Franchise Management For Dummies

Michael H. Seid, Joyce Mazero

• Publisher: For Dummies
• Year: 2017
• ISBN:
  9781119337232
• Edition: 1
• Topic: Business
• Subtopic: Business Development
• Index: Business

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.

Part 1

Wrapping Your Brain Around Franchising

IN THIS PART …

Explore a bit of the surprising history of franchising and get to know the roles of franchisor and franchise.

Check out the different kinds of franchised businesses and franchising arrangements.

Understanding the similarities and differences between entrepreneurship and franchising to see if franchising is right for you

Dive into a franchisor’s mandatory legal obligations to prospective franchisees, the franchise disclosure document (FDD), and working with franchise professionals.

Chapter 1

The Power of the Brand

IN THIS CHAPTER

Exploring the history of franchising

Defining a franchise and the roles of franchisor and franchisee

Getting to know franchise wannabes, and why should you avoid them

Understanding the rights you will be granted under a franchise agreement

Three constants have fueled the growth of franchising over its long history: the desire to expand, the limitations on human and financial capital, and the need to overcome distance. Although you may think of franchising mostly in the context of your neighborhood fast food outlets, franchising has transformed how we purchase products and services today. More than 120 distinct industries use franchising today, and because of that it is nearly impossible to drive down any major street in the world and not pass by some business that is part of a franchise network. This chapter begins your exploration of franchising, not by looking at any particular franchise but by giving you some of the basics so you can better understand what franchising is all about.

Tracing the History of Franchising

Franchising seems ageless and omnipresent. It is used commercially today in over 120 industries to deliver to us all types of products and services in a way that allows us to trust in the consistent quality of the franchisor’s brand. It is also now being used by social enterprises such as nongovernmental organizations (NGOs) to bring fresh water, healthcare, education, electricity, and countless other products and services internationally to people living in underdeveloped parts of the world.

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. It is a way to create wealth through the establishment of independent local businesses. In addition to creating jobs at those independently owned locations, franchising is the single largest engine of entrepreneurial training in the world and has consistently been one of the driving forces in creating new entry-level jobs in every market in which franchising exists. It is one of the most productive methods ever adopted for the creation of wealth, capital formation, and a solid middle class.

Franchising is not new and it wasn’t invented by Ray Kroc or McDonald’s. It stems from systems used long ago by governments and by the church. Consider the legends of Robin Hood and Camelot. If you examine the relationships between the kings and the nobles, you can begin to understand the historic impact of franchising. It would have been impossible for the heads of government then to effectively control expansive territories, raise armies, regulate commerce, collect taxes, and provide government services without a structure that provided territory to nobles — who in exchange acted on behalf of the government and shared the local taxes and fees collected. That is, essentially, franchising. Even today, the continuing fee paid by franchisees to franchisors is called a royalty. A similar relationship was used by the churches and effectively still is. Franchising allowed for global exploration and commerce, and companies like the Dutch East India Company and the London Company used it to establish trading areas and explore the globe, including North America.

Franchising was first used commercially by European brewers for the distribution of their products to pubs. The first recorded commercial franchise in North America was created by Benjamin Franklin in 1731 in the British colonies, before the United States became a nation. Benjamin Franklin was the Postmaster for the Colonies under the British, and 45 years before the United States became a nation, he and Thomas Whitmarsh entered into the first franchise, or what they called a “Co-partnership,” for the carrying on of the “Business of Printing in Charlestown in South Carolina.” The printing shop published The South Carolina Gazette and was the local printer of many of Franklin’s writings, including his Poor Richard’s Almanack. Franklin went on to establish other franchises in the colonies and elsewhere in the years before the Revolution. His third franchisee was Elizabeth Timothé — a woman. At a time when commerce was substantially male dominated, Elizabeth Timothé is recognized as the first female publisher in North America.

Franchising also played a major role as the United States began its territorial and technological growth. Governments granted monopolies to franchisors for the development of railroads, ferries, electricity, roads, and trading posts needed for municipal infrastructure.

For more on the history of franchising, check out the companion website (search “Franchise Management” at www.dummies.com).

What Is a Franchise, Anyway?

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. What each “franchises” is a system that delivers quality branded products and services to consumers. And they do so through a network of independently owned and operated businesses that deliver a consistent customer experience.

“Dat Dog is an experience,” says Bill DiPaola, president and COO of Dat Dog, based in New Orleans. “It is more than simply the great food and expansive assortment of craft beers that make us successful and that will make our franchisees successful. It is our commitment to community, married with the fun and ‘zany’ culture of Dat Dog, that brings our customers back and that is the approach we expect our franchisees to take in each of their restaurants.”

A franchise occurs when a franchisor licenses its trade name and intellectual property — the brand and its operating methods (its system of doing business) — to a person or group who agrees to operate their business to the franchise system’s brand standards. The franchisor defines the brand promise it wants delivered to consumers, provides the franchisee with initial and continuing support, and then ensures compliance by the franchisee on how it delivers on that brand promise. The magic of franchising is that consistent brand standards can be achieved at each location without the franchisor being involved in the day-to-day management of the franchisee’s business.

In exchange, the franchisee pays an initial franchise fee to join the system and a continuing fee known as a royalty to remain a part of the franchise system.

The effects of franchising on modern business

We have grown accustomed to the consistency that comes from shopping at branded locations. From the comfort of knowing exactly what you will find when you check into a Courtyard by Marriott, to the quality of the chicken at a Popeye’s Louisiana Kitchen or a haircut at Sport Clips, people know what they will get when they purchase under a franchisor’s brand. The number of companies and industries bringing goods and services to consumers through franchising is growing, limited only by the imagination of the people who understand its potential application.

The size and impact that franchising has had on the economy in the United States is often unrecognized. According to the Franchise Education and Research Foundation, business-format franchising in 2017 is projected to generated close to 8 million jobs in the U.S., accounting for over $700 billion in economic output and over $425 billion in gross domestic product from more than 744,000 establishments. In a recent survey, more than 76 percent of American consumers favorably viewed shopping at a locally owned franchise business in their neighborhood. That’s the power of franchising today.

The success of franchising for business owners

Franchising creates opportunities for business ownership to create personal wealth and generates local jobs. It also consistently delivers products and services on a global basis to the brand standards established by the franchisor.

As you explore becoming a franchisee or a franchisor, be wary of statistics that talk about the “success rate” in franchising. As late as 2000, the International Franchise Association published statistics that claimed that franchisees had a success rate of 95 percent — versus a failure rate of 85 percent for nonfranchised startups in their first five years in business. Those statistics turned out to be inaccurate and misleading.

The IFA has frequently reminded franchisors to not use those out-of-date and misleading statistics, but unfortunately, some franchisors, franchise brokers, and franchise-packaging firms (one-stop shops that offer “cookie-cutter” franchise advice) continue to use them to attract potential franchisees. What should be important is how well a franchise system is doing, and it is irrelevant in choosing any franchise opportunity whether or not franchising in general is doing well. You should be very wary of working with anyone who still uses invalid claims of franchise industry success statistics. In fact, we recommend strongly that you don’t work with them at all.

Franchising can be a very effective method of getting into business, but that depends on how carefully the franchise system is structured and supported. Even in highly successful franchise systems, locations can fail for a host of reasons. It is up to prospective franchisees to conduct a proper examination of every franchise opportunity that interests them.

What’s the Big Deal with Brands?

The brand is a franchise system’s most valuable asset, because consumers decide what and whether to buy based on what they know, or ...