THE KOSNAR GROUP

2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

FRANCHISING AND ALTERNATIVE

BUSINESS EXPANSION TECHNIQUES

*******

SEMINAR

i
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

SEMINAR OUTLINE

ii
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

BUSINESS EXPANSION TECHNIQUES

SEMINAR OUTLINE

SECTION PAGE

1. OBJECTIVE OF THE PROGRAM 1

2. ALTERNATIVE TECHNIQUES OF EXPANSION 3

3. THE FRANCHISE VEHICLE 5

4. FRANCHISING IN THE ECONOMY 7

5. CAN YOUR BUSINESS BE FRANCHISED? 8

6. WHY FRANCHISE YOUR BUSINESS? 9

7. THE BENEFITS OF BEING A FRANCHISEE 10

8. THE FRANCHISE AGREEMENT 11

9. FRANCHISE REGISTRATION AND DISCLOSURE LAWS 17

10. FRANCHISE SALES PROGRAM 19

11. FINANCING REQUIREMENTS 20

12. SPECIAL CONCERNS 21

13. WHAT THE FRANCHISE DEVELOPMENT

PROGRAM SHOULD INCLUDE 22

iii
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

1 OBJECTIVE OF PROGRAM

A. Planning and Establishing Goals for Your Company's Expansion Program

I. Assess Feasibility of Product or Service That is the Subject of Expansion
Program

II. Evaluate and Determine Which Expansion Vehicle is Best

III. What Should the Expansion Program Include?

B. Evaluate Your Company's Operational, Financial and Human Resource Capabilities

I. Prepare a Complete Set of Financial Projections
a. Source and Use of Funds Analysis for Franchisor and Franchisee

b. Pro-forma income Statement for Franchisor and Franchisee

c. Personnel Schedule Indicating Positions, Salaries, Timing

d. Territory or Area Allotment

1
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

II. Organization Chart

a. General Manager

b. Sales Manager

c. Training Director

d. Accountant

e. Secretary

III. Position Descriptions

2
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

2. ALTERNATIVE TECHNIQUES OF EXPANSION

A. Continue Current Program

B. Expand Through Vertically Integrated, Company-owned Units

C. Partnership or Joint Venture

D. Limited Partnership

E. Distributorship or Dealership

F. Trademark License

G. Management Incentive/Equity Participation

3
 0772

Legend:

Fair
Poor
Good
Excellent
www.kosnar.com
carl@kosnar.com

0
1
2
3
Franchise
Distributorship
BENEFITS

Company -Owned

Trademark License
Limited Partnership
EXPANSION TECHNIQUES
THE KOSNAR GROUP

Management Incentive
Partnership or Joint Venture
Less Capital Needed

Eliminates Manager Recruitment Problem

2306 Wales Drive, Cardiff by the Sea, CA 92007

4
MonitorIncome Based on Gross Sales of Units / Easier to

Growth Can be Accomplished Faster

Group Purchasing Power

More National, Regional and Local Advertising

Expansion Techniques Chart

More Research and Development

Cash Flow Available to Develop Company-Owned

Market Penetration Faster and Greater

Creates Excitement Among Employees

Tel 760-632-8402 • Fax 760-632

Generated Better Product Service Loyalty and Control

THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

3. THE FRANCHISE VEHICLE

A. Definition:

B. Elements of a Franchise
I. Use of Name, Trademark or logo

II. Use of a Marketing Plan, System or Procedure on Which the Franchisee Relies
and Submits to Control

III. Payment of Fee

C. Types of Franchises
I. Trade Name and Product

II. Business Format

III. Affiliate

D. Various Franchise Structures

I. Individual

II. Territorial or Area

a. Two-Tier

b. Three-Tier

E. Possible Sources of Revenue and How to Determine

I. Franchise Fee

II. Royalty

III. Profit on Sale of Product

IV. Rental or Lease Fees

V. Advertising Fee

VI. Equity Appreciation

VII. Unusual Profit Potential

5
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

FRANCHISE STRUCTURE CHARTS

MASTER
INDIVIDUAL AREA FRANCHISE
FRANCHIS DEVELOPMENT SUBFRANCHIS
E FRANCHISE E

6
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

4. FRANCHISING IN THE ECONOMY

A. Retail Sales

B. Other Sales

C. Business Format Franchises

D. Product and Trade Name Franchises

E. Is There Room For More Franchises?

F. What Are The Future Prospects For Franchising?

7
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

5. CAN YOUR BUSINESS BE FRANCHISED

A. Risk Rating

B. Competition Rating

C. Industry, Service or Profession Rating

D. Company Longevity Rating

E. Company Growth Rating

F. Desirability Rating

G. Business Organization

H. Business Adaptable on a Nationwide Basis

I. Business Has Public Acceptance

J. Product or Service Differentiation

K. Can Others Learn Business

L. Financial Controls and Records

M. Credit Rating

N. Public Attention

0. Price of Opportunity

P. Integrity and History

Q. Monitor From Headquarters

R. Review by Independent Professional

S. Feasibility Study Should be Performed if in Doubt

8
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

6. WHY FRANCHISE YOUR BUSINESS?

A. Expansion Can Be Accomplished With Less Capital

B. Eliminates Manager Recruitment Problem and Day-to-Day Direct Management

Responsibility

C. Income is Based on Franchisee's Gross Sales, Not Net, and is Easier to Monitor

D. Growth Can Usually Be Accomplished Faster

E. Group Purchasing Power Can Result in Savings

F More Funds are Available for National, Regional arid Local Advertising

G. More Funds are Available for Research and Development

H. Cash Flow From Franchise Fees and Royalties Can Be Utilized to Develop
Company-Owned Units in the Future

I. Market Penetration is Faster and Greater

J. Creates Excitement Among Present Employees

K. Generates Better Product and Service Loyalty and Control

9
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

7. THE BENEFITS OF BEING A FRANCHISEE

A. "Own Your Own Business" Syndrome/The Great American Dream

B. In Most Cases No Previous Experience Is Necessary

C. Existing Complete System; Everything Established, Business Concept, Name, Patents,

Formulas, Design, etc.

D. Proven Proto-type

E Identity

F. Lower Risk

G. Standard Products and Systems

H. Bookkeeping and Accounting Systems

I. Group Buying Power

J Initial Training Program

K. Ongoing Training, Supervision and Consulting

L. Local, Regional and National Advertising Programs

M. Ongoing Research; New Products, Ideas, etc.

N. Financing or Assistance in Obtaining Financing

0. Location and Site Selection

P. Use of Operations Manuel

Q. Marketing and Sales Techniques

R. Planning and Forecasting

S. Inventory Control Systems

T. Computer Systems

U. Begin Business With Less Capital

V. Equity Appreciation

10
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

8. THE FRANCHISE AGREEMENT

A The Reasons a Franchise Agreement is Needed

I. The F.T.C. Rule 436 Requiring Full Disclosure Makes it Necessary to Have a
Written Agreement.

II. All the Parties Have an Understanding of the Basics on Which They Will
Operate.

III. Equitable Relationship

IV. Insures Uniformity

V. Establishes Standards of Performance

VI. Protects All the Parties

VII. Provides For Remedies in the Event of Default

B. Who Should Draft the Franchise Agreement

I. The Franchisor

II. Duplicate Another Company's Agreement

III. Attorney

IV. Consultant/Attorney

C. Content of Franchise Agreement

I. Appointment and Franchise Fee

II. Territory/Location
a. Right to Approve Sites

b. Right to Prime Lease

c. Tie Lease to Franchise Agreement

d. Plans and Specifications

e. Equipment Must Conform to Specifications

III. Proprietary Marks

a. Use of Name

11
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

b. Contest Name

c. Notification to Franchisor of Other's Use of Name

d. Conformance to Operating I-11anual

e. Use Products, Systems, Supplies, as Specified

f. Sign Requirements

IV. Training and Assistance

a. Must Complete Training

b. Start-up Assistance

c. Continuing Advisory Service

d. Promotional Materials and Bulletins, Marketing Developments, Products

and Techniques

V. Advertising
a. Approval of All Advertising Copy, Materials, Packaging, Promotional
Materials

b. Establishment of National Advertising Fund

c. Local Advertising

d. Co-op Advertising

VI. Operating Manual

a. Must Adhere

b. Confidential

c. Property of Franchisor

d. Adopt Revisions

VII. Maintenance and Repairs

a. Maintain Interior and Exterior

b. Create Fund for Refurbishing

12
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

VIII. Accounting and Records

a. Must Keep Complete Records as Prescribed

b. Provide for Reports

c. Allow for Inspection of Records

d. Provide for Audited Statements

e. Weekly Reports and Payments of Royalty

IX. Standards of Quality

a. Establish Need for Uniformity

b. Provide for Purchases Which Conform to Specifications

X. Modification of System
a. Establish Right of Franchisor to Modify

b. Prohibit Franchisee from Unauthorized Modification

XI. Continuing Services and Royalty Fee

a. Establish Royalty
1. Determine Program Necessary to Provide Ongoing Support and
Consulting Service

2. Project Total Direct and Indirect Costs of Providing Continuing

Services

3. Establish Percentage of Royalty and Continuing Service Fee to

Provide for Costs and Reasonable Return for Use of Franchisor’s
Name, Concept and System

XII. Insurance
a. Protection for Franchisee and Franchisor

b. Establish Amounts of Protection Necessary

1. Worker’s Compensation

2. General Liability -- Product --Bodily Injury

3. Property Damage

4. Malpractice

5. Errors and Omissions

13
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

XIII. Term
a. Determine Term
1. Renewal and Termination Provisions Must Comply with New Laws

2. Coordinate with Lease

3. Long Term
a. Insures Royalty Longer to Franchisor

b. More Security for Franchisee

4. Short Term
a. Adjust Royalty Upward if Desired

b. Eliminate Undesirable Franchisees

c. Allows for Earlier Execution of New Terms and Conditions

XIV. Restrictive Covenants

a. Establish Restrictions of Franchisee's Ability to Compete, Divert Business,
Hire Away Employees, Divulge Secrets -- Subject to State and Antitrust
Laws'

XV. Termination and Defaults

a. Bankruptcy

b. Notice to Cure -- Varies from State to State

c. Failure to Pay Royalties or Fees

d. Failure to Submit Reports or Financial Data

e. Vacation or Abandonment of Premises

f. Failure to Comply with Franchise Agreement

g. Loss of License

XVI. Rights and Duties of Parties Upon Expiration or Termination

a. Franchisee Must Pal All Sums Owing

b. Franchisee Must ' Cease Using Name

c. Franchisor's Right to Purchase Physical Assets

XVII. Commencement and Hours of Operation

14
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

a. Specify When Agreement Commences

b. Determine Hours and Days of Operation Short of Agency Relationship

XVIII. Transferability of Interest

a. Provide Conditions Under Which Franchisee Can Sell
1. Transfer Fee

2. Rights of Approval

3. Payments of Fees and Sums Owed

4. Not Unreasonably Withheld

5. Require Training of New Franchisee

XIX. Death of Franchisee

a. Survivors Can Apply to Continue

b. Survivors Can Sell

c. Franchisor Can Buy Assets and Real Estate

c. Provide Formula for Buy-Out

XX. Right of First Refusal

a. Franchisee Must Notify Franchisor of Bona Fide Offer

b. Franchisor Can Buy at Same Price as Buyer.

XXI. Operation In Event of Disability or Death

a. Franchisor's Right to Operate

b. Save Harmless

XXII. Taxes Permits

a. Require Payment of Taxes, Assessments, Liens, Equipment and Previous
Accounts

b. Require Compliance with all Federal, State and Local Laws

c. Require Obtaining of All Permits, Certificates and Licenses Necessary

XXIII. Independent Contractor

a. Not Agent, Partner, Employee of Franchisor

15
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

b. Can't Incur Liability to Franchise

c. Franchisee Bears Cost of Defense of Claims

b. Receipt of Payments Not Waiver

XXIV. Non-Waiver
a. Non-enforcement by Franchisor is Not a Waiver

b. Receipt of Payments not Waiver

XXV. Notice
a. Manner of Notice

b. Date of Notice

XXVI. Liability for Breach

a. Payment of Costs, Attorneys' Fees by Party in Default

XXVII. Entire Agreement

a. Overrides Any Previous Agreements

b. Provides for Amendments, Charges or Variance Only if in Writing

XXVIII.Severability
a. Each Section of Agreement is Severable

c. Franchisor Can Terminate Agreement if Parts Found Illegal Affect Basic

Consideration of Agreement

XXIX. Applicable Law

a. Specifies Which States' Laws Apply

XXX. Arbitration (Where Applicable)

a. Provides for Selection of Arbiters
b. b. Binding Arbitration

XXXI. Franchisee Acknowledges Receipt of FTC or UFOC Documents

XXXII. Franchisee
a. Define Term "Franchisee" to Include Successors

XXXIII. Caveat
a. Disclaimer as to Claims Made b. Franchisee Assumes Risks c. Success of
Business Cannot be Guaranteed d. Success of Business Also Depends
on Franchisee's Ability

16
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

9. FRANCHISE REGISTRATION AND DISCLOSURE LAWS

A. Definition and Purpose -- Protect Franchisee and Franchisor

B. States in Which Registration is Required:

California
Hawaii
Illinois
Indiana
Maryland
Michigan
Minnesota
New York
North Dakota
Rhode Island
South Dakota
Virginia
Washington
Wisconsin

C. Certain States Have Franchise Investment Laws

D. Federal Trade Commission Rule 436

E. Business Opportunity Laws

F. Penalties

G. Uniform Franchise Offering Circular

I. The Franchisor and Predecessors

II. Identity and Business Experience of Persons Affiliated with the Franchisor and
Franchise Brokers

III. Litigation

IV. Bankruptcy

V. Franchisee's Initial Franchise Fee or Other Initial Payment

VI. Other Fees

VII. Franchisee's Initial Investment

17
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

VIII. Obligations of Franchisee to Purchase or Lease from Designated Sources

IX. Obligations of Franchisee to Purchase or Lease in Accordance with

Specifications

X. Financing Arrangements

XI. Obligations of the Franchisor; other Supervision, Assistance or Services

XII. Exclusive Area or Territory

XIII. Trademarks, Service Marks, Trade Names, Logotypes and Commercial Symbols

XIV. Patents and Copyrights

XV. Obligation of the Franchisee to Participate in the Actual Operation of the

Franchise Business

XV1. Restrictions on Goods and Services Offered by Franchisee

XVII. Renewal, Termination, Repurchase, Modification and Assignment of the

Franchise Agreement and Related Information

XVIII. Arrangements With Public Figures

XIX. Actual, Average, Projected or Forecasted Franchisee Sales, Profits or Earnings

XX. Information Regarding Franchises of the Franchisor

XXI. Financial Statements

XXII. Contracts

Acknowledgement of Receipt by Prospective Franchisee

Exhibits:

I. Actual, Average, Projected or Forecasted Franchisee Sales, Profits or Earnings

II. Financial Statements for Fiscal Year 2006
III. Financial Statements for Fiscal Year 2007
IV. Financial Statements for Fiscal Year 2008
V. Franchise Agreement
VI. Equipment Lease
VII. Lease for Premises
VIII. Loan Agreement

18
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

10 FRANCHISE SALES PROGRAM

A, Determine Buyer Profile
I. Entrepreneur as a Franchisee

II. Manager-Type

III. Sales-Type

IV. Technological or Professional Background

V. Financial Requirements

B. Determine Where Your Buyers Are Located

C. Develop Best Plan to Reach Them

D. Set Sales Goals and Prepare

E. How Many Can You Really Handle?

I. How Many Prospects Can You Follow-Up

II. Site Selection Assistance

III. Initial Training

IV. Start-Up Assistance

V. In-Field Support

F. Franchise Opportunity Brochure and Other Recruitment Materials

G. Advertising and Public Relations Programs

I. Establish Budget for Advertising and Public Relations

II. Determine Best Medium

a. Newspapers

b. Other Publications - Special Magazine, Trade Journals etc.

c. Business Opportunity Shows

d. Trade Shows

19
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

H. Follow Up….
I. Complete Prospect Form

II. Send Literature

III. Salesperson Contacts Prospect

IV. Qualify Prospect ... Background, Experience, Interest, Available Cash

V. Answer Questions

VI. Ask Prospect to Complete Confidential Application

VII. Negative Selling Technique

VIII. Schedule Personal Interview/Visit

IX. Provide Offering Circular (Disclosure)

X. Close

I. In-House Franchise Sales Organization

I. Control and Direction

II. Costs
III. Integrate into Total Operation
IV. Other Functions
V. Future Corporate Potential

J. Outside Franchise Sales Organization

I. Possibly More Experienced Than In-House

II. Cost Less Initially

11. FINANCING REQUIREMENTS

A. Which Party Needs Financing

I. Franchisor

II. Franchisee

III. Customer of Franchisee

B. Capital Requirements of the Franchisor Occur in the Following Order:

I. Research and Development Stage

20
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

II. Prototype Development

III. Franchise Development Program

IV. Initial Recruitment and Selling Period

C. Types
I. Business Loan

II. Venture Capital

III. Receivables Financing

IV. Equipment Financing -- Add-On

V. SBA

VI. SBIC

VII. Public Stock Issuance

VIII. Private Placement

12. SPECIAL CONCERNS

A. Antitrust

B. New Laws

C. UFOC Interpretation and Applicability in Various States

D. Use of Pro Forma Statements and Projections on Earnings, Sales or Profits

E. Class Action Suits

13. WHAT FRANCHISE DEVELOPMENT PROGRAM SHOULD INCLUDE

A. Conduct Research

B. Prepare Client Analysis Report

C. Prepare Definitive Time/Task Schedule

D. Review Prototype Unit

E. Systems, Forms and Controls

21
THE KOSNAR GROUP
2306 Wales Drive, Cardiff by the Sea, CA 92007 Tel 760-632-8402 • Fax 760-632
0772
carl@kosnar.com
www.kosnar.com

F. Operations Manual

G. Initial Training Program

H. Support Program

I. Determine Franchise Fees, Royalties, Advertising Fees and Other Revenue Sources

J. Franchise Agreement

K. Franchise Brochure

L. Disclosure Statement (UFOC or FTC)

M. Franchise Registration

N. Franchise Sales Program

0. Continuing Professional Assistance

THIS PUBLICATION HAS BEEN BROUGHT TO YOU BY:

CARL J. KOSNAR
THE KOSNAR GROUP
2306 WALES DRIVE
CARDIFF BY THE SEA, CA 92007
PHONE: (760) 632-8402
FAX: (760) 632-0772
carl@kosnar.com
www.kosnar.com

COPYRIGHT/CONTACT INFO - The contents of this Franchise Seminar Newsletter may be copied, reproduced or freely
distributed for all nonprofit purposes without the consent of THE KOSNAR GROUP as long as OUR name and contact information
are included.

If you wish to UNSUBSCRIBE from our TKG Newsletter: e-mail us at carl@kosnar.com with UNSUBSCRIBE or REMOVE in the
subject.

****

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