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Franchise Management For Dummies
Author:
Published:
April 24, 2017
Overview
Learn what it takes to find, buy, and run a franchise -- and enjoy the rewards of being your own boss
If you've ever visited a chain restaurant and thought, "I'd like to run one of these," you're among countless would-be entrepreneurs eager to be their own boss. Franchise Management For Dummies is a hands-on guide that provides clear and concise information on the issues involved in finding, buying, operating, and ultimately growing a successful franchise business. Geared toward both novices and experts in franchising, it's an essential guide to help prospective franchisees know what to look for in a great franchisor, and to show existing franchisees what great franchisors are providing their franchisees.
Both emerging and experienced franchisors will gain an understanding about the proper methods of structuring, managing, and expanding their franchise systems. Social impact investors, donors, and NGOs can learn how franchising techniques can transform how they look at providing products and services at the base of the pyramid.
Inside you'll discover:
- How to find a franchise that's right for you and the ideal location for it
- Where to find quality franchisors and understand the qualities franchisors look for
- How to gather information from franchisees
- A franchisor's mandatory legal obligations to prospective franchisees, the franchise disclosure document (FDD), and working with franchise professionals
- How to take a realistic look at your finances and what capital you'll need to buy and launch a franchise
- Develop strategic advertising and marketing plans
- How to find, hire, and train talented employees who will help make your franchise a success
- How to make sure your franchise makes money
- How to grow your business with multiple franchises
- And more!
Additionally, Franchise Management For Dummies includes a glossary of common franchise-related terms, ten keys to franchisee success, and the questions to ask before becoming a franchisor. Get a copy today and find out if owning and operating a franchise is the right business move for you.
If you’re starting a franchise, you'll want to study your franchise agreement and understand the laws that protect both you and the franchisor. Once your franchise is running, make sure you network with not only your franchisor but others for fresh ideas. The key to your success is keeping your staff happy and maintaining your outside interest and personal life.
About The Author
Michael H. Seid is the founder and Managing Director of MSA Worldwide, the leading strategic and tactical advisory firm in franchising. Joyce Mazero is a partner and Co-Chair of Gardere's Global Supply Network Industry Practice, internationally recognized and trusted legal advisors dedicated to excellence in franchising.
Find handy resources—including sample forms, checklists, and straightforward advice at www.dummies.com/go/franchisemanagementfd
Articles From The Book
3 results
Franchise Management
Articles
Franchising is a way for companies to expand and bring their products and services to consumers without the company owning and operating their locations directly. There are three basic types of franchising:
Traditional or product-distribution franchising
Business-format franchising
Social franchising
Traditional franchising
The industries in which you most often find traditional franchising include soft drinks, automobiles and trucks, mobile homes, automobile accessories, and gasoline.
Franchise Management
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The purpose of the Franchise Disclosure Document (FDD) is to provide prospective franchisees with information on the franchisor, the franchise system, and the agreements they will be required to sign before they are allowed to become a franchisee. The purpose of the FDD is to enable a prospective franchisee to make an informed investment decision.
Franchise Management
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Be careful how you make your decision about what to do when your franchise term is ending. In addition to likely being required to pay a renewal fee, your franchisor will generally want you to bring your business up to its current standards. That might require you to make a substantial additional investment. Don’t assume you will recoup your entire investment if you upgrade the franchise.
Franchise Management
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Like any other franchise, social franchises need funding to get off the ground. Social franchises use the following sources of capital to help them fulfill their missions:
Fees for goods and/or services
Individual donations and major gifts
Bequests
Corporate contributions
Foundation grants
Diaspora funding
Government grants and contracts
Debt and equity capital (usually via impact investors)
Interest from investments
Loans/program-related investments (PRIs)
Tax revenue and government grants
Membership dues and fees
Different and sometimes blended funding vehicles are used to support different growth drivers at each stage of a social franchise’s development.
Franchise Management
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Franchise growth should be strategic. If you are going to succeed, you need to determine where and when you should open in new markets. You need to determine which markets will be your primary targets, which will be your secondary markets, and which you are unable to grow in because you won’t be able to affordably provide support to your franchisees.
Franchise Management
Articles
If you’re starting a franchise, you'll want to study your franchise agreement and understand the laws that protect both you and the franchisor. Once your franchise is running, make sure you network with not only your franchisor but others for fresh ideas. The key to your success is keeping your staff happy and maintaining your outside interest and personal life.
Franchise Management
Articles
The starting point for modern franchising and modern franchise regulations in the United States has to be 1946 when Congress passed the Federal (Lanham) Trademark Act. The Lanham Act granted licensors the ability to license their intellectual property and established the rules they need to follow.
Under the Lanham Act, a licensor (franchisor) can license its federally registered trademarks and service marks to others without risking the possible loss of its intellectual property.
Franchise Management
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Assume for the time being that your concept is franchisable. Congratulations! Do you hurry up and start to develop your legal documents and marketing brochures? Not yet. Hold off a bit more. You have a host of business issues to focus on and decisions to make before you bring in the legal and marketing troops.
Franchise Management
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Prospective franchisees want to know how much money they will make if they invest in a franchise, and who better to tell them than the franchisor? Although prior to the recession that began in 2007 only 25–30 percent of franchisors provided a financial performance representation (FPR or earnings claim as it used to be called), in the past few years, the number of franchisors providing an FPR has grown substantially and approximately half of all franchisors do so today.
Franchise Management
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If you’re considering starting a franchise, or already have, remember to do your homework regarding franchise law. You don’t want to get stuck in a franchise agreement without knowing the facts and where to go for help, if needed. Use these tips to avoid falling into legal problems:
Seek advice from only those franchise lawyers and consultants who have a serious depth of experience in franchising.
Franchise Management
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When you become a master franchisee, you become a franchisor in an area and are authorized to offer subfranchises through your master franchise license. As with any franchisor, your master franchisor will prepare and provide to prospective franchisees its own FDD and agreements that will contain information about you and your services.
Franchise Management
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The one thing that’s rarely in short supply in franchising is people who claim to be great salespeople. The one thing that is always in short supply, however, is people who actually are great salespeople. If you’re going to recruit a salesperson from outside your organization, here are a few tips for sources to consider:
An executive search firm specializing in franchising: There are several really good search firms supporting franchising.
Franchise Management
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After you’ve taken the time to gather and train your employees, you need to figure out how to hold onto them. The success of your franchise depends on keeping good employees. Use these tricks of the trade to keep your staff happy:
Be on time for interviews with them and let them know how much you value their time.
Franchise Management
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Although a lot of great advice you get to be successful will come from your franchisor, it’s a good idea to stay connected and find new people and new ideas to benefit your franchise business and your personal life. Try these networking tips:
Join the International Franchise Association. Whether you’re a franchisor or franchisee, be an active member.
Franchise Management
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You will incur many costs in the development of your franchise. Some, such as the franchise fee, you have likely thought about. Others, such as travel and living expenses while you’re at training, as well as pre-opening labor, may not be so obvious. The following will highlight some of the more material costs you should anticipate.
Franchise Management
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Franchisee advisory councils and franchisee associations give order to the franchisee universe. They are communication vehicles among franchisees, and between franchisees and franchisor. As a franchisee, you want representation. And you want a system that welcomes quality input.
Franchisee advisory councils
A franchisee advisory council is a committee established by the franchisor and composed of franchisee representatives.
Franchise Management
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The answer to the question of whether a U.S. franchisor should expand internationally really depends on timing. Clearly, a saturated domestic market is a strong incentive to go looking outside the U.S., but that incentive alone doesn’t necessarily mean that the franchise system is ready for international expansion.
Franchise Management
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Starting a franchise is hard work and the pressure can sometimes affect you and your family. The support of your loved ones is important so put time aside to spend with your family. Remember that you have a life outside of your business and follow these simple rules:
Never miss events in your kids’ lives — no matter how insignificant they seem.
Franchise Management
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Franchising has an interesting dynamic missing from most other types of expansion strategies. The owner of the brand and the operating systems has little to no control over how the business is managed and operated on a day-to-day basis. That is the responsibility of the franchisees.
Most franchisors trust that the franchisees will operate the businesses with pride in the system and rely on the franchisees to independently manage the business in a way that consistently delivers to every consumer the brand promise of the system.
Franchise Management
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You’ll generally be expected to develop your location to meet the site development requirements and standards of the franchisor, including layout, décor, signage, furniture, fixtures, and equipment. Although franchisors use several methods, most will provide you with a layout that they expect you to have an architect or builder recast to meet the requirements of your location.
Franchise Management
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After you have digested the FDD, you may think the next step is haggling with the franchisor. After all, haggling—or negotiating—is the business way, right? In most situations, this would be correct. But striking a bargain is not a phrase in the vocabulary of most franchisors.
Franchising’s strength is its consistency.
Franchise Management
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When selling a franchise, the franchisee is not a free agent. Even if a buyer makes you a great offer, you can’t formally accept it until certain details are worked out with the franchisor. Most franchisors have a right of first refusal, which means that whenever a prospective buyer makes a bona fide offer to purchase the franchisee’s interest in the franchise agreement or business assets, the franchisor has the right to purchase it on the same terms and conditions within a set time period.
Franchise Management
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You must understand what, if any, protections your franchise agreement provides for your site and the surrounding area. You need to understand the concepts of territorial exclusivity and encroachment before — not after — you sign your franchise agreement.Suppose you open a franchise on the corner of Fifth and Main.
Franchise Management
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Many of the resources available to traditional NGOs are also available to social franchise systems. Take a look to see a few of the options.
Government funding agencies for global development
Following are the top government agencies involved in providing global aid, grants, and assistance. On each country/agency site will be information on the type of organization, development budget, focus on target countries, contact information, and more:
Agence Francaise de Developpement
Australian Agency for International Development
Austrian Development Agency
Belgium Foreign Affairs, Foreign Trade and Development Cooperation
Canadian International Development Agency
Danish Ministry of Foreign Affairs
Dutch Ministry of Foreign Affairs
Finnish Ministry for Foreign Affairs
Gesellschaft für Internationale Zusammenarbeit
Greek Ministry of Foreign Affairs
Irish Department of Foreign Affairs/Irish Aid
Italian Ministry of Foreign Affairs’ Directorate General for Development Cooperation
Japan International Cooperation Agency
Korea International Cooperation Agency
Kreditanstalt für Wiederaufbau
Luxembourg Ministry of Foreign Affairs
Millennium Challenge Corporation
New Zealand Aid Program
Norwegian Ministry of Foreign Affairs
Portuguese Institute for Development Support
Spanish Ministry of Foreign Affairs and Cooperation
Swedish International Development Cooperation Agency
Swiss Agency for Development and Cooperation
U.
Franchise Management
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Franchisors often have existing company-owned locations for sale or keep a list of franchisees that are looking to sell their franchises. Buying an existing operation from the franchisor or an existing franchisee may offer advantages over starting from scratch.Instead of evaluating a potential business, you are evaluating one that is already up and running, with a history of performance, a reputation in the community, and an existing clientele.
Franchise Management
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You are a successful franchisee. Your business is doing well, it is showing great promise, your relationship with your franchisor is outstanding, and you are having no problems servicing your debt or in meeting your payroll. The question you are now asking yourself is: Is it time to expand?It might be, but first ask yourself the big questions: Will my success continue, and should I expand the number of units I’m operating to take advantage of my success?
Franchise Management
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On occasion, franchisors make company-owned locations available for sale to franchisees. This is called either retrofranchising (locations that have never been franchised) or refranchising (locations that once were franchised but were acquired and operated by the franchisor). For all practical purposes, for franchisees looking to invest in established businesses, they are the same.
Franchise Management
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For social franchises to be part of the solution, they need to be scalable, affordable, effective, sustainable, and accessible to the poor. The most common methods employed by NGOs in delivering services to the extreme poor too often fall short.
You should remember that given the enormous population at the BOP, even with extreme poverty, it should be a significant consumer market for companies to sell their products to.
Franchise Management
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The words used in describing things are important because words paint a picture. In franchising, maybe because it’s easy, maybe because the franchise community has become lazy, or possibly because other terms are less understandable or simply too nuanced, you will hear people talk about franchisors “selling” franchises, and franchisees “buying” franchises.
Franchise Management
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Your franchisees should prove to you that they can keep their commitments to the system after they become a franchisee. At the same time, you are trying to convince them that your system is the right opportunity for them. The best way to accomplish that is to give prospects assignments and dates they need to meet to get it to you.
Franchise Management
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Several franchise systems use buying groups or cooperatives to collectively purchase products, marketing, advertising, insurance, leasing, credit, and other goods or services. This sharing of responsibility can be a powerful advantage to franchisees and franchisors when structured properly.The approach to buying groups and cooperatives is by no means uniform in how they function and who they represent.
Franchise Management
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The franchisor and franchisee are in distinctly different businesses — they merely share a brand. In a franchise, the franchisor licenses to the franchisee an operating system, and the franchisee provides the products and services to consumers.As a licensor, the business of a franchisor is to develop, license, support, and expand an indirect system of distribution of its branded products and services.
Franchise Management
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If you plan to franchise, you will be involved with the SBA. The Small Business Administration (SBA) is a United States government agency with the mission to provide support to entrepreneurs and small businesses. One way it provides this support is by guaranteeing loans made by banks and credit unions to qualifying small businesses.
Franchise Management
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investments available create opportunities for the smallest single-unit mom-and-pop operator to a large multimillion-dollar investor group or established businesses that are looking to add a franchise investment to its portfolio.
Flying solo: Single-unit franchises
A single-unit or direct-unit franchise is just what it says it is: As a franchisee, you obtain the right to own and operate one franchised business from a franchisor.
Franchise Management
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A mistake many emerging franchisors make is going initially to a lawyer and telling them to prepare their franchise documents. When properly prepared, franchise agreements and disclosure documents need to reflect the necessary, underlying business decisions and should only be prepared by lawyers after the strategy and business determinations have been made and validated.
Franchise Management
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Unfortunately for franchisees and franchisors, regulatory actions by the NLRB and the DOL are changing how franchise systems are managed and how a franchisor can support a franchisee today. And these changes, while benefiting the unions, are not beneficial to you as a franchisee.
Who is the employer anyway?
Question: Who is the employer of a franchisee’s employees?
Franchise Management
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Franchising is, in a word, a license. It is a system for independently owned businesses to share a common brand, distribute products and services, and expand. It’s a contractual relationship between a brand owner (the franchisor) and an independent local business owner (the franchisee).For example, Bright Star Care doesn’t “franchise” medical and non-medical home care assistance, FASTSIGNS does not franchise printing, Wetzel’s Pretzels does not franchise pretzel shops and Dat Dog does not franchise hotdogs, sausages, and beer.
Franchise Management
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If, from the start, you have big dreams of being a franchise tycoon, you may want to consider franchisors that offer the whole package: area development rights. These rights allow a franchisee to expand exclusively within a specific territory, according to a schedule — x number of units within a certain time period.
Franchise Management
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Little Johnny has swept the floors at your franchise since the broom was taller than he was. Little Jane has stuffed marketing coupons into envelopes since before she could write a complete sentence. Sound familiar? It should. Your co-author Michael Seid began to work in his family’s business packing shelves and learning the trade before starting first grade and the family store was like his second home.
Franchise Management
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The franchisee opens the store at 10 a.m. sharp, hires more employees to service the evening customers who pick up their vitamins or get their hair cut after work, and insists that their employees greet the customer within 20 seconds of entering the door. The franchisee does these things for a reason: timing. Running the franchise according to the clock makes sense.
Franchise Management
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There is a range of business structures used in social franchising. The franchisor may be structured as a nonprofit, for-profit, or other type of structure that is specifically designed for a social enterprise, such as one of the following:
Social purpose corporation
Low-profit limited liability company (L3C)
Benefit corporation
Cooperative
Hybrid
There are advantages and disadvantages to the nonprofit and for-profit approaches.