automobile companies - Business Format Franchising (1950s) • Restaurants • Food and non food retailing • Business services 87% run by franchisees Fees and Costs of Being a Franchisee - Up-front fees - Royalties - Advertising - May have to buy specialized products 1 Thursday, February 4, 2016 - Costs of running the business Franchise or Stand Alone? - Is risk sufficiently mitigated by trademark value, operating systems, economies of scale and support systems to justify sharing of equity (franchise fee and royalty payments)? - Is my personality and management style amenable to sharing decisions in my business with the franchisor and other franchisees? - Franchise fee + PV of Royalty = PV of the increased net income from the value of the franchise trademark - (PV means Present Value) Franchise Contract - Key document- basis of litigation - Needs specialized legal attention - Length of agreement- 20 years • Renewal Rights • Terms may change after 20 years - Sale of the business • Right of first refusal- the franchisor gets the first opportunity to buy the business • Buyout formula • License agreement - Buyer at risk on new royalty, product purchases and territory Services by Franchisor - Initial and continuing services - Real estate development- key - Up to you- franchisors may approve site but will not find it 2 Thursday, February 4, 2016 - Franchisor provides data from other operating units - Cost biggest part of expense for franchisee - Population analysis - Traffic analysis - Sources of Conflict in Franchise Agreement - Price of initial contracts falls as system gets larger - Franchisor interested in maximizing revenue for royalties - Franchisee wants to maximize profits - Affects optimum number of units 3


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