Advantages of Franchising vs. Corporate Locations

The Advantages of FranchisingFranchise Development Program

Volume I, No. 1

INTERNATIONAL FRANCHISE ASSOCIATION

®

Franchising offers the following advantages to you, the franchisor:

• Control – less than company owned – generally greater than independent dealers • Thefranchisordoesnotcontroltheday-to-daymanagementofthefranchisee’slocation

• Franchisorsetsbrandstandards • ProductsandServices • ConsumerRelationship • BrandManagement • Marketing

• UnitInvestmentandoperatingcostsaretransferredtofranchisee • Acceleratesexpansion • Nocontingentliabilityonexpansioncapital • Nocontingentliabilityonrealestate • Noequitydilution

• MarketPenetration • Increasedbrandrecognitionasmoreandmorelocationsopen • Abilitytoservesmallermarketsthatmightnotbeattractiveforcorporatedevelopment • Acceleratesmarketdominanceoverlocalcompetitors • Improvesacceptanceandtermsfromlandlord • Increasesvalueofthebrand

• Collectivebuyingpower • Reducescostforproducts,equipment,etc.,becauseofsystempurchasingcapacity • SharedResources • Warehouses,production,anddistribution • Leveragespurchasingpower • BrandMarketingthroughsystemmarketingfund • Allcontributetomoreprofessionaladvertisingandmarketingprogramsandmaterials • Abilitytomaintainwebpresence • Franchiseemanagestheday-to-dayactivitiesoftheirlocalbusinesstosystemstandards • Labor • Inventory

• Franchiseeresponsibletoexecutetobrandstandards

• Reducesperunitcostofsupportforfranchisor

• Franchiseeliableforlocaloperations–substantiallyreducesriskofvicariousliability

• Franchiseemotivatedtosucceed

• Knowledgeableaboutlocalmarkets

• Sourceofnewproductandserviceideas

• Franchiseeatriskforunitperformance

• Generatesrevenue • Fees–initialandongoing • Rebates • Franchiseepurchases

Advantages to You

Franchisingoffersthefollowingadvantagestoindividualbusinessowners(franchisees):

• Useoffranchisor’sbrand

• Useoffranchisor’soperatingsystem

• InitialAssistance • Businessestablishmentandstart-up • Siteselectionandconstructionassistance • Training • Staffingandhiringguidelines • Marketintroductionassistance

• OngoingAssistance • Businessconsultationandguidance • Reducedcostofgoods • Marketingassistance

• Abilitytobeapartofalargerwhole

Advantages to Franchisee

2

The Advantages of Franchising

The Advantages of Franchising

Whatoperatingsystemsshouldyouhaveinplacetooperateyourbusiness?

CustomerExperience You must deliver the customer experience on a consistent basis:

• Product/Service • PreparationofProduct • LocationCriteria(siteselection,leasenegotiation,andlegalreview) • Build-OutandDécor • LaborandSchedulingRequirements • Equipment • VehicleRequirements • Ingredients,Products,Supplies • Advertising • CustomerService • Pricing • Inventory • SuppliersandVendors • Training • CanbecodifiedintoOperationsManuals • Canbeoperatedbyatrainedmanager

Training Programs You will need the following training programs in place:

• Allpositionsinthebusiness • Franchiseeandtheirstaff • Whys as well as Hows • Consistentresults • Requiredskillsettobehired • Specializedbackgrounds • Timetoachieveproficiency

Marketing&AdvertisingPrograms You will need the following marketing and advertising programs:

• BrandIdentityandDevelopment • PricingPhilosophy • LocalMarketAdaptations • AdvertisingandMarketingMaterials • Assistfranchiseestointroducetheconceptorthebrandintoanewmarket • CorporateIdentity

Legal&RegulatoryRequirements You will need the following legal and regulatory requirements in place:

• FederalLevel • StateLevel • LocalLevel • LicensesandCertifications • FranchiseOwnership

AcceptableReturnonInvestment Is there the opportunity for an acceptable return on investment?

• NoGuarantees • Franchisorsandfranchiseescananddofail • Opportunityforanacceptablereturnbasedoneconomicmodeling • Franchisor • Reasonabletimeandgrowthrate • Franchisee • Earnalivingorbuildabusiness

YourCompany&Franchising You must identify whether your company culture lends itself to a franchising model:

• Franchisesaregovernedbythecontractbutmanagedbyrelationships • Doyoucarewhatothersthink? • Canyouenforcestandardsagainsta“friend”? • Canyoufollowtherequirementsofthecontract? • Canyoucomplywithfranchiseregulations?

Overviewofthe FranchiseSystem

3

The Advantages of Franchising

Overviewofthe FranchiseSystem (continued)

Products&Services You must be able to supply products and services to your franchisees:

• Suppliers’relationshipsinplace • Areyourcurrentsupplierspositionedtogrowwithyou? • Doyouhavetheabilitytoprotectyour“secretsauce”? • Willyoursuppliersworkwithyouwhileyougrowyourfranchisesystem? • Doyouhavebackupsuppliersidentified?

CompetitiveFranchiseOffer You must identify how competitive your franchise offer is:

• Poolofprospectivefranchisees • Affordabilityofthefranchise • Othertermsoftheagreement • Operatingstandards • Territory • Feesandrequiredpurchases • Otherrights/obligations • Abilityoffranchiseestoobtainfinancing

FranchiseExpectations You must consider how realistic your franchise expectations are:

• Growthoffranchisenetwork • Abilitytoprovideopeningandongoingsupport • Activelyevolveandmanagethebrand • Providemanagementtoolstofranchisees • Enforcestandards • Financialinvestmentrequiredtobeginfranchising • Expectedrevenuefromfranchising

Settingthe Expectations

Youareembarkingonanewexcitingvoyage,andinyourinitialoptimismyoumightnotanticipate the potential storms to come:

Atsomepointyourgrowthwillplateau!Whetheryouhitthisgrowthbarrierat10, 30, 60, or 90 operatingunits,thesolutiontoachievingabreakthroughbeginsinaskingtherightquestion. Wearetemptedtoaskthewrongquestionfirst,“HowdoIgetmyfranchisesystemtogrow?” Therightquestionis,“Whatispreventingmyfranchisesystemfromgrowing?Whatismy Achilles’heel?”

ItisessentialtorecognizeyourspecificAchilles’heelandtakeproactivemeasurestopreventplateauing.ThefivemajorAchilles’heelstoeveryfranchisorare:Leadership,Management,OperationalPerformance(Franchisor/Franchisee),Administration,andFinancialManagement.

Youneedtothinkaboutyourexitstrategy.Willyousellthecompany,gopublic,leaveitasalegacy foryourchildren,hireaprofessionalmanagementteamsoyoucanretire,etc.?Theseareimportantdecisionstobemadebeforewecanproperlydesignyourfranchisecompany.Youmustkeeptheend inmindsothatyourfranchisecompanyisbuiltonafoundationtoachievethisgoal.

BreakingThrough GrowthBarriers

KeepingtheEnd inMind(ExitStrategy)

YourRole as a Leader

Thereareanumberofcomponentsessentialtoyoursuccess,growth,andprofitability.Morethanlikelyyouwilldelegatemanyofthese;nonetheless,youmaintainultimateaccountability.Thefollowing factorsarenecessarytobuildasolidbaseforafranchisecompany:

• Leadership • Management • OperationalPerformance(Franchisor/Franchisee) • Administration • FinancialManagement

Asyourstrategicpartnerinfranchisesystemdevelopment,FranchiseGrowthPartners holdsitselfresponsibletogrowingwithyouthroughnovice,apprentice,journeymantomaster-levelCEOleadershipskills.

3625ThousandOaksBlvd.,Suite228,WestlakeVillage,CA91361phone:800.471.1682•fax:805.496.4284•franchisegrowthpartners.com INTERNATIONAL FRANCHISE ASSOCIATION

®