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Franchise Management For Dummies


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Table of Contents

Foreword xv Introduction 1 About This Book 1 Foolish Assumptions 2 Icons Used in This Book 3 Beyond the Book 4 Where to Go from Here 4 Part 1: Wrapping Your Brain Around Franchising 5 Chapter 1: The Power of the Brand 7 Tracing the History of Franchising 7 What Is a Franchise, Anyway? 9 The effects of franchising on modern business 9 The success of franchising for business owners 10 What's the Big Deal with Brands? 11 Franchise Siblings: Three Types of Franchising 12 Traditional franchising 12 Business-format franchising 12 Social franchising 14 The Roles and Goals of Franchisors and Franchisees 15 Looking at the world through franchisor lenses 15 The franchisee's end of the bargain 16 Nuances of the Franchisor/Franchisee Relationship 18 Chapter 2: Franchises Come in Different Sizes 21 Getting Started with a Single Franchise 22 Where to start: It's two in the morning and you can't sleep 22 Sifting through the options 23 Paying attention to what's hot 25 Adding Franchises, One at a Time 27 Flying solo: Single-unit franchises 27 Growing a family one franchise at a time 28 Developing a Territory on Your Own 29 Becoming a Master Franchisee 32 The Area Rep: Master Franchise Lite 34 Sharing Risks and Rewards in a Joint Venture 35 Councils, Associations, Cooperatives, and Buying Groups 36 Buying Franchisor-Owned Locations 37 Chapter 3: Mirror, Mirror, on the Wall 41 Starting Your Own or Joining a Team 42 Consider the Pros and Cons 43 Advantages of making a franchise investment 43 Disadvantages of making a franchise investment 45 Being Realistic about Being a Franchisee 48 Looking in the Mirror: A Self-Evaluation 49 Are you willing and able to learn new skills? 49 Would you rather give or take orders? 50 Can you say goodbye to corporate perks? 51 How is your health? 51 Do you like people? 52 How much can you dish out and take on? 53 Consider your family and friends 53 Chapter 4: The Legal Issues 55 Franchise Regulation: A Little History 56 The State Regulatory Landscape 57 The Franchise Disclosure Document 58 What you will find in the FDD 58 The waiting period 59 The FDD, Item by Item 60 Calling out a few key items 71 How much can I make? 73 Additional information available when an FPR is provided 74 Understanding a franchise agreement 75 The franchisor's verbal promises 75 Finding professional advisors 75 Negotiating with a Franchisor 77 Part 2: Buying a Franchise 79 Chapter 5: Researching Franchise Opportunities 81 Digging Up the Good Information 82 The Internet is the place to start 83 Print directories 84 Publications to understand franchising 84 Attending trade shows and expositions 85 Hot and trendy, but does it have any legs? 86 The Role, Risk, and Benefits of Brokers 87 Do brokers work for you or the franchisor? 87 Deciding Whether to Buy Old or New 88 Sizing up an existing franchise 89 Investigating new franchise opportunities 91 Benchmarking Franchise Offerings 92 Going Back Home and Eyeing Locations 96 Chapter 6: Raising Capital: Wowing, Wrangling, and Winning 97 Examining Your Current Finances 98 Ask yourself some probing questions 98 Seeing what you can afford 99 Consider a "used" franchise 99 Determining Franchise Investment 100 What your startup costs may look like 101 Initial expenses to set up shop 102 Do Your Homework before Holding Out Your Cup 105 Creating a business plan 105 The SBA: What they want to see 109 Projecting income and cash flow 112 Raising Capital 114 Avoiding debt 114 Visiting the bank 115 Finding an angel investor 116 Seeking other financing strategies 117 Social Franchising and Funding 117 Part 3: Operating Like a Well-Oiled Machine 121 Chapter 7: Choosing a Location 123 Selecting a Site 124 Considering common site options 124 Working a franchise from home 126 Opting for alternate or off-street sites 127 Dual branding: Sharing your space 127 Finding Your Franchise's Habitat 128 Finding out what constitutes a good site 129 Using the franchisor as your compass 130 Using data to evaluate a site on your own 132 Protected and Exclusive Areas 132 Encroachment Policies 134 Signing the Lease 135 Meeting Your Franchise's Requirements 136 Implementing a franchisor's designs 136 Getting approvals, permits, and licenses 137 Beginning construction 137 Getting help with the opening 138 Chapter 8: Getting the Goods 139 The Basic Requirements 140 Meeting Approved Standards and Specifications 141 Making mandatory purchases 141 The Role of Buying Groups and Purchasing Cooperatives 146 Receiving merchandise 147 Receiving deliveries 147 Checking the goods after they are in your location 148 Verifying invoices 149 Maintaining Inventory 149 Back of the house 149 Front of the house 152 Chapter 9: Training and Hiring 153 Getting Good Training for Yourself and Your Management 154 Getting good initial training 154 Receiving effective ongoing training 156 Understanding Joint Employment and Why It Spooks Franchisors 157 Who is the employer anyway? 157 The role of the franchisor in human resources policies 158 Training Your Staff 160 Taking responsibility for getting your gang in gear 161 When English isn't an employee's first language 162 Finding a method to the madness 163 Building and Leading Your Team Effectively 164 Recruiting the right team and rewarding them in the right ways 166 Following equal opportunity guidelines 168 Conducting Interviews 169 Asking the right questions 171 Continuing an interview 173 Doing background checks and other post-interview diligence 173 Retaining Good Employees with a Good Work Environment 174 Fostering a good work environment 175 Hiring good managers 176 Thinning the herd: When terminations need to be done 176 Ensuring workplace safety 177 Chapter 10: Working with Franchisors and Fellow Franchisees 179 Playing by the Rules 179 Meeting franchise system standards 180 Supporting and watching the system 182 Attempting to change the system 184 Building a Relationship with Your Franchisor 185 Being a team player 186 Getting what you need from the relationship 187 Dealing with Change 191 When the franchise system changes 191 When conflicts occur 192 Reaching Out to Your Fellow Franchisees 194 Joining advisory councils and associations 195 Being number one in a class of one 197 Chapter 11: Attracting and Keeping Customers 199 Creating an Effective Marketing Plan 200 Evaluating National and Local Advertising Strategies 204 The franchise system ad campaign: Collective marketing dollars at work 204 Local marketing options 206 All Hail Customer Service 210 Knowing your customers 210 Showing honesty and integrity 212 Making sure customer experiences are positive (and fixing ones that aren't) 213 Looking beyond your cash register 215 Part 4: Expanding or Cashing Out 217 Chapter 12: Acquiring Other Franchises 219 Assessing the Advantages and Disadvantages of Multi-Unit Operation 220 The advantages 220 The disadvantages 221 Checking Your Franchise Agreement: Can You Buy Another Franchise? 222 Reviewing Your Resources 223 Be honest: Are you really ready? 223 Look at your business and finances 224 Understanding Your Purchase Options 227 Starting from scratch 227 Investing in multiple units 228 Buying a franchise from another franchisee in the system 229 Measuring proximity to yours 230 Retrofranchising: Buying a company-owned location 231 Converting a competitor's location 231 Acquiring an area 232 Chapter 13: When the End Is Nigh 235 Decisions, Decisions 236 Going for Round Two (or Three or Four): The Successor Franchise 238 Paying the successor fee (if there is one) 238 The successor franchise agreement 239 Changes that have sparked controversy 240 Bowing Out at the Right Time 244 Getting personal 244 Examining your world 245 Leaving It to Your Children 246 Selling Out 247 Sprucing up the joint: Getting the most return on your investment 248 Figuring out how much it's worth 250 Playing by the franchisor's rules 251 Selecting a sales method 253 Now That the Party's Over 254 Reflecting on the experience 254 Making the next move 255 Part 5: Building Your Own Franchise 257 Chapter 14: From Small Business Owner to Franchisor 259 Turning Your Small Business into a Bigger Chain 260 Deciding whether your business should be franchised 261 Putting the preliminary legal requirements in context 261 Criteria for Becoming a Franchisor 262 Do you have an operating business? 265 Will consumers need or want your products and services tomorrow? 265 Are you committed to franchising? 266 Do you have enough potential franchisees and do you know who they are? 268 Do you have a system? 270 Can you teach others how to operate your system? 271 Are your products and services any good? 272 Will the economics of the business support a franchise expansion strategy? 273 Beginning Your Franchise Program: Who Should Take the Reins? 275 Doing it yourself: Success or sure failure? 276 Watching out for "franchise packagers," wolves in pros' clothing 277 Finding professional advisors to guide your way 280 Passing Go with Your Franchise Idea 282 Brainstorming a strategic plan 283 Fleshing out your strategies 284 Creating a plan for action 284 Developing the legal documents 285 Chapter 15: Recruiting Franchisees 287 The Essence of the Ideal Franchisee 287 Focusing Your Market Strategy 289 Reeling In Great Franchisees 291 Defining the franchisee profile 291 Doing it yourself or through third-parties 293 Reaching out through the right media 294 Developing the Recruitment Organization 301 Contact management software 303 Finding the right franchise recruiting professional 304 Staffing your recruitment organization 304 Ten Steps to Franchise Recruitment 308 Steps 1-4: The introductory phase 309 Step 5: Discovery Day 311 Step 6: Follow up after Discovery Day 311 Step 7: Follow up again 312 Step 8: Make a decision 312 Step 9: Close the deal 312 Step 10: Complete the process 313 Working the Validation Process 313 The Franchise Sales Presentation 315 Finalizing the Selection Process 318 Chapter 16: Expanding Abroad: International Franchising 319 Taking Your Franchise Abroad: Know What You're Getting Into 320 Investing capital 325 Working with third-party intermediaries 326 Budgeting for capital investment 328 Understanding the necessity of hiring an experienced attorney 331 Considering the implications of language and culture 334 Getting your money out 336 Product sourcing 337 Protecting trademarks, trade secrets, and other valuable brand assets 337 Decisions, Decisions: Whether to Make the Leap 338 If You Decide to Cross the Border 341 Finding the right franchisee 341 Entering a foreign market 342 Negotiating the deal 344 Bringing Foreign Franchises to the United States 346 Chapter 17: A World of Good with Social Franchising 349 BOP: The Base of the Pyramid 352 The Challenges for Social Franchising 355 CFWshops: An Example of a Social Franchise System 356 How CFWshops got started 356 Using the hub-and-spoke and other variations of commercial franchising 358 Who Are the Franchisor and Franchisee in a Social Franchise? 360 Financing and Developmental Benchmarks for Social Franchises 362 Stage one: Developing and proving the concept 362 Stage two: Proving the replicability of the concept 363 Stage three: Developing the franchise system 364 Stage four: Expanding locally and nationally 365 Stage five: Expanding globally 365 Delivering on the Brand Promise 366 Resources for Social Franchising 367 Government funding agencies for global development 367 Private philanthropic foundations 368 Corporate philanthropists 369 Impact investors 370 Part 6: The Part of Tens 373 Chapter 18: Ten Keys to Franchisee Success 375 Make Sure You Have Enough Money 375 Follow the System 376 Don't Neglect Your Loved Ones 376 Be Enthusiastic 377 Recruit the Best Talent and Treat Them with Respect 377 Train Your Employees 378 Give Customers Great Service 378 Get Involved with the Community 378 Stay in Touch with Your Franchisor and Fellow Franchisees 379 Pay Attention to the Details 380 Chapter 19: Ten Questions to Ask before Becoming a Franchisor 381 How Good Is Your Product/Service? 382 Can You Manage the System? 382 Do You Have the Commitment? 383 Can You Systemize Your Business? 383 Can You Train Your Franchisees? 383 Can You Localize if Needed? 384 Do You Have the Necessary Capital? 384 Are Enough Franchisees Out There? 385 Do You Understand Franchising? 386 Are You Willing to Hire Proper Franchise Professionals? 386 Appendix: Glossary of Common Franchising Terms 389 Index 397

About the Author

Michael H. Seid is the founder and Managing Director of MSA Worldwide, the leading strategic and tactical advisory firm in franchising. Joyce Mazero is a partner and Co-Chair of Gardere's Global Supply Network Industry Practice, internationally recognized and trusted legal advisors dedicated to excellence in franchising. Find handy resources including sample forms, checklists, and straightforward advice at www.dummies.com/go/franchisemanagementfd

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