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Franchising

KEY CONSIDERATIONS successful operators are college graduates, but the signifi-
In deciding whether or not to enter into a franchise agree- cant number of successful franchisees with only a high
ment, there are several key points that need to be consid- school education suggests that education alone is not a
ered. The first consideration is price and costs. What is the determining factor. A fast-food franchise is the type of
total cost? What are the initial fees? What are the ongoing venture in which both husband and wife can contribute to
costs? Are there any hidden extras? Are franchisees the success of the business.
restricted in their right to purchase other goods? Most fast-food franchisers consider geographic loca-
The second consideration is the location. Where will tion to be an important factor in the success of the oper-
the franchise be located? What is the territory that it will ation. And, like franchisers in other fields, they cite the
serve? What are the protections and limitations? Who will importance of adequate capitalization, the efficient opera-
the competition be? tion of the franchise system, good customer relations,
The third issue involves control and support. What quality employees, and the contributions of the fran-
controls will be in place? What policies and regulations chisees, such as their management skills and especially
govern the franchise agreement? What training and ongo- their hard work.
ing support will be supplied? According to Cassano’s Pizza and Subs, a franchiser
Advertising is the fourth consideration. The fran- with twelve outlets in four states, the successful franchise
chisee needs to determine what national and regional operator must have several traits:
advertising will be supplied, as well as what the franchisee • an excellent attitude toward customer service and
pays for and what the franchiser finances.
customer relations
The last area of concern involves profits and losses,
transfer and death, and duration and termination. Poten- • an entrepreneurial ability and spirit combined with
tial franchisees need to determine not only what protec- good business techniques
tion they will receive for their earnings if they are • a willingness to take a hands-on attitude toward the
successful, but also what obligations they will be responsi- business
ble for if the franchise fails. In addition, they need to find
out whether, in the event of their death, the franchise Newcomers to the Cassano’s franchised fast-food business
agreement can be transferred to their heirs or automati- must have prior retail management experience and previ-
cally reverts to the franchiser. Finally, they need to deter- ous food-service experience. All new franchisees are
mine what stipulations, penalties, and other trained at the home office in Dayton, Ohio, for one
responsibilities are involved in terminating the contract month. After that, the franchise provides ongoing training
with the franchiser should they no longer wish to con- and managerial assistance.
tinue in the business.
GLOBAL FRANCHISING
THE FRANCHISING SECTOR Franchising is growing rapidly abroad, with hundreds of
A franchise is like any other business property in that it is franchise companies operating in thousands of outlets
the buyers’ responsibility to know what they are buying. overseas. Canada is the largest of these markets, followed
Poorly financed or poorly managed franchise systems are by Japan, Europe, Australia, and the United Kingdom. In
no better than poorly financed or poorly managed non- 1995 Subway signed a deal with Japanese financiers to
franchise businesses. It is important to remember that open 1,000 franchise outlets in Japan. Subway tailored its
there are trends in franchises, just as in other types of busi- products to fit the local tastes—for example, offering the
nesses. Popular areas for franchising include auto rental, Japanese market fried pork sandwiches.
fast-food, haircutting, health and fitness, and real estate Franchising can be a workable way for small firms
businesses. to enter foreign markets, especially markets where there
The growth of the franchised fast-food industry has are few competitors. For example, Automation Paper
been truly spectacular. These franchise operations are sec- Company, a small New Jersey-based supplier of high-
ond only to automobile dealerships and gasoline stations technology paper products, used franchising to gain exclu-
in gross volume of sales. Most often located at key inter- sive representation in target markets. The franchisees
sections or on busy highways, fast-food enterprises enjoy received rights to the company’s trademark, as well as
a high visibility. training for local staffs and the benefit of the firm’s expe-
In this segment of the franchise industry, the major- rience, credit lines, and advertising budget.
ity of franchise operators have already owned other busi- The problems facing franchise companies in interna-
nesses before entering into a fast-food franchise. Many tional transactions are relatively less formidable than those

332 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION