Entrepreneurship: Chapter 5

CHAPTER 5: FRANCHISING

• Explain what a franchise is and how it operates
• Franchising is a legal agreement that allows a franchisee to use a product, service, or method of the franchisor in exhange for fees and royalties.
• A franchisee is an independent businessperson who agrees to operate under the policies and procedures set up by the franchisor.

• Articulate the difference between product-distribution franchises and business-format franchises
• Product-distribution franchises allow the franchisee to purchase the right to use the trade name of the manufacturer and to buy or sell the manufacturer's products.
• Business-format franchises allow the franchisee to duplicate the franchisor's way of doing business

• Compare the advantages and disadvantages of franchising
• There are eight major advantages of franchising from the franchisee's perspective:
• Proven product or service
• Marketing expertise
• Financial assistance
• Technical and managerial assistance
• Opportunity to learn
• Quality control standards
• Efficiency
• Opportunity for growth
• The primary disadvantages to the franchisee include fees, restrictions on his freedom to operate the business.

• Explain how to evaluate a potential franchise
• To evaluate a franchise opportunity, you should send for a copy of the company's disclosure statement, research the company through business periodicals, talk to current and former franchisees, and check out the franchisor's reputation with the international franchise association.

My View: Franchising looks attractive to extend a successful brand, but we should beware the high costs and business challenges.