*SEMINAR RECAP ON THE TREASURED ENTREPRENEURS ASSOCIATION TEA FOUNDATION HALL OF WEALTH GENERAL ACTIVE GROUP PAGE 1 & 2*
ππΌTheme:
β€ _*HOW TO BUY THE FRANCHISE OF A SUCCESSFUL BUSINESS AND MAKE A FANTASTIC AMOUNT OF INCOME*._
π€SPEAKER/FACILITATOR/DISCUSSANT
π£ MR IBRAHIM TIJANI.
TOPIC OUTLINE:
What is franchising?
Intellectual property right
Advantages
Disadvantages
Categories of franchise
Types of franchising arrangements
Franchise agreement
The operations manual
Improvements and training
Quality control.
10 SKILLS EVERY ENTREPRENEUR SHOULD HAVE
SALES
MARKETING
COMMUNICATION
PRODUCT DEVELOPMENT
EMOTIONAL INTELLIGENCE
TEAM BUILDING
LEADERSHIP
DELEGATION
PROBLEM SOLVING
TIME MANAGEMENT
INTRODUCTION
A business that is bringing in profits and that has captured the interest of a market will naturally seek to expand. Franchising is one of the fastest growing and popular strategies for business expansion. It is where a person (franchisor) who has developed a certain way of doing a business gives another (franchisee) the right to use that business model in exchange for a fee.
In essence, a successful business is being replicated and run by entrepreneurs who are called franchisees under the supervision, control and assisted by the owner of the business model, the franchisor.
DEFINITION
What is a franchise?
Main Concept
Franchising is where a person (franchisor) who has developed a certain way of doing a business gives another (franchisee) the right to use that business model in exchange for a fee. The business has built a certain reputation and has brand recognition.
In essence, a successful business is being replicated and run by entrepreneurs who are called franchisees under the supervision, control and assisted by the owner of the business model, the franchisor.
The growth of franchising has given prospective franchisees a myriad of choices in purchasing a franchise. The purchase of a franchise is a significant investment decision that should not be made without careful consideration and investigation.
Intellectual property right
The intellectual property rights that are licensed in a franchising arrangement almost always include:
Trademarks
Copyright and often include trade secrets
Industrial designs and patents – depending on the nature of the business.
One could say that franchising is a special type of licensing arrangement in that it involves the right to use a business model which necessarily includes the right to use the intellectual property rights integral to that business along with support, training and mentoring.
Advantages
When comparing the purchase of a franchise with the commencement of a new independent business, the following factors weigh in favor of purchasing a franchise:
The use of a recognized trade name or trademark
The sale of a known and proven product or service
The use of a comprehensive system for operating the business
In-depth training on all aspects of the business
The use of a confidential operations manual
National and/or regional marketing programs
The disadvantages of operating a franchise versus an independent business include the following:
Payment of a franchise fee and ongoing royalty or service fees
Mandatory advertising contributions which may be spent outside your market
Inability to offer any products or services for sale which are not approved by the franchisor
Very little flexibility in the operation of the business
Restrictions on transferability
Limitations on sources of supplies
Territorial restrictions on where you can establish and operate your business.
Categories of franchise
Product or Distribution Franchise –
A product manufactured by the franchisor (or on his behalf by another) is sold to a franchisee who in turn sells it to the consumer under the trademark of the franchisor. Such a franchise is usually restricted to a particular geographical area and the franchisee pays fees referred to as royalties to the franchisor for the right to do business under his trademark
Manufacturing, Production or Processing Franchise
– The franchisor sells to the franchisee an essential ingredient or provides some specific know-how, which along with ongoing quality controls by the franchisor, enabling the franchisee to manufacture/product/ process the final product and sell to the consumer.
Coca cola operates in many markets in this manner supplying franchisees with the essential ingredient of Coca cola protected by a trade secret enabling them to produce the final product.
Business format franchising β The owner of a business (franchisor) licenses to another (franchisee) the right to use the particular business model including the intellectual property associated with it, particularly the trademark. Business format franchising is the most widely used form of franchising
Types of franchising arrangements
Direct Franchise Agreement β A franchisor may enter into individual franchise agreements with each territory or outlet. Here the franchisor has direct control of his franchisees and a revenue flow that does not need to be shared with others.
However, direct franchising may not be that suitable when the outlets are in another country. Problems may include the issues of repatriating revenue, tax implications as well as the difficulties of dealing with the uniqueness of different countries, including language, culture, laws, regulations and business practices.
Master Franchise Agreement – A franchisor may enter into a master franchise agreement whereby another entity is given the right to sub-franchise the franchisor’s business concept within a given territory with a development timetable. These rights are usually secured by an initial development fee charged by the franchisor.
Development Agreement – A development agreements obliges a developer to open multiple outlets in accordance with a development timetable. Vis-Δ-vis the developer and the outlets; rather it involves franchising between the franchisor and the developer.
Franchise agreement
Laws that apply to franchising
Franchise disclosure laws:
Many countries have disclosure laws which require information to be provided to prospective franchisees before they commit to the franchise. Sometimes, as is the case in the United States of America, the disclosure requirements are quite detailed.
Full and accurate disclosure would generally include the following information:
A description of the business format, details of the pilot operation, how long the franchisor has been in business, the people involved in the franchisorβs company, details of other franchisees, the franchisor’s likely competition, and any special laws that might apply to the franchised business, such as special license or permit requirements.
Problems facing the franchisor, including any of involving in convicted crimes, fraud or violations, law suits, bankruptcy filings of the franchisor or its officers.
The costs involved in starting and operating a franchise and other costs which the franchisor may not have to disclose (depending on the national laws) such as ongoing royalty fees, supply costs, and insurance.
What restrictions if any would apply such as which suppliers to use, what goods can be sold, and the area in which the franchisee could operate (“territory”).
The intellectual property owned by the franchisor which the franchisee will be allowed to use in the franchise, in addition to any relevant intellectual property disputes.
Financial statements, which should indicate the franchisor’s current financial condition.
Membership of trade and/or franchise associations.
Grant-back provision.
How disputes under the agreement would be settled, and what liability would accrue for the costs of such dispute settlement.
A copy of the current form of the franchise agreement.
Registration requirements
A number of countries require franchisors or their agreements to be registered with a governmental agency. In addition, civil law countries impose a general duty of good faith on all commercial transactions including the grant of franchises.
Some countries have adopted laws that require the registration of the disclosure statements as well as the franchise agreement with a government authority in order for the franchise relationship to be valid. This provides protection to the franchisee including the right to bring action against the franchisor for violation of disclosure requirements.
Some are however of the view that disclosure requirements are sufficient protection for prospective franchisees and that registration requirements add an unnecessary administrative requirement which adds cost and burden on the franchisor.
Franchise relationship laws
Once the parties have entered into a franchise agreement the franchise relationship laws regulate various aspects of the franchise relationship such as the franchisorβs right to terminate, the right of renewal and the right of transfer.
Anti-competition laws
In many countries, laws for controlling the anti-competitive behaviour of franchisors exist.
Anti-competitive practices that limit, distort or prevent competition are often prohibited by national laws (e.g. ant-itrust laws in the United States or in other countries competition law or policy, or Fair Trading or Anti-monopoly law).
The operations manual
The operations manual is at the very heart of the franchise system and is critical for its success. It guides the franchisee through every step of the business and is a handy reference whenever questions arise and ultimately ensures consistency by the different franchise locations and the maintenance of quality standards.
Operating methods
A list of what is required in order to operate the business should be set out, and could include (depending on the business):
equipment
how the equipment is to be operated
equipment problems
stock requirements
IT requirements (hardware and software)
vehicle requirements
Operation instructions
All matters relating to the operation of the business should be set out in detail and should include:
standard forms and procedures
financial records and reporting
payment of franchise fees
general accounting, tax matters; information on how to complete necessary forms
cash control and banking procedures
how to deal with cheque, debit cards and credit cards
staff requirements
staff uniforms
procedure for disciplining staff
summary of employment legislation
breakdown of job description for staff
opening times
trading patterns
purchasing requirements and stock levels
pricing policies
insurance
Advertising and marketing recommendations
Local news papers
public relations companies
launch procedures
marketing material
point-of-sale advertising
local advertising policy
Recommendations in relation to public relations and advertising.
Outlet
Suggested location of store
sotre layout
display and merchandising techniques
cleanliness
complaints procedures
Standard forms
All standard documentation and forms required to be used in the business should be set out.
business names act notices
accounting and financial forms
order forms
stationery
data protection act forms
contracts of employment
Legal issues
In countries which have detailed disclosure requirements, these requirements must be complied with. In countries which do not have such requirements, a summary of relevant legislation, licenses and permits should be provided.
Franchisor’s directory
A list of the franchisor’s employees with their job descriptions and reporting structure
Useful telephone numbers and contact details.
Improvements and training
Improvements
Inevitably during the course of the franchise both the franchisor and the franchisee will develop improvements. The Franchise Agreement will require the franchisorβs improvements to be implemented by the franchisees and will also require the franchisees to pass on and license the improvements they develop to the franchisor. It is essential that there is a free interchange of ideas.
Training
Not only must initial training be provided because usually franchisees will have no knowledge of the franchised business but the Franchisor musts provide updating training.
The initial training is usually provided βfree of chargeβ in the sense that its cost is included in the initial fee and continuing training should be provided at cost and not at a profit for the Franchisor because its purpose is to have a well-trained franchise network.
Quality control
It is important to maintain quality control.
Quality control is key to maintaining the appeal of the franchise and the value of the brand. In addition a trademark owner is under legal obligation to maintain quality control in the use of the mark when he licenses his trademark which is the case in franchising. If quality falls in one franchise outlet it will affect the whole franchise.
Conclusion
For many people, the decision to invest in a franchise will be the most significant financial decision of their business careers. Any such decision should only be made after careful and thorough investigation of all the factors described above. A competent and experienced attorney and accountant should be consulted when making such a decision. Use all of the resources at your disposal and GOOD LUCK!*SEMINAR RECAP ON THE TREASURED ENTREPRENEURS ASSOCIATION TEA FOUNDATION HALL OF WEALTH GENERAL ACTIVE GROUP PAGE 1 & 2*
ππΌTheme:
β€ _*HOW TO BUY THE FRANCHISE OF A SUCCESSFUL BUSINESS AND MAKE A FANTASTIC AMOUNT OF INCOME*._
π€SPEAKER/FACILITATOR/DISCUSSANT
π£ MR IBRAHIM TIJANI.
TOPIC OUTLINE:
What is franchising?
Intellectual property right
Advantages
Disadvantages
Categories of franchise
Types of franchising arrangements
Franchise agreement
The operations manual
Improvements and training
Quality control.
10 SKILLS EVERY ENTREPRENEUR SHOULD HAVE
SALES
MARKETING
COMMUNICATION
PRODUCT DEVELOPMENT
EMOTIONAL INTELLIGENCE
TEAM BUILDING
LEADERSHIP
DELEGATION
PROBLEM SOLVING
TIME MANAGEMENT
INTRODUCTION
A business that is bringing in profits and that has captured the interest of a market will naturally seek to expand. Franchising is one of the fastest growing and popular strategies for business expansion. It is where a person (franchisor) who has developed a certain way of doing a business gives another (franchisee) the right to use that business model in exchange for a fee.
In essence, a successful business is being replicated and run by entrepreneurs who are called franchisees under the supervision, control and assisted by the owner of the business model, the franchisor.
DEFINITION
What is a franchise?
Main Concept
Franchising is where a person (franchisor) who has developed a certain way of doing a business gives another (franchisee) the right to use that business model in exchange for a fee. The business has built a certain reputation and has brand recognition.
In essence, a successful business is being replicated and run by entrepreneurs who are called franchisees under the supervision, control and assisted by the owner of the business model, the franchisor.
The growth of franchising has given prospective franchisees a myriad of choices in purchasing a franchise. The purchase of a franchise is a significant investment decision that should not be made without careful consideration and investigation.
Intellectual property right
The intellectual property rights that are licensed in a franchising arrangement almost always include:
Trademarks
Copyright and often include trade secrets
Industrial designs and patents – depending on the nature of the business.
One could say that franchising is a special type of licensing arrangement in that it involves the right to use a business model which necessarily includes the right to use the intellectual property rights integral to that business along with support, training and mentoring.
Advantages
When comparing the purchase of a franchise with the commencement of a new independent business, the following factors weigh in favor of purchasing a franchise:
The use of a recognized trade name or trademark
The sale of a known and proven product or service
The use of a comprehensive system for operating the business
In-depth training on all aspects of the business
The use of a confidential operations manual
National and/or regional marketing programs
The disadvantages of operating a franchise versus an independent business include the following:
Payment of a franchise fee and ongoing royalty or service fees
Mandatory advertising contributions which may be spent outside your market
Inability to offer any products or services for sale which are not approved by the franchisor
Very little flexibility in the operation of the business
Restrictions on transferability
Limitations on sources of supplies
Territorial restrictions on where you can establish and operate your business.
Categories of franchise
Product or Distribution Franchise –
A product manufactured by the franchisor (or on his behalf by another) is sold to a franchisee who in turn sells it to the consumer under the trademark of the franchisor. Such a franchise is usually restricted to a particular geographical area and the franchisee pays fees referred to as royalties to the franchisor for the right to do business under his trademark
Manufacturing, Production or Processing Franchise
– The franchisor sells to the franchisee an essential ingredient or provides some specific know-how, which along with ongoing quality controls by the franchisor, enabling the franchisee to manufacture/product/ process the final product and sell to the consumer.
Coca cola operates in many markets in this manner supplying franchisees with the essential ingredient of Coca cola protected by a trade secret enabling them to produce the final product.
Business format franchising β The owner of a business (franchisor) licenses to another (franchisee) the right to use the particular business model including the intellectual property associated with it, particularly the trademark. Business format franchising is the most widely used form of franchising
Types of franchising arrangements
Direct Franchise Agreement β A franchisor may enter into individual franchise agreements with each territory or outlet. Here the franchisor has direct control of his franchisees and a revenue flow that does not need to be shared with others.
However, direct franchising may not be that suitable when the outlets are in another country. Problems may include the issues of repatriating revenue, tax implications as well as the difficulties of dealing with the uniqueness of different countries, including language, culture, laws, regulations and business practices.
Master Franchise Agreement – A franchisor may enter into a master franchise agreement whereby another entity is given the right to sub-franchise the franchisor’s business concept within a given territory with a development timetable. These rights are usually secured by an initial development fee charged by the franchisor.
Development Agreement – A development agreements obliges a developer to open multiple outlets in accordance with a development timetable. Vis-Δ-vis the developer and the outlets; rather it involves franchising between the franchisor and the developer.
Franchise agreement
Laws that apply to franchising
Franchise disclosure laws:
Many countries have disclosure laws which require information to be provided to prospective franchisees before they commit to the franchise. Sometimes, as is the case in the United States of America, the disclosure requirements are quite detailed.
Full and accurate disclosure would generally include the following information:
A description of the business format, details of the pilot operation, how long the franchisor has been in business, the people involved in the franchisorβs company, details of other franchisees, the franchisor’s likely competition, and any special laws that might apply to the franchised business, such as special license or permit requirements.
Problems facing the franchisor, including any of involving in convicted crimes, fraud or violations, law suits, bankruptcy filings of the franchisor or its officers.
The costs involved in starting and operating a franchise and other costs which the franchisor may not have to disclose (depending on the national laws) such as ongoing royalty fees, supply costs, and insurance.
What restrictions if any would apply such as which suppliers to use, what goods can be sold, and the area in which the franchisee could operate (“territory”).
The intellectual property owned by the franchisor which the franchisee will be allowed to use in the franchise, in addition to any relevant intellectual property disputes.
Financial statements, which should indicate the franchisor’s current financial condition.
Membership of trade and/or franchise associations.
Grant-back provision.
How disputes under the agreement would be settled, and what liability would accrue for the costs of such dispute settlement.
A copy of the current form of the franchise agreement.
Registration requirements
A number of countries require franchisors or their agreements to be registered with a governmental agency. In addition, civil law countries impose a general duty of good faith on all commercial transactions including the grant of franchises.
Some countries have adopted laws that require the registration of the disclosure statements as well as the franchise agreement with a government authority in order for the franchise relationship to be valid. This provides protection to the franchisee including the right to bring action against the franchisor for violation of disclosure requirements.
Some are however of the view that disclosure requirements are sufficient protection for prospective franchisees and that registration requirements add an unnecessary administrative requirement which adds cost and burden on the franchisor.
Franchise relationship laws
Once the parties have entered into a franchise agreement the franchise relationship laws regulate various aspects of the franchise relationship such as the franchisorβs right to terminate, the right of renewal and the right of transfer.
Anti-competition laws
In many countries, laws for controlling the anti-competitive behaviour of franchisors exist.
Anti-competitive practices that limit, distort or prevent competition are often prohibited by national laws (e.g. ant-itrust laws in the United States or in other countries competition law or policy, or Fair Trading or Anti-monopoly law).
The operations manual
The operations manual is at the very heart of the franchise system and is critical for its success. It guides the franchisee through every step of the business and is a handy reference whenever questions arise and ultimately ensures consistency by the different franchise locations and the maintenance of quality standards.
Operating methods
A list of what is required in order to operate the business should be set out, and could include (depending on the business):
equipment
how the equipment is to be operated
equipment problems
stock requirements
IT requirements (hardware and software)
vehicle requirements
Operation instructions
All matters relating to the operation of the business should be set out in detail and should include:
standard forms and procedures
financial records and reporting
payment of franchise fees
general accounting, tax matters; information on how to complete necessary forms
cash control and banking procedures
how to deal with cheque, debit cards and credit cards
staff requirements
staff uniforms
procedure for disciplining staff
summary of employment legislation
breakdown of job description for staff
opening times
trading patterns
purchasing requirements and stock levels
pricing policies
insurance
Advertising and marketing recommendations
Local news papers
public relations companies
launch procedures
marketing material
point-of-sale advertising
local advertising policy
Recommendations in relation to public relations and advertising.
Outlet
Suggested location of store
sotre layout
display and merchandising techniques
cleanliness
complaints procedures
Standard forms
All standard documentation and forms required to be used in the business should be set out.
business names act notices
accounting and financial forms
order forms
stationery
data protection act forms
contracts of employment
Legal issues
In countries which have detailed disclosure requirements, these requirements must be complied with. In countries which do not have such requirements, a summary of relevant legislation, licenses and permits should be provided.
Franchisor’s directory
A list of the franchisor’s employees with their job descriptions and reporting structure
Useful telephone numbers and contact details.
Improvements and training
Improvements
Inevitably during the course of the franchise both the franchisor and the franchisee will develop improvements. The Franchise Agreement will require the franchisorβs improvements to be implemented by the franchisees and will also require the franchisees to pass on and license the improvements they develop to the franchisor. It is essential that there is a free interchange of ideas.
Training
Not only must initial training be provided because usually franchisees will have no knowledge of the franchised business but the Franchisor musts provide updating training.
The initial training is usually provided βfree of chargeβ in the sense that its cost is included in the initial fee and continuing training should be provided at cost and not at a profit for the Franchisor because its purpose is to have a well-trained franchise network.
Quality control
It is important to maintain quality control.
Quality control is key to maintaining the appeal of the franchise and the value of the brand. In addition a trademark owner is under legal obligation to maintain quality control in the use of the mark when he licenses his trademark which is the case in franchising. If quality falls in one franchise outlet it will affect the whole franchise.
Conclusion
For many people, the decision to invest in a franchise will be the most significant financial decision of their business careers. Any such decision should only be made after careful and thorough investigation of all the factors described above. A competent and experienced attorney and accountant should be consulted when making such a decision. Use all of the resources at your disposal and GOOD LUCK!
Treasured Entrepreneurs Association (TEA) 