Franchise Business Overview

Presented by Jon Gregory

February 2, 2006

Franchise Business Overview

Presented by Jon Gregory

February 2, 2006

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Franchise Basics

A legal and commercial relationship between the owner of a trademark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business.

Each franchise business has been authorized by a parent company, or franchisor, to sell their goods and/or services either in a retail space or a designated geographical area.

The franchise governs the method of conducting business between the two parties. This relationship is regulated by FTC laws.

Generally, a franchisee sells goods or services supplied by the franchisor or that meet the franchisor's quality standards.

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Franchise Options

There are three main types of franchising: – Product/trade name franchising: A franchisor owns

the right to the name or trademark and sells that right to a franchisee.

– Business format franchising: Franchisors provide a full range of services, including site selection, training, product supply, marketing plans, and even assistance in obtaining financing.

– Distributorships: A parent company grants the right to a franchisee to sell their products.

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Disadvantages

Loss of independence– Franchisee is required to operate the business according to the

franchisor's manuals and procedures

Other franchisees– Poorly performing fellow franchisees or company- owned

locations damage a franchisee's business even where they do not share the same market

Income expectations– Added costs for royalties, advertising, additional training, and

other services potentially reduce a franchisee's earnings

Franchising inelasticity– Franchise systems are bound together through legal agreements

between franchisors and franchisees

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Advantages

Overall benefits– Quality and consistency – Brand recognition– Built-in customer base

Pre-opening benefits– Franchise fee includes training, operations manuals, site selection

tools, store design, construction programs– Network of other franchisees and parent company

Ongoing benefits– Access to training programs – Purchasing power that comes from joining with others– Professionally designed marketing materials– Combined advertising spending

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Reasons Franchises Fail

SBA reports 30% of independent, non-franchise companies fail during their first year

Conversely, the U.S. Dept. of Consumer Affairs reported that less than 5% franchises fail– The idea. Make sure business model can be duplicated in your

community. – Bad location. "Location, location, location." – Poor marketing/advertising. Local and national efforts. – Competition. Is there market saturation?– Unrealistic expectations. Prepare for profits later.

Other issues– Must expect long hours– Must manage employees– Must enjoy dealing with people

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Franchise Arrangements

Single-unit or direct-unit franchises Multi-unit franchises

– Multiple single-unit operators (many

franchisees, one area)

– Area development (one franchisee, one area)

– Master franchises (ability to re-sell)

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Due Diligence

Know your market

Comparison shop

Study the franchisor's offering

Find out what training and support the

franchisor provides

Talking to existing franchisees

Uniform Franchise Offering Circular – disclosure document or offering prospectus

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Questions For Franchisees

Are you happy with your franchisor? How long did it take for you to realize a return on investment? What are your approximate earnings and are they in line with

your expectations? Did your franchisor adequately estimate the amount of operating

cash that you needed? Was the training your franchisor provided thorough and did it

sufficiently prepare you to run this business? Were there any hidden franchise fees or unexpected costs? Is your territory big enough to hit your goals? Are there restrictions on the products you sell and use in your

business? Are you required to use designated vendors? Does the franchisor advertise as much as it said it would? What type of business experience, education and skills did you

possess before buying this franchise?

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Top 10 Fastest Growing Franchises

Subway Pizza Hut Quiznos Sub Jan-Pro Franchising Int’l, Inc. Curves Jani-King Jackson Hewitt Tax Service UPS Store Coveall Cleaning Concepts CleanNet USA, Inc.

Source: Entrepreneur.com

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Top 10 Low-Cost Franchises

Curves Jackson Hewitt Tax Service Jan-King Re/MAX Int’l, Inc. Liberty Tax Service Jan-Pro Franchising Int’l, Inc. ServiceMaster Clean Kumon Math & Reading Centers Jazzercise, Inc. Chem-Dry Carpet Drapery & Upholstery Cleaning

Source: Entrepreneur.com

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Top 10 New Franchises

Geeks on Call America Moe’s Southwest Grill EmbroidMe Chester’s Int’l, LLC ISold It United Shipping Solutions Super Wash Handyman Matters Franchise, Inc. Robeks Fruit Smoothies & Healthy Eats 1-800 Water Damage

Source: Entrepreneur.com

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Franchise Costs

Franchise fees– Amount you pay the franchisor to offset the franchisor's cost of locating,

screening, negotiating with, and training you – May also cover the costs involved in site selection, promotions, grand

opening events, and ongoing support – Franchise fees can be more than $100,000– The franchise fee typically range between $20,000 to $25,000.

Training Costs– Cost of tuition for initial training is usually included in your franchise fee;

Likely need to pay for staff training Start-up costs

– Total start-up costs can be as low as $20,000 to $1M– Typical investment for a single-unit franchisee is usually $100,000 to

$300,000, including franchise fee and start-up costs– The average investment is detailed in the UFOC– Most franchisors want to see a liquid (read cash) capital investment of 35 to

50% of the total franchise cost (that's the franchise fee plus all start-up costs)

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Franchise Resources

Franchise-Zone.com International Franchise Association Franchise.com FranchiseSolutons.com FranchiseGator.com FranchiseOpportunities.com FranchiseSystems.com FranchiseAdvantage.com BizBuySell.com FranchiseWorks.com

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Golden Capital Network

Thank you.

Contact:

Jon GregoryGolden Capital Networkjon@goldencapital.net

530-893-8828