Bistoiy of Fianchising

ConLrary Lo popular bellef franchlslng was noL lnvenLed ln

Amerlca lL flrsL emerged ln 8rlLaln ln Lhe Mlddle Ages when
Lhe Church pald a lump sum Lo Lhe CovernmenL for Lhe rlghL
Lo collecL 1axes
nexL Came Lhe 1ledPouse agreemenLs beLween 8rewers and
ubs ln Lhe 1700s
lranchlslng lmpacLed Lhe uS when Lhe Slnger Sewlng
Machlne Company lnlLlaLed a manufacLurerreLaller
dlsLrlbuLlon franchlse sysLem afLer Lhe Clvll War
Modern day franchlslng sLarLed ouL as an excluslve llcenslng
process by auLo manufacLurers Lo Lhelr dlsLrlbuLors abouL 100
years ago
SofL drlnk producers reallsed LhaL shlpplng waLer was very
expenslve so local franchlslng was sLarLed
hat is Fianchising.
#A managemenL whereby Lhe manufacLurer or sole
dlsLrlbuLor of Lrade marked producL or servlces glves
Lhe excluslve rlghLs of local dlsLrlbuLlon Lo lndependenL
reLallers for Lhelr paymenL and conformance Lo
sLandardlzed operaLlng procedures"
AL leasL Lwo levels of people are lnvolved ln Lhe
franchlse sysLem
1 1he lranchlser who lends hls Lrademark / Lrade name and a
buslness sysLem
2 lranchlsee who pays a royalLy and ofLen an lnlLlal fee for Lhe
rlghL Lo do Lhe buslness under Lhe franchlser's name and
sysLem
Franchising generally represents an opportunity for an
entrepreneur to start and expand the business.
Fianchise Types
roduct Iranch|s|ng
Selllng of Lhe flnlshed goods wlLh [usL mere dlsplay of Lhe goods
whlch faclllLaLes easy accesslblllLy of Lhe producL Lo Lhe
cusLomer and Lhe acLual sales LransacLlon wlLhouL any value
addlLlon
rocess Iranch|s|ng
CuLleLs are granLed Lo use Lhe brand name and process of Lhe
franchlser 1he reclpe musL be Lhe same 1he process and
reclpe are generally paLenLed by Lhe parenL company
Fianchise Types Contu...
us|ness Iormat Iranch|s|ng
name sale and meLhod of dolng Lhe buslness are Lransferred
wlLh knowledge of conducLlng Lhe ouLleL wlLh effecLlve follow
up mechanlsm by Lhe franchlser
hifts in the Fianchise Inuustiy
in 0
W Iast Iood |s one of the o|dest categor|es |n franch|s|ng
1here were 19 hamburger enLrles ln 1988 buL only 13 ln 1980
lzza grew from 26 Lo 33
uomlno's grew from 90 franchlse and 69 company owned sLores Lo
3063 and 1331 respecLlvely
Mc uonald's growLh ls due Lo franchlslng
W The 80's brought a variety of new industries:
Photo finishing
Video cassette and VCR rentals
Instant printings,desktop publishing
Business services instant office, FAX etc.
Computer retailing
Automobile retailing
And many more ....
ieas of Fianchising
Apparel and Accessorles AuLomoLlve
8eauLy PealLh 8ulldlng roducLs and servlces
8uslness/ersonnel Servlces
Chlldrens roducLs Servlces CompuLer relaLed
roducLs and Servlces
uecoraLlve roducLs Servlces LducaLlon 8elaLed Servlces
lasL lood/8akery Coods lrozen uesserLs
PoLels MoLels MalnLenance Servlces
eLs hoLographlc Servlces
rlnLlng Servlces ubllshlng Servlces
8eal LsLaLe 8ecreaLlon
8esLauranLs 8eLall 8uslness
SecurlLy SysLems Servlces
1ravel 8elaLed Servlces and many oLhers
uvantages to the Fianchisee
W under franchlslng Lhere are llLLle chances of fallure as
compared Lo rlsk normally assoclaLed wlLh sLarL up buslness
W 8eneflL and use of Lhe buslness experlence of oLhers
W 8educed expendlLure on AdverLlslng promoLlon aL a per
unlL level
W CpporLunlLy Lo sLarL a proven buslness wlLh llmlLed caplLal
W lranchlser avallable for asslsLance and guldance
W CosL savlngs when purchaslng supplles Lhrough Lhe franchlser
W Access Lo 8 u producL developmenL efforLs LhaL Lhe
franchlser had lnvesLed ln
uvantages to the Fianchisei
W ;ulck expanslon wlLh less CaplLal lnvesLmenL
W Less number of Lmployees
W lasL and well conLrolled dlsLrlbuLlon of lLs producLs
W roducL and quallLy sLandards as per hls speclflcaLlons
W LlmlLed 8lsk lacLor
W 8lsk ls spread
W Larger MarkeL share ln a shorL Llme
W Lean CrganlzaLlon SLrucLure
W Cngolng 8evenue from 8oyalLles and lranchlse lee
W lnLegraLed ubllc lmage
W CrowLh
isauvantages
7,3.807
Failure oI the Iranchisee
to operate Iranchise
properly.
High Training eIIorts
DiIIicult to maintain
Quality
Risk to reputation
Loss oI Business secrecy
7,3.800
Revenue outIlow
Limited Ireedom
Operating restrictions
Inability oI the
Iranchiser to provide
promised services
Detailed and open
Iinancial records
sk Questions about.
W 1he lranchlser Company
W 1he roducL or Servlce
W Larnlng oLenLlal
W LocaLlon
W 1errlLorlal 8lghLs
W remlses / Logos /Symbols
W 1ralnlng and AsslsLance
W ConLrols
W AdverLlslng and romoLlon
W lnvesLmenL and fees
W lundlng
Bow the Fianchisei is Paiu
W 8oyalLy
W Lump Sum aymenL
W Share of 8rand AdverLlslng
W Plgher rlce of key SecreL MaLerlals
W Cvercharglng for lanL Machlnery
W CosL of Manual of rocedures
W 1ralnlng Charges
W SofLware Llcences
W vlslL lees
The Fianchise ocument
Cbvlously Lhls ls Lhe slngle mosL lmporLanL lssue Lo deal wlLh
prlor Lo paylng Lhe franchlser CeL advlce!
Pave your lawyer and accounLanL revlew Lhe conLracL wlLh you
and ask many quesLlons
WhaL ls Lhe duraLlon and renewal rlghLs?
ls Lhere a renewal fee?
Any annual mlnlmum maLerlal purchase requlremenL?
Are Lhere any oLher cosLs or paymenLs?
ls Lhere a 8oyalLy paymenL? 8easonable?
ls Lhere a sales quoLa? ls lL a basls of defaulL?
WhaL are Lhe LermlnaLlon clauses?
uo you have Lhe rlghL Lo resell renew or reasslgn Lhe
franchlse? under whaL condlLlons?
oie on the ocument
WhaL are condlLlons Lo LermlnaLe Lhe franchlse?
Can you glve Lhe franchlse Lo your famlly? When?
uo Lhe franchlse Lerm and Lhe bulldlng lease renew aL Lhe same
Llme? uo you have rlghLs Lo do boLh?
Pas Lhe franchlser Lhe rlghL Lo repurchase Lhe franchlse? When and
aL whaL prlce?
uo you have Lhe rlghL Lo all fuLure lnnovaLlons and new producLs
offered by Lhe franchlser?
Pow do you seLLle dlspuLes?
Are you resLrlcLed Lo offer only Lhe franchlsers producLs or servlces?
uo you have Lo Lake parL ln all promoLlons and speclal offers? Can
you opL ouL?
1here are many lssues here and lL ls worLh some real efforL Lo make
sure you are saLlsfled abouL everyLhlng
egal spects of Fianchise
W 1ake asslsLance of experlenced lawyer ln conLracL or franchlse
agreemenL
Iranch|se Agreement conta|ns a|| requ|rements and
ob||gat|ons of the franch|see ||ke
W lranchlser's CbllgaLlon
W lranchlsee's CbllgaLlon
W 1ralnlng
W AdverLlslng and romoLlon
W 1errlLory Coverage
W 8enewable 1erms
W llnanclal 8equlremenL
W Schedule of aymenL 8oyalLles Lo be pald
W 1ermlnaLlon of Lhe lranchlse
Piotect Youiself
lnslsL LhaL Lhe lranchlser holds your deposlL |n trust unLll your
franchlse ouLleL ls open and operaLlng
Lhere have been cases where Lhe franchlser goL lnLo flnanclal
problems before Lhe sLore opened and Lhe franchlse fee could
noL be recovered
uonL slgn anyLhlng ln a hurry compleLe due dlllgence
lnvesLlgaLe and use your professlonals 8anker Lawyer
AccounLanL
lranchlse buslnesses are Lhe wave of Lhe fuLure for many
Lypes of enLerprlses
1hey are very successful mosL of Lhe Llme buL llke anyLhlng
else lL ls no guaranLee agalnsL fallure
`Also Lhere are unscrupulous people and Lhe #buyer beware"
slogan should noL be forgoLLen
The tages
A n|t|a| er|od heavy rellance on Lhe franchlser for
Lralnlng asslsLance Plgh degree of saLlsfacLlon
8 Iam|||ar|ty wlLh sysLems and meLhods lranchlser has less
dally lnvolvemenL buL sLlll exerLs conLrol
C kesentment of Lhe conLrol and havlng Lo pay royalLy
paymenLs Conslders selllng Lhe franchlse and openlng Lhelr
own lndependenL buslness
u Lowest |eve| greaL resenLmenL agalnsL Lhe franchlser leels
LhaL s/he has done lL all on Lhelr own May seek early
LermlnaLlon of conLracL
L kecogn|t|on of Lhe lmporLance of Lhe franchlsers role ln Lhe
success and reconclles hls/her feellngs
l Sett|es down Lo a consLanL accepLable level of saLlsfacLlon
1he relaLlonshlp ls now sLable