Franchising Contract example essay topic

Contents 1. What is franchising 2. The role of FASA 3. What to investigate about a franchise before making a commitment. 4. The franchise agreement 5.

Advantages of taking part in a franchise 6. Disadvantages of taking part in a franchise 7. My viewpoint on franchising 8. Current franchising statistics 9. Bibliography What is franchising? The word "franchising" means "privilege" or "freedom" and in this sense it offers people the freedom to own, manage and to direct their own business.

In effect it means being in business for yourself but not by yourself. The Role of FASA FASA, the franchising association of South Africa By very definition, business format franchising is a blueprint to business success. For this to happen, however, franchising must be conducted in accordance with a series of well-defined guidelines and this is where the Franchise Association of Southern Africa (FASA) has a very important role to play. Questions to ask about the franchising organization: . Does the Franchisor have a good track record? Does management have industry expertise?

Is the franchisor's financial position strong? Does the franchisor screen its franchisees? Are the franchisor and franchisees profitable? Questions to ask about the product or service.

Is there demand for the product or service? Are industry sales strong? How does the franchisor's products or services compare against competitors' offerings? Is the product or service competitively priced? Is there lots of potential for growth in the industry?

Questions to ask about the market. Are exclusive territories offered? Does the territory you " re considering have sales potential? Is the competition strong in this area. Questions to ask about the contract. Are the fees and royalties reasonable?

Are the renewal, termination and transfer conditions reasonable? Are you happy with the franchisors obligations during the contract period... Are the basis of the financial projections and targets reasonable... There must be a cooling of period before any money is paid. Franchisor Support. Does the franchisor help with site selection, lease negotiation and store layout?

Does the franchisor provide ongoing training? Does the franchisor provide financing? Does the franchisor endorse an advertising fund to which franchisee contribute? Are the franchisor's promotional programmes strong? Does the franchisor have favourable central buying options?

The franchise agreement The franchise agreement, or franchise contract, usually deals with the following areas: 1. Definitions The contract usually begins by defining some common terms that can be found in the document. 2. Period of agreement This part of the agreement states how long it will last and the terms and conditions which need to be met if the franchisee decides he would like to renew the contract.

3. Area which the franchise will cover There is a reference to the geographical area the franchise covers. This prohibits the franchisor from allowing another franchisee from opening in the immediate area. 4. Stock Informs the franchisee that he must always have the amount pf stock stated in the operations manual in his posse tion. 5.

Hours of trade Informs the franchisee of the business hours which should be kept. 6. Premises May stipulates how that the premises layout and d'ecor must be in accordance with the wishes of the franchisor. 7.

Operations Informs the franchisee how the business must be handled according to the operations manual. 8. Equipment Gives details on what equipment is needed and weather it may be bought or rented. 9. Training Ensures that the franchisee will train his staff in accordance with the training conducted by the franchisor.

10. Insurance Indicates what insurance needs to be taken out and the extent of coverage needed 11. Franchisor's right to inspect Ensures that the franchisee understands that the franchisor has a right to inspect the business to ensure that all the terms and conditions are being met. 12. Confidentiality The franchisee must promise not to allow people from outside the business to learn about the secrets of the franchise. 13.

Hygiene Refers to the state in which the premises are to be kept 14. Fees Specifies how the fees owed to the franchisor can be calculated and how they can be paid 15. Books of account Describes the format in which the franchisor needs the books and how often they should be submitted. 16. Franchisor support States the amount of support the franchisee can expect to receive from the franchisor. 17.

Trademark usage Reinforces the fact that logos, trademarks, brand names and anything else that identifies the business are the property of the franchisor. 18. Assignment of rights Notifies the franchisee that they may not give the franchise to anybody else. 19. Death If the franchisee dies their spouse or children may take control of the business if they receive the franchisors consent. 20.

Termination Lists all the circumstances in which the agreement may be terminated 21. Arbitration Informs the franchisee that, in the event of a dispute, arbitration will come into effect. 22. Restraint of trade Restricts the franchisee from having any interests in similar business. 23.

The domi cilium of the parties This is just the addresses to which the mail for the respective parties may be sent 24. Performance The minimum performance the franchisor expects from the franchisee is usually set out. Advantages of franchising Buying a franchise and becoming a franchisor can result in the following advantages... Access to Capital This is somewhat overcome as commercial banks and development corporations recognise the lower risk profile of franchising and consequently prefer financing a franchisee. Financiers know they have a cushion in the franchisor who has tested and fine-tuned the franchised system.

Furthermore, financiers in a bid to assist emerging entrepreneurs are setting up equity participation funds whilst various loan guarantee systems are also in place... Experience of the Franchisor When buying a franchise the years of experience and the proven methods of the franchisor are also bought. This will help to eliminate many of the start-up problems and enables someone with little or no previous experience in a particular industry to become part thereof. Training The franchisor provides both initial and ongoing training to a new franchisee. This helps to prepare the franchisee in all facets of the business. This method of skills transfer takes place at all levels i.e. management training, as well as training employees at all levels.

This is a particular benefit for emerging entrepreneurs who do not have the experience or knowledge of a particular industry that they wish to enter... Ongoing Advice Research and Development. The franchisor is in a position to provide ongoing research and development in the field of new products and services. Buying a franchise means becoming part of a "family" where all members work together for the good of the whole. All franchisees contribute to and share in ideas to the benefit of the franchise. The franchisor provides the franchisee with ongoing assistance throughout their business relationship...

Advertising Contributing to a national fund will make effective and extensive advertising possible which would otherwise not have been affordable. Disadvantages of franchising. One is restricted by the wishes of the franchisor as stipulated in the franchise contract... A management fee must be paid to the franchisor... Other franchisees may ruin the reputation of the franchise... The franchisee may be demotivated if the expected level of business is not reached...

The franchisee may not receive promised support from the franchisor... The franchising contract may hinder the creativity of the franchisee... If the franchisor becomes insolvent, it may cause the collapse of the franchise. My viewpoint on franchising believe that there are both pro and cons when it comes to franchising.

Firstly, I think that franchising may benefit our country by giving our people the opportunity of opening a business in which they have already seen success. This means that potential entrepreneurs will be more will be more willing to invest money into a business which means that we will have more job opportunities. On the other hand the franchisor will make sure that the potential franchisee has a high capital to ensure that the franchises reputation isn't destroyed by poor upkeep. Another point to consider is that a franchisor is not often found to allow his franchisee to become creative in their business, this may cause the business to loose some of its customers because they will get bored of the same service or product. But allowing them to own a franchise is also important in teaching our people new skills.

Also if the too many people are allowed to buy into the franchise there may be to few customers to satisfy the franchisee's needs. In conclusion I would like to say that I believe that franchising is a very important part of the worlds business but, in South Africa, I don't see it playing a important role in the immediate future as South Africans, in general, do not have the funds needed to open their own franchise. They should, I believe, rather concentrate on small business. 1. Everybody's guide to franchising in South Africa (KPMG Charted Accountants) 2. Starting and managing your own business (Frans Bekker and Gavin St aude) 3. web 4. web.