Introduction to franchising and its importance to entrepreneurs & small & medium enterprises by Xaytkulova Sevara

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

ASSESSING FRANCHISING 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

ASSESSING FRANCHISING 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?

HOW TO ASSESS A PROSPECTIVE FRANCHISE?

• 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

HOW TO ASSESS A PROSPECTIVE FRANCHISE?

• 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

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