INTRODUCTION TO FRANCHISING AND ITS IMPORTANCE TO ENTREPRENEURS &

SMALL & MEDIUM ENTERPRISES

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How to be a successful entrepreneur – a tip

WHAT IS FRANCHISING?

An arrangement whereby a party (franchisor), who has developed a way of running a business format/system successfully, licenses the rights to operate that format/system using his trademark, name or other IP rights to another party (franchisee)

The licence involves the franchisor granting a right to use the format/system, trademark, name or other IP rights in exchange for an initial fee and annual royalty.

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WHAT IS FRANCHISING?

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“Franchising allows people to go into business for

themselves, not by themselves”

WHY FRANCHISE?

A recognised brand name.

Enhanced business image.

Consistent quality.

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WHY FRANCHISE?

Franchises offer important pre-opening support: site selection design and construction financing (in some cases) training grand-opening program

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WHY FRANCHISE?

Franchises offer ongoing support training national and regional advertising operating procedures and operational

assistance supervision and management support increased spending power, access to

bulk purchasing and economies of scale

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DISADVANTAGES

The franchisee is not completely independent.

In addition to the initial franchise fee, franchisees must pay ongoing royalties and advertising fees.

Franchisees must be careful to balance restrictions and support provided by the franchisor with their own ability to manage their business

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DISADVANTAGES

A damaged, system-wide image can result if other franchisees are performing poorly or the franchisor runs into an unforeseen problem.

The term (duration) of a franchise agreement is usually limited and the franchisee may have little or no say about the terms of a termination

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ASSESSINGFRANCHISING OPPORTUNITY

Successful franchising essentially involves trust and understanding between the franchisor and franchisee

Franchisor’s financial position and track record

How thoroughly has the business been market tested

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ASSESSINGFRANCHISING OPPORTUNITY

How well the format/system works in practice (Are existing franchisees pleased with their business? Any bad news?)

Does the business have staying power? Or is it based on something which is temporarily fashionable?

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HOW TO ASSESS A PROSPECTIVEFRANCHISE?

Assess the reputation and reliability of the franchisor

Find out the demand for the goods/services offered in the franchise

Do sales projection Find out from other franchisees the support

services provided Work out the amount of capital that is needed

upfront

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HOW TO ASSESS A PROSPECTIVEFRANCHISE?

Work out the amount of cash that is needed under the worst case scenario

Go through the contract thoroughly with a lawyer concerning , in particular, rights of the franchisee obligations of the franchisor terms of termination restriction on business entered after termination resolution of disputes

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WHAT IS INVOLVED IN FRANCHISING?

Tenure/Period of contract

Initial fee

Royalty/management fee

Renovation cost

Territory

Supply of goods and services

Compliance with contract

Terms of termination

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STEPS INVOLVED IN FRANCHISING?

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WHAT SHOULD A COMPANY DO TO GET READY TO BE A FRANCHISEE?

Conduct feasibility study

Set up systems/procedures and support functions

Study the operations manual Register trademarks and other IP rights

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TYPES OF FRANCHISE

Generally there are 2 main types of franchises:

Product distribution franchises; and

Business format franchises.

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PRODUCT DISTRIBUTION FRANCHISES

A product distribution franchise model is very much like a supplier-dealer relationship.

Typically, the franchisee merely sells the franchisor’s products. However, these type of franchises will also include some form of integration of the business activities.

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PRODUCT DISTRIBUTION FRANCHISES

Examples of famous product distribution franchises include:

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Produces the syrup concentrate

Sells the syrup concentrate

FRANCHISEE Produces the final drink

Retail Stores

Restaurants & F&B Outlets

Vending Machine

Operators

PRODUCT DISTRIBUTION FRANCHISES

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BUSINESS FORMAT FRANCHISING

In business format franchises, on the other hand, the integration of the businesses is more complete.

The franchisee not only distributes the franchisor’s products and services under the franchisor’s trademark, but also implements the franchisor’s complete method to conduct the business itself.

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BUSINESS FORMAT FRANCHISING

Examples of famous business format franchises include:

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FRANCHISING ACROSS WORLD

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Feasibility of Franchising

Franchising is a more feasible option of business expansion than starting own outlets

FRANCHISING……

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Success of the Franchise

FRANCHISING…..

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Success of Franchising

Franchisors’ Improvement in Average Monthly Sales since Franchising

FRANCHISING…..

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Success of Franchising

Franchisors’ Improvement in Average Monthly Net Profit since Franchising

FRANCHISING…..

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Success of Franchising

Franchisors’ Improvement in Average Monthly Sales since Franchising

FRANCHISING…..

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Reason for Franchising

2/3 of franchisees felt that economies of scale in bulk purchasing encouraged them to consider franchising

FRANCHISEES…..

Generally young and well educated 62% below 40 years old 57% had post-secondary education 32% own their own outlets 46% occupy the outlets as tenants

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FRANCHISING…..

Franchising helps existing businesses do better. Franchisees’Response to the Statement:“Joining a Franchise has Helped Me to Do Better than Before.”

FRANCHISING…..

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Business Performance

Percentage Increase in Average Monthly Sales for Franchisees who were Previously Running a Business in the Same Trade

FRANCHISING…..

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Business Performance

Percentage Increase in Average Monthly Net Profit for Franchisees Previously Running a Business in the Same Trade

THANK YOU

Navnish SahaiDelhi

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