franchising

Examples of franchising in the following topics:

• Types of Franchises

  • On this basis, there are three different types of franchise:
  • In most cases, the franchisee also buys supplies from the franchiser.
  • Fast food restaurants are good examples of this type of franchise.
  • Through manufacturing franchises, a franchiser grants a manufacturer the right to produce and sell goods using its name and trademark.
  • This type of franchise is common among food and beverage companies.

• Franchise Agreements

  • Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule .The Franchise Rule requires that a franchisee be supplied a Uniform Franchise Offering Circular (UFOC ) or Franchise Disclosure Document (FDD ) prior to signing a franchise agreement, a minimum of ten days before signing a franchise agreement.
  • Each state has unique laws regarding franchise agreements.
  • The content of a franchise agreement can vary depending on the franchise system, the state jurisdiction of the franchisor, franchisee, and arbitrator.
  • Uniform Franchise Offering Circular (UFOC) or FDD Franchise Disclosure Document (FDD)
  • Franchising agreements contain many legal documents that must be understood and filled out.

• Franchising

  • In franchising, an organization (the franchiser) has the option to grant an entrepreneur or local company (the franchisee) access to its brand, trademarks, and products.
  • Franchising is a particularly useful practice when approaching international markets.
  • Franchising has some weaknesses as well, from a strategic point of view.
  • Most importantly, organizations (the franchisers) lose a great deal of control.
  • While the risk of franchising is much lower in terms of capital investment, so too is the returns derived from operations (depending on the franchising agreement in place).

• Trends in Franchises: Growth

  • From 2001 to 2005, the franchising sector grew at a faster pace than many other sectors of the U.S. economy .
  • Payroll generated by franchised businesses grew 21.6% compared to 15.4% for all businesses.
  • The International Franchise Association reported that 2012 would be the year that franchising rebounds.
  • The economic outlook published for 2012 projects an increase of 1.9% in franchise establishments.
  • Franchising is the practice of using another firm's successful business model.

• Working from Home or Online

  • Home franchise operations have made franchising more accessible and affordable than ever, but still require knowledge and expertise.
  • One important factor leading to the record number of franchises in recent years is the proliferation of home based franchise opportunities.
  • This has made franchising accessible to a wider group of people.
  • Because of enormous charges in traditional franchise companies, very few people meet the expense needed to become franchise owners.
  • In considering franchises, you should see if you are well-suited to particular franchise options by determining your areas of expertise.

• Trends in Franchises: International Adoptions

  • Let's take a quick look at the benefits of global franchising, and where the potential pitfalls are:
  • For the franchiser (i.e. the parent company), franchising allows rapid expansion with less risk and required capital (as some of this risk is assumed by franchisee, along with funding).
  • A franchising model can provide both.
  • The franchiser is outsourcing some amount of control and returns on investment to the franchisee.
  • Convenience stores that franchise, such as 7-Eleven, operate quite similarly.

• Franchises and Licenses

  • A common industry that uses franchising is fast food.
  • Instead, the franchisee records a franchise expense when she pays the franchise fee.
  • If the contract requires that a lump sum be paid up front to secure the franchise rights for several years, the franchisee would record a franchise asset on its balance sheet.
  • Therefore, the value of the franchise asset equals what it cost to acquire.
  • For a franchise, the useful life is generally the length of the franchise contract.

• Advantages of Franchises

  • A franchise agreement can have many benefits for both the franchisor and the franchisee.
  • Buying a franchise business provides a higher chance for success.
  • - A franchise gives more security from the beginning.
  • When you purchase a franchise, all the necessary groundwork has been done already.
  • - The new franchise owner gains many benefits from the association with the main franchise company.

• Disadvantages of Franchises

  • A franchise agreement can also have disadvantages for both the franchisor and the franchisee.
  • - High entry and ongoing cost: It can be more expensive to start a franchise than an independent business.
  • You can open your own burger bar for the fraction of the cost of buying the rights to a McDonald's franchise.
  • Thus, franchising is often an option open only to already wealthy businessmen.
  • Royalties are paid periodically during the life of the franchise agreement.

• Small-Business Structure

  • Successful small businesses sometimes grow through a practice known as franchising.
  • While it is somewhat more expensive to get into the franchise business than to start an enterprise from scratch, franchises are less costly to operate and less likely to fail.
  • Sales increases by retail franchises between 1975 and 1990 far outpaced those of non-franchise retail outlets, and franchise companies were expected to account for about 40 percent of U.S. retail sales by the year 2000.
  • Franchising probably slowed down in the 1990s, though, as the strong economy created many business opportunities other than franchising.
  • Nonetheless, many franchise establishments do survive.