Small Business Management: Launching and Growing Entrepreneurial Ventures CHAPTER 4

franchise
a business model that involves a business owner who licenses trademarks and methods to an independent entrepreneur
franchisor
the party in a franchise contract that specifies the methods to be followed and the terms to be met by the other party
franchisee
an entrepreneur whose power is limited by a contractual relationship with a franchising organization
product and trade name franchising
a franchise agreement granting the right to use a widely recognized product or name
business format franchising
a franchise arrangement whereby the franchisee obtain an entire marketing and management system geared to entrepreneurs
franchise contract
the legal agreement between franchisor and franchisee
master licensee
an independent firm or individual acting as a middleman or sales agent with the responsibility of finding new franchisees within a specified territory
multiple-unit ownership
ownership by a single franchisee of more than one franchise from the same company
area developers
individuals or firms that obtain the legal right to open several franchised outlets in a given area
piggyback franchising
the operation of a retail franchise within the physical facilities of a host store
multibrand franchising
the operation of several franchise organizations within a single corporate structure
co-branding
bringing two or more franchise brands together under one roof
5 Pros of Franchising
trade names and trademarks, proven business system and operating plan, training support, supply and purchasing power, and financial support
3 Cons of Franchising
financial issues, franchisor competition, management issues
churning
actions by franchisors to void the contracts of franchisees in order to sell the franchise to someone else and collect an additional fee
encroachment
the franchisor’s selling of another franchise location within the market area of an existing franchisee
4 Costs of Being a Franchisee
initial franchise fee, investment cost, royalty payments, advertising costs
Franchise Disclosure Document (FDD)
a detailed statement that provides the accepted format for satisfying the franchise discolor requirements of the FTC
Franchise Rule
the franchiser must disclose certain information to prospective franchisees
4 Reasons for Buying and Existing Business
reduction of uncertainties, acquisition of ongoing operations and relationships, bargain price, quick start
business brokers
specialized brokers that bring together buyers and sellers of businesses
due diligence
the exercise of reasonable care in the evaluation of a business opportunity
nondisclosure agreement
the buyer promises the seller that he or she will not reveal confidential information or violate the seller’s trust
fair market value
the price at which the property would change hands between a willing buyer and a willing seller, with both parties having reasonable knowledge of relevant facts
7 Non-Quantitative Factors in Valuing a Business
market, competition, future community development legal commitments, union contracts, buildings, product prices