FRANCHISING AND THE

ENTREPRENEUR
 Introduction
Franchising is a system of distribution in which semi
dependent business owners (franchisees) pay fees and
royalties to a parent company (franchiser) in return for the
right to become identified with its trademark, to sell its
products or services, and often to use its business format and
system.
Franchisees do not establish their own autonomous
businesses; instead, they buy a “success package” from the
franchiser, who show how to use it.
Franchisees don’t have freedom to change the way they run
their business.
For example- KFC and Pizza Hut both operate two restaurants
in Kathmandu, the first foreign food franchises in Nepal.  
Types of Franchising

Three basic types:

 Trade name franchising: A system of franchising in
which a franchisee purchases the right to use the
franchiser's trade name without distributing particular
product exclusively under the franchiser’s name.
Ex: involves a brand name such as Western Auto

 Product distribution franchising: a system of

franchising in which a franchiser licenses a franchisee to
sell its products under the franchiser’s brand name and
trademark through selective, limited distribution
network.
Ex: market automobiles, gasoline products, soft drinks
 Pure franchising: A system of franchising in which a
franchiser sells a franchisee a complete business
format and system. Also called comprehensive or
business format franchising.
Ex: fast food restaurants, educational institute, service
business firms, etc
Benefits of Buying a Franchise
 Management training and Support
 Brand Name Appeal
 Standardized Quality of Goods and Services
 National Advertising Programs
 Financial Assistance
 Proven Products and Business Formats
 Centralized Buying Power
 Site Selection and territorial Protection
 Greater chance for Success
Drawbacks of Buying a Franchise
 Franchise fees and Ongoing Royalties
 Strict Adherence to Standardized Operations
 Restriction on Purchasing
 Limited Product Line
 Contract Terms and Renewal
 Unsatisfactory Training Programs
 Market Saturation
 Less Freedom
 Franchising and the Law

 The Federal Trade Commission (FTC) enacted the trade Regulation

Rule in 1979, which requires all franchisers to disclose information
on their operations at the first personal meeting or at least 10 days
before a franchise contract is signed, or before any money is paid.
 The FTC rule covers all franchisers.
 The Trade Regulation rule requires franchisers to provide
information on 23 topics in their disclosure statements.
 Seventeen states have passed theirs own franchise laws requiring
franchisers to provide prospective franchisees a Uniform Franchise
Offering Circulars (UFOC).
 UFOC: A document that every franchiser is required by law to give
prospective franchisees before any offer or sale of a franchise, it
outlines 23 pieces of information.
 Right Way to Buy a Franchise
Following steps will help you make the right franchise
choice:
1. Evaluate yourself
2. Research your market
3. Consider your franchise options
4. Get a copy of the franchiser’s UFOC
5. Talk to existing franchisees
6. Ask the franchisers some tough questions
7. Make your choice
 Trends Shaping Franchising
Key trends shaping franchising today includes:
1. Changing face of franchisees
2. International franchise opportunities
3. Smaller, Nontraditional locations
4. Conversion franchising: A franchising trend in which
owners of independent businesses become franchisees
to gain the advantage of name recognition.
5. Multiple-unit franchising: A method of franchising in
which a franchisee opens more than one unit in a board
territory within a specific time period.
6. Piggybacking ( or combination or Multibranded
Franchising): A method of franchising in which two or
more franchises team up to sell complementary
products or services under one roof.
7. Master franchising: Master franchise ( or sub franchise)
gives a franchisee the right to create a semi independent
organization in a particular territory to recruit, sell, and
support other franchisees.
Conclusion
Franchising has proved its variability in the economy
and has become a key part of the small business sector
because it offers many entrepreneurs the opportunity to
own and operate a business with greater chance for
success.