Cabo San Lucas bar started out badly. Then it got worse.

Back in 1993, Lovell, known as

Lil, had founded the Coyote Ugly Saloon, a rowdy, honky-tonk dive in New York City's
East Village. Seven years later her life as a barkeep changed drastically when Coyote
Ugly, a movie set in a Hollywood version of her bar, was released. Seizing on the free
publicity, Lovell ginned up plans to turn Coyote Ugly into an international chain.

She wasn't the only one with the idea, however. Shortly after the movie's release, Jorge
Manterola, the brother of the well-known Mexican singer Patricia Manterola, set up a
website claiming to be the "master franchise" for Coyote Ugly in Latin America.

"Just like you have seen in the movie," the website claimed, "there will be very preety
[sic] and sensual women from all over the world serving drinks, dancing on the bar, and
doing the most funniest and unimaginable things."

Lovell was not amused. The hard-drinking cowgirl brand that she'd spent years building
was being hijacked. "People are taking my hard work, and it's frustrating," says Lovell, a
petite woman who delivers tough talk in a smoky voice. "I put my time in and I paid my
dues, and for people to steal things is weak of character." Her lawyers swung into action
and by August 2001 she'd made a deal: She'd help Manterola open a huge Coyote Ugly in
Cabo as long as he paid license royalties to her.

But Lovell's Baja problems didn't end. She could revoke the license if she wasn't paid,
but she had little control over how the bar was run. It was bad enough for Lovell that
Manterola wasn't paying all of the rent and taxes on a bar closely associated with her
name. What was worse was what she heard from his employees. Manterola hired women
from America to bartend with promises of housing and cabs to work, but they were e-
mailing Lovell, who they'd met in Cabo, with claims that Manterola was neither paying
them nor living up to his other promises (Manterola denies their claims). And Lovell
could do nothing about it.

"I'm not willing to sit back and let someone else control my company."

Lovell's Cabo experience illustrates a dilemma faced by any small-business woman who
wants to turn her first venture into something big. How do you expand and make money
while still controlling your brand? In a short-term view, the answer seems simple:
License willy-nilly, drive hard, and just go--which is exactly what Lovell did. This past
September the ninth Coyote Ugly opened in Boston for Ugly Inc., Lovell's licensing
company, which brought in $1.5 million in 2002 and is expected to make almost triple
that this year. Together, the bars pull in between $22 million and $24 million annually
and employ about 300 people. But after her experience in Cabo and after watching other
licenses stray from the brand she defined, Lovell came to another conclusion: no more.
Except for the 14 licenses she's already sold, she will protect her brand by keeping a
controlling stake in all new Coyote Ugly Saloons. "If I license to too many people, it's
going to lose its foundation. So I'm just going to stop," Lovell says. "I'm not willing to
just sit back and let someone else control my company."
To understand Coyote Ugly, you have to understand a basic equation: Lil Lovell=Coyote
Ugly. It was late 1992 and Lovell, then 24, had spent nearly three years managing the
Village Idiot, a notorious New York City gin mill where owner Tom McNeil raced
customers through pints of Guinness, chewed Pabst cans, and peed behind the jukebox.
There, Lovell developed the style that became Coyote. "I'd get a few drinks in me and I'd
jump on the bar and get the girls on it too," says the Westchester County, N.Y.-raised
Lovell. When the Idiot starting receiving overdue tax notes, Lovell and one of her
regulars, Tony Piccirillo, each gave Lovell's then-boyfriend $10,000 to buy up the stock
of a foundering baseball card shop that would then be sold for a profit. Instead, the
boyfriend leased a shuttered restaurant for $4,200 a month. Lovell and Piccirillo (now her
husband) soon kicked him out and on January 27, 1993, Coyote Ugly was born.

Lovell's genius was to wrap the barfly fantasy in a tough-girl blanket. Her theory: Men
would stay late and spend lavishly if the bartenders were smart enough to sass them and
sexy enough to dance on the bar. "The whole concept is girls keeping patrons in the bar
drinking," says Jacqui Squatriglia, the chain's choreographer and New York bar manager.
"It's not about the prettiest girl. It's somebody with spark." It wasn't an entirely unique
proposition--similar bars, like Hogs & Heifers Saloon in New York City's meatpacking
district, were popping up--but it worked. Lovell and Squatriglia built a Thelma & Louise
version of their lives. "Lil was pouring liquor down her body and off her toe. I was
saying, 'I'll arm-wrestle you for a beer," Squatriglia recalls.

Drinkers flocked to the bourbon-and-beer joint--decorated with Harley-Davidson signs

and castoff bras--to witness the coyotes (as the bartenders call themselves) insult patrons
who ordered "froufrou" drinks, perform fire-breathing tricks, and shimmy atop the bar. It
was a spontaneous, somewhat combative place, and it bred a fierce loyalty in its regulars
and coyotes who fit the ethos.

Then in 1997, GQ published "The Muse of the Coyote Ugly Saloon," a celebratory tale
by onetime coyote Elizabeth Gilbert. Soon Disney bought the rights and über producer
Jerry Bruckheimer came calling. In 2000, audiences shelled out $61 million to see the
PG-13 love story about a New Jersey girl who gains confidence working for a tough-but-
fair woman named Lil at a dive where the bartenders wear hip-huggers, light the counter
on fire, douse patrons who order water, and dance.

knew right away that I had to be aggressive," Lovell says. "You don't get $40 million of
free press [the cost of the movie] and not use it."

How to expand presented a problem. Unlike most chains, Coyote Ugly was not famous
for its decor or signature dishes but for its attitude (the name refers to a man so homely
that a one-night-stand partner would rather chew off an arm to escape his bed--like a
trapped coyote--than wake him). "This is about being a strong woman," Lovell says.
"You're expected to get on the bar and entertain and serve people, do a show and still
make money at the same time." It was a tough hurdle to clear: Half of the first 400 New
York coyotes quit or were fired their first night. Piccirillo recalls a new bartender on duty
one quiet evening. When five Wall Streeters stood to leave, Lovell warned the coyote, "If
they go through that door, you're fired." The bartender ran back, bought the five a round,
and danced on the bar. "They stayed for four hours," says Piccirillo. "You don't have to
accept a bad night."

Gilbert says that her fear of getting on Lovell's bad side meant that on slow nights she
would run out onto the street to round up patrons and, if that didn't work, put $10 or $20
into the till. "You would steal from yourself," she says.

Lovell's Coyote Ugly is more than a tavern version of Chained Heat, however. At the
same time they sass men, the coyotes must make women comfortable enough to come in
and get on the bar. "Women customers mean more men customers mean more money,"
says Lovell. And Lovell has specific ideas about music (southern rock), drinks (beer, yes;
martinis, no), bartender gender (female), and sales tactics. Coyotes mock patrons into
buying shots for them, pour liquor directly into patrons' mouths (a "penalty shot" for
naughtiness), serve shots in their navels (a "body shot")--and charge for every drop.

"It's a powerful experience to have a woman half your size pull on your hair, tilt your
head back, and pour tequila up to your teeth," says Ben Choi, a New York bar patron. It's
lucrative too: "Body shots cost $20. We give the girl $5, and we get $15 for what costs us
50¢," says licensee John Cestare.

After the movie release tourists packed the New York bar demanding a re-creation of the
Hollywood experience. "There was a backlash," says Squatriglia. "The regulars got angry
when the movie first came out, it was so jammed in here. You couldn't blame them." But
there was a financial opportunity in creating bars somewhere between the original 1,500-
square-foot dive and the sanitized Hollywood version. So Lovell decided to create larger,
nicer variations, with dances choreographed to some of the songs in the movie--
ironically, codifying one of the original bar's most spontaneous practices.

Without capital to expand alone, Lovell could either franchise her bar or license the
trademark. While franchising would give Lovell control down to decor and drink sizes--à
la McDonald's--it involved expensive and time-eating legal filings. So she chose
licensing, which let her anoint licensees but did not allow her to dictate operating
procedures. Lovell wasn't worried. "At first, Liliana said, 'I don't want that much control.
If they're coming to me they know what the concept is. They've seen the movie," says
Jeff Wiseman, Ugly Inc.'s general counsel and a onetime Lovell regular at the Village
Idiot.

Lovell chose a standard licensing scheme--licensees pay $50,000 up front, plus 5% of

gross sales and a quarter of merchandise sales. Jennifer Worthington, an associate
producer on the movie, bought the rights for Las Vegas, which opened in October 2001
(in the New York, New York casino, the Vegas bar is the highest earner--$14 million a
year; Atlanta, at $1.5 million, is the lowest). Around the same time, Cestare, a 31-year-
old club promoter, dropped by the Manhattan bar to see if he could cut a deal. He offered
between $2 million and $3 million for U.S. rights (Lovell laughed at him), eventually
settling for four cities--Chicago, Atlanta, Boston, and San Diego. Lovell herself
renovated a bar of her own at a cost of $1.4 million in New Orleans, where she lives with
Piccirillo, a screenwriter, and their four-year-old son.

The lack of franchise regulations made vetting licensees that much more important. After
deciding which cities had the right demographics (more than a million people in the area,
a young population), Lovell had potential licensees sign a nondisclosure agreement and
visit her in New Orleans for a personality check of sorts.

Mike Hudson, a partner in the Dallas bar, describes his visit: "I thought, 'I'm a potential
licensee, I'm a VIP, I'm drinking for free tonight.' But at the end of the night Chantal [a
coyote] said, 'Buy me a shot.' All I had was $5. She snatched it out of my hand and did a
shot and said, 'Thanks, have a nice night.' I said, 'I can't believe you took my cab fare.'
She eventually gave it back."

Once they've inked the contract--which grants exclusivity within a 75-mile radius and
allows Lovell access to bar records--they prepare to open. First, they choose a location
with Lee Killingsworth, Ugly Inc.'s director of business development, who scours heavily
trafficked locations for high-ceilinged spaces between 2,500 and 8,000 square feet. Once
one is picked, Lovell offers decorating advice and a line of merchandise.

Then the brand work starts. "The hardest part about licensing is making sure they don't
stray off course," says Killingsworth, who assembled a 200-page manual of procedures
for everything from hiring coyotes to which celebrity birthdays should be celebrated
(think Kid Rock and the late Johnny Cash).

Then the owners hold tryouts that are judged by Lovell, Squatriglia, and local celebrities.
Hundreds of women audition (normally between 300 and 400, though Vegas had 700).
"I'm constantly surprised at how popular the movie is. Girls cry because they didn't get
the job," Squatriglia says. After they winnow down the aspirants to 25 or so, Lovell's
crew starts training coyotes and licensees.

At the time of the movie Squatriglia turned the bar-top dancing--which had been left up
to the coyotes--into choreographed, copyrighted numbers. For a week the new coyotes
toil on three--Def Leppard's "Pour Some Sugar on Me," the Charlie Daniels Band's "The
Devil Went Down to Georgia," and Tom Jones's "Sex Bomb"--and learn clogging,
bartending, and attitude. "There's a lot of role-playing on what to do, how to harass
somebody," says Joanna Olsen, a partner in Atlanta and three others. "We pretend that
we're dudes and have them say something." According to Olsen, a coyote earns on
average between $300 and $400 on a Friday night.

"Licensees do things I wouldn't. Nobody understands Coyote the way I do."

Soon, though, it became apparent that licensing and Lovell didn't mix. Manterola's was
the first of a number of bars (he eventually closed in summer 2002) that either tried to use
her brand without paying (Ugly Inc. spends several hundreds of thousands a year
stopping unlicensed bars from using the Coyote Ugly name) or, once licensed, ran their
bars in ways that Lovell did not like.

In one instance, Lovell walked into one bar--she won't say which one--and as a test
ordered a froufrou drink. That she was served it angered her. "That's something I'm
totally against," she says. Atlanta and Dallas both toyed with karaoke nights. All Lovell
could do was complain. "Liliana will call up," says Dallas partner Hudson. "With
karaoke, it was, 'I don't like it. I don't do that in mine.' She expresses her disapproval."

Atlanta dropped the practice and while Hudson says that Lovell has accepted his
Wednesday-night gig--featuring American Idol also-ran Nikki McKibbin--the inability to
give orders gnawed on her. "I have a decent relationship with my licensees, and I'd call
them up and usually they'd change what they were doing. But it's frustrating that they
would do things that I wouldn't," Lovell says. "Nobody understands Coyote the way I
do."

Of course, not every licensee is sanguine about Lovell's close supervision. Kevin
Callanan, a partner in the Philadelphia bar who calls Lovell "a super control freak,"
points to his coyote tryouts. According to Callanan, because Ugly Inc. booked a theater
he couldn't fill, he decided to put the celebrity judges onstage and give them
microphones. That way, the media cameras could take in the girls and the judges without
showing the partially empty space. Lovell, he says, was "furious, almost to the point of
walking out," because she wanted the girls to be alone onstage and didn't want the judges
miked in case they were lewd. "She didn't join us in the judging. I haven't spoken with
her since," says Callanan. "When you run a bar for 10 years everybody says yes when
you say yes. But when you're dealing with other successful businesspeople, they question
you. I wonder how that is for her." Lovell disputes Callanan's claim that she refused to
take part in the judging.

In early 2003 Lovell stopped selling licenses (there are eight licensed cities still to open).
From that point on, Ugly Inc. would take outside investments, even majority stakes, but
would maintain managing rights. The first bar to open under this arrangement was
Tampa, with Olsen as a partner. There, Lovell got to install a manager despite the fact
that she only has a 10% stake.

"I'm learning that I'm more of a control freak than I originally thought," Lovell says. "It's
hard for me to completely commit a project to someone else without being involved in
some way."

At some point in her growth, however, Lovell realizes, she will have to trust others to run
parts of the show. She plans to do so by hiring people who fit snugly with the Coyote
ethos. "You'll have general managers and regional managers trained by me," she says.
"It's about me hiring the right people who have the same image of Coyote that I do."

Right now, between 35% and 50% of the patrons are regulars, a key sign that the bars
still feel like local hangouts. Lovell says she's not concerned about central control making
her bars cookie-cutter tourist traps because she's always allowed each bar to reflect its
location--thus, southern rock on the Dallas jukebox and Eminem in Atlanta.

It even appears that Lovell is learning the first lessons in stepping back. In Tampa,
Lovell's inner control freak seems soothed by knowing that she is able to get involved,
without her always doing so. "We only talk about once a month," says Olsen. "She's not
in on every little thing."

Still, don't get Lovell wrong. While she may ease her grip from white-knuckle to firm,
the old equation still holds.

"At the end of the day, this is my company and Coyote Ugly is going to be as strong as I
make it," says Lovell. "When I have 100 I want you to be able to go to London and have
as good a time as when you went to New Orleans or New York."

And that good time you're having? It will be on her terms.

Ian Mount is a freelance writer living in New York City.

2. Licensing Factory New Europe(Posted: 19-10-2009)

By Richard Latter

Croatia. A funny country in which to stage a licensing show you may

think. But look at it on a map and you can see how well it can serve
the region from Slovenia and Hungary to the north, through Serbia to
the immediate east and Romania and Bulgaria even further east. This,
together with the other countries making up New Europe, is a huge
region, encompassing in all some 400 million people. Potentially 400
million consumers? Well, it depends how you spin the figure doesn’t it,
but why not? Certainly there is much business to be done here if both
business and consumers can be educated in the ways of licensing.

Having first been approached by the organisers at Brand Licensing in

October 2007, I was so pleased to see all their hard work come to
fruition in the shape of the Licensing Factory New Europe conference
and exhibition, held in the beautiful coastal resort of Rovinj on the
Adriatic. The conference programme was a full one, well varied and
pretty well attended for a first time event. The keynote speaker on day
one, from the Disney Institute, drew a pre-registered audience of
getting on for 150. We had a fascinating insight into the economy of
the region from one speaker, and reasons why you should never
attempt licensing from another! It was also encouraging to see some
LIMA officials speaking and supporting the event.

Being a conference first and a trade show second meant that the
exhibitors had some down time, but don’t we always at a first event.
However, where we gained was seeing how and when a lot of business
is conducted in this part of the world – socially, out of hours. Every
evening had an event organised, which meant that we all mixed
socially, relaxed and talked to different exhibitors and visitors. This
meant that the following days were full of waves, and first sentences
such as “nice to see you again” and “I didn’t know you worked with
them”. Sure fire ice-breakers all of them. It seemed compulsory to
attend these events, and indeed anyone opting out certainly missed
out on a great deal.

There are some great local properties just waiting to burst out of this
region. Here is an unashamed plug for a few:

Professor Balthazar, an original 60s character, has been updated by

Ultralink to take advantage of the 90% recognition it enjoys in Croatia.
The Balthazar Foundation has been set up to channel profits towards
helping children’s projects, and this business model is getting ready to
be rolled out in other countries.

The Fun Factory Studio / Janus Interactive, headquartered in Serbia, is

pushing a modern animated character in an interactive TV programme.
The kids can pre-register by phone in the hours before airing to
hopefully be selected to take part live on air. A big part of this is that
the money raised by the calls is also put directly towards helping
children.

Lapitch, the Little Shoemaker, is another local animated property that

has already achieved fantastic penetration for it’s creators Croatia
Film. With TV series and a film, it is now set to push further afield and
bring much deserved recognition.

Hisa Idej / Creano presented UMKO, who in their own words is “ready
to be a worldstar”. Who’s to say this won’t happen?

Backed up by fellow exhibitors One2Play and Live, two of the biggest

licensees and distributors of licensed product in the region, we got a
fantastic overview of how big licensing could become out here.
There are undoubtedly problems to be overcome, especially with
regard to licensing into this region. Parallel importing has to be looked
at - we saw an example of 3 different companies importing and
distributing almost exactly the same products – and local licensees are
going to need the crucial support of the licensors and agents. It seems
to be all too easy for the agent to sell a licence into a region that
hasn’t produced before, and leave the licensee to its own devices,
viewing any return as a result. It’s going to take time to build brands
out here, but with events like Licensing Factory New Europe willing to
take the plunge and put the educational wheels in motion, licensing
has a chance to plough a deep furrow into this area.

New Europe is distinctly different from Eastern Europe, and local

knowledge is going to be imperative for those who want to succeed
here. I can’t help feeling that those of us who were willing to support
this new event from the outset have gained a crucial early insight into
the new business opportunities available. The Guide to the Licensing
World is proud once again to be on the front line supporting those
willing to further the frontiers of our industry.

3. Franchise or License?1

By Judith Silver, Esq., Coollawyer.com

Q:What is the fundamental difference between franchising vs. licensing someone to

operate my business in another state? I am trying avoid becoming a
franchise, but I have people interested in using my business and my
business model in other states.

Answer:

The line between franchising and licensing is not always a clear one. However, as you
evidently know, offering a franchise subjects the offering party to FTC and state
regulations, which require disclosure statements to accompany such an offering.

Most state franchise regulations allow that if a franchisor, the party offering the franchise,
has complied with the FTC regulations, then the party has also complied with the state
regulations. Otherwise, the regulations for franchise offerings vary by state.

If you currently have a license agreement where you license your trademark and give or
exert control over the licensee's business model and get paid, generally speaking, you are
probably operating a franchise and are subject to franchise regulations. These regulations
do allow an exemption for a single license within certain parameters. If you state to your
buyers that you are a "franchise," however, you definitely fall under the regulations.

Franchise Regulations

The purpose of the franchise regulations is to be sure that full disclosure of all
information is disclosed to someone purchasing a franchise. FTC Franchise Regulations
require disclosure of a great deal of information regarding the advertising, offering,
licensing, contracting, sale or other promotion of a franchise. These disclosures include:

• The name of the franchisor

• Any fictitious names of the franchisor
• The trademarks of the franchisor
• The last five years of business experience of the franchisor's directors and officers
• Whether the franchisor's directors or officers have been convicted of or plead nolo
contendere to any felony involving fraud during the past seven years
• Whether the franchisor's directors or officers have been a party to, settled or
convicted of a civil action involving fraud during the past seven years
• Whether the franchisor's directors or officers have during the past seven years
filed for bankruptcy, been adjudged bankrupt, been reorganized due to being
insolvent and so on
• All terms of the franchise agreement, including how to terminate, modify and sell
it
• Information on site selection, training programs, financial statements, other
franchisees and so on

The disclosure statements for a franchise and their legal agreements are lengthy. You
always want to have an experienced franchise attorney help when you write the franchise
disclosure statements and your franchise agreement. These documents are analogous to
SEC disclosure statements in complexity and magnitude. The analogy makes sense, since
the franchisee is, in a sense, investing in the franchise.

"Avoiding" Becoming a Franchise

There is no clear direction about how to avoid becoming what is defined as a "franchise."
Above, we've mentioned some of the regulations involved. The best approach would be
to work out your business goals, what you can live with and without, your financial goals
and so on and compare that to the definition of a franchise. Then discuss your business
goals with your franchise attorney, making sure to consider the best way to accomplish
what you have in mind while still being in compliance with the law.

Alternatively, consider expanding your own business instead of selling your model to
others. If your company owns and runs all the retail stores with its employees and offices
nationwide, it's probably not a franchise--it's just one company doing business in many
states. By rearranging your goals and seeking investors instead of franchisees, you might
find another approach that makes sense.
All answers are general in nature, not legal advice and not warranted or
guaranteed. Readers are cautioned not to rely on this information. Because laws
change over time and in different jurisdictions, it is imperative that you consult an
attorney in your area regarding legal matters and an accountant regarding tax
matters.

4. Franchising
From Wikipedia, the free encyclopedia
Jump to: navigation, search

A typical McDonald's franchise.

Franchising is the practice of using another firm's successful business model. The word
'franchise' is of anglo-french derivation - from franc- meaning free, and is used both as a
noun and as a (transitive) verb.[1]

Look up franchise in Wiktionary, the free dictionary.

For the franchisor, the franchise is an alternative to building 'chain stores' to distribute
goods and avoid investment and liability over a chain. The franchisor's success is the
success of the franchisees. The franchisee is said to have a greater incentive than a direct
employee because he or she has a direct stake in the business.

However, except in the US, and now in China (2007) where there are explicit Federal
(and in the US, State) laws covering franchise, most of the world recognizes 'franchise'
but rarely makes legal provisions for it. Only Australia, France and Brazil have
significant Disclosure laws but Brazil regulates franchises more closely.

Where there is no specific law, franchise is considered a distribution system, whose laws
apply, with the trademark (of the franchise system) covered by specific covenants.
Contents
[hide]

• 1 Overview
• 2 Obligations of the Parties
o 2.1 Regulations
o 2.2 The U.S.
o 2.3 Europe
 2.3.1 France
 2.3.2 Spain
 2.3.3 Italy
o 2.4 China
o 2.5 Australia
o 2.6 Russia
o 2.7 UK
o 2.8 Brazil
o 2.9 India
o 2.10 Kazakhstan
• 3 Social franchises
• 4 Event franchising
• 5 See also
• 6 References

• 7 External links

[edit] Overview

Businesses for which franchising works best have the following characteristics:

• Businesses with a good track record of profitability.

• Businesses which are easily duplicated.

As practiced in retailing, franchising offers franchisees the advantage of starting up

quickly based on a proven trademark, and the tooling and infrastructure as opposed to
developing them.

Although there are franchises around products – Chanel and other cosmetics, to name the
prominent – by and large, the franchises revolve around service firms. At the sub-$80,000
level, they are, by far, the largest number of franchises.[2] These allow a business,
combined with family time and a location not far from home. Some franchises are
available for a few thousand dollars.

The following US-listing tabulates[3] the early 2010 ranking of major franchises along
with the number of sub-franchisees (or partners) from data available for 2004.[4] It will
also be seen from the names of the franchise that the US is a leader in franchising
innovations, a position it has held since the 1930s when it took the major form of fast-
food restaurants, food inns and, slightly later, the motels during the first depression.
Franchising is a business model used in more than 70 industries that generates more than
$1 trillion in U.S. sales annually (2001 study).[citation needed] Franchised businesses operated
767,483 establishments in the United States in 2001, counting both establishments owned
by franchisees and those owned by franchisors:[5]

1. Subway (Sandwiches and Salads | Startup costs $84,300 – $258,300 (22000

partners worldwide in 2004).
2. McDonald's | Startup costs in 2010, $995,900 – $1,842,700 (30,300 partners in
2004)
3. 7-Eleven Inc. (Convenience Stores) |Startup Costs $40,500- 775,300 in 2010,
(28,200 partners in 2004)
4. Hampton Inns & Suites (Midprice Hotels) |Startup costs $3,716,000 –
$13,148,800 in 2010
5. Supercuts (Hair Salons) | Startup Costs $111,000 - $239,700 in 2010
6. H&R Block (Tax Preparation and e-Filing)| Startup Costs $26,427 - $84,094
(11,200 partners in 2004)
7. Dunkin Donuts | Startup Costs $537,750 - $1,765,300 in 2010
8. Jani-King (Commercial Cleaning | Startup Costs $11,400 - $35,050, (11,000
partners worldwide in 2004)
9. Servo-Pro (Insurance and Disaster Restoration and Cleaning) | Startup Costs
$102,250 - $161,150 in 2010
10. MiniMarkets (Convenience Store and Gas Station) | Startup Costs $1,835,823
- $7,615,065 in 2010

The midi-franchises like restaurants, gasoline stations, trucking stations which involve
substantial investment and require all the attention of a business.

There are also the large franchises - hotels, spas, hospitals, etc. - which are discussed
further in Technological Alliances.

Two important payments are made to a franchisor: (a) a royalty for the trade-mark and
(b) reimbursement for the training and advisory services given to the franchisee. These
two fees may be combined in a single 'management' fee. A fee for "Disclosure" is
separate and is always a "front-end fee".

A franchise usually lasts for a fixed time period (broken down into shorter periods, which
each require renewal), and serves a specific "territory" or area surrounding its location.
One franchisee may manage several such locations. Agreements typically last from five
to thirty years, with premature cancellations or terminations of most contracts bearing
serious consequences for franchisees. A franchise is merely a temporary business
investment, involving renting or leasing an opportunity, not buying a business for the
purpose of ownership. It is classified as a wasting asset due to the finite term of the
license.
A franchise can be exclusive, non-exclusive or 'sole and exclusive'.

This section requires expansion.

Although franchisor revenues and profit may be listed in a franchise disclosure

document, no laws require the estimate of franchisee profitability, which depends on how
intensively the franchisee 'works' the franchise. Therefore, franchisor fees are always
based on 'gross revenue from sales' and not on profits realized. See Remuneration.

Various tangibles and intangibles such as national or international advertising, training,

and other support services are commonly made available by the franchisor.

Franchise brokers help franchisors find appropriate franchisees. There are also main
'master franchisors' who obtain the rights to sub-franchise in a territory.

According to the International Franchise Association approximately 4% of all businesses

in the United States are franchisee-worked.

It should be recognized[citation needed] that franchising is one of the only means available to
access venture investment capital without the need to give up control of the operation of
the chain and build a distribution system for their services. After the brand and formula
are carefully designed,and properly executed, franchisors are able to sell franchises and
expand rapidly across countries and continents using the capital and resources of their
'franchisees' while reducing risk.

Franchisor rules imposed by the franchising authority are usually very strict and
important in the US and most countries need to study them to help the small or start-up
franchisee in their countries to protect them.[citation needed] Besides the trademark, there are
proprietary service marks which may be copyright - and corresponding regulations.

[edit] Obligations of the Parties

Each party to a franchise has several interests to protect. The franchisor is most involved
in securing protection for his trademark, controlling the business concept and securing
his know-how. This requires the franchisee to carry out the services for which the
trademark has been made prominent or famous. There is a great deal of standardization
proposed. The place of service have to carry the franchisor's signs, logos and trademark
in a prominent place. The uniforms worn by the staff of the franchisee have to be of a
particular shade and colour. The service has to be in accordance to the pattern followed
by the franchisor in his successful operations. Thus, for the franchisee he is not in full
control of the business as he would be in retailing.

But there are fault-lines here! A service can be successful by buying equipment and
supplies from the franchisor or those recommended by the franchisor if they are not over-
priced. A coffee brew, for example, can be readily identified by the trademark when its
raw materials come from a particular supplier. If the franchisor requires purchase from
his stores, it may come under Anti-trust legislation or equivalent laws of other countries.
So too the purchase of uniforms of personnel, signs, etc. But it also applies to sites of
franchise if they are owned or controlled by the franchisor.

The franchisee must carefully negotiate the license. They, along with the franchisor must
develop a marketing plan or business plan. The fees must be fully disclosed and there
should not be any hidden fees. The start-up and costs and working capital must be known
before taking the license. There must be assurance that additional licensees not crowd the
"territory" if the franchise is worked to plan. The franchisee must be seen as an
independent merchant. He must be protected by the franchisor from any trademark
infringement by third-parties. A franchise attorney is required to assist the franchisee
during negotiations.[6].

Most often the training period - the costs of which are in great part covered by the initial
fee - is too short to operate complicated equipment and the franchisee has to learn on his
own from Manuals. The training period must be adequate but in low-cost franchises it
would be considered expensive. Many frachisors have set up corporate universities to
train staff online. This is in addition to literature and sales documents and reach by email.

Also, franchise agreements carry no guarantees or warranties and the franchisee has little
or no recourse to legal intervention in the event of a dispute [7]. Franchise contracts tend
to be unilateral contracts in favor of the franchisor; they are generally protected from
lawsuits from their franchisee because of the non-negotiable contracts that require
franchisees to acknowledge, in effect, that they are buying the franchise knowing that
there is risk, and that they have not been promised success or profits by the franchisor.
Contracts are renewable at his sole option. Most franchisors make franchisees sign
agreements waiving their rights under federal and state law, and in some cases allowing
the franchisor to choose where and under what law any dispute would be litigated

[edit] Regulations

[edit] The U.S.

Isaac Singer, in the 1850s, who made improvements to an existing model of a sewing
machine, was among the first franchising efforts in the United States, followed later by
Coca-Cola, Western Union, etc.[8] and agreements between automobile manufacturers and
dealers.[9]

Modern franchising came to prominence with the rise of franchise-based food service
establishments. In 1932, Howard Deering Johnson established the first modern restaurant
franchise based on his successful Quincy, Massachusetts Howard Johnson's restaurant
founded in the late 1920s.[10][11] The idea was to let independent operators use the same
name, food, supplies, logo and even building design in exchange for a fee.
The growth in franchises picked up steam in the 1930s when such chains as Howard
Johnson's started franchising motels.[12] The 1950s saw a boom of franchise chains in
conjunction with the development of the U.S. Interstate Highway System.

In the U.S. the FTC requires that the franchisee be furnished with a Disclosure
Agreement by the Franchisor, at least ten days before money changes hands. The final
agreement is always a negotiated document setting forth the fees and other terms.
Whereas elements of the disclosure may be available from third parties only that
provided by the franshisor can depended upon. The U.S. Disclosure Document (FDD) is
very lengthy (300-700 pp +)and detailed (see UFOC for elements of disclosure), and
provides audited financial statements of the franchisor in a particular format. It will
include data on the names, addresses and telephone numbers of the franchisees in the
licensed territory (who may be contacted and consulted before negotiations), estimate of
total franchise revenues and franchisor profitability. The States may require the FDD to
contain specific requirements but the requirements in the State disclosure documents
must be in compliance with the Federal Rule that governs federal regulatory policy.
There is no private right of action of action under the FTC Rule for franchisor violation
of the rule but fifteen or more of the States have passed statutes that provide this right of
action to franchisees when fraud can be proved under these special statutes. The majority
of franchisors have inserted mandatory arbitration clauses into their agreements with their
franchisees, in some of which the U.S. Supreme Court has dealt with.

There is no federal registry of franchises or any federal filing requirements for

information. States are the primary collectors of data on franchising companies, and
enforce laws and regulations regarding their presence and their spread in their
jurisdictions.

Where the franchisor has many partners, the agreement may take the shape of a business
format franchise - an agreement that is identical for all franchisees.

[edit] Europe

Franchising has grown rapidly in Europe in recent years, but the industry is still largely
unregulated. Unlike the United States, the European Union has yet to adopt a uniform
franchise disclosure policy. Only five countries in Europe have adopted pre-sale
disclosure obligations. They are France (1989), Spain (1996), Italy (2004), Belgium
(2005) and Romania (1997).[13]

The Code of Ethics of the European Franchising Federation is self-enforced in seventeen

European states where their national franchise associations are members of EFF
members, and UNIDROIT.

All formal disclosure countries are require to give ‘’Contract Summaries’’ to be

furnished, highlighting:

• the object of the contract

 • the rights and obligations of the parties
• the financial conditions
• the term of the contract

Legal consultation is a must to enter and finalize the agreement(s) as it in all regions.
Most often one of the principal tasks in Europe is to find retail space, not so significant a
factor in the US. This is where the franchise broker, or the master franchisor, plays a
significant role. Cultural factors are also significant as the populations tend to be
homogeneous.

[edit] France

France is one of Europe’s largest market. Similar to the United States, it has a long
history of franchising, dating back to 1930s. Growth came in the 70s. The market is
considered tough for outside franchisors because of its cultural angularities; yet,
McDonald’s and Century 21 are to found everywhere. There are some 30 US Firms
involved in franchising.[14].

There are no government agencies regulating franchises. The Loi Doubin of 1989 was the
first European Franchise Disclosure law. Combined with and Decree No. 91-337 they
regulate disclosure although it applies to any person who provides to another person a
corporate name, trademark or trade name other business arrangements. The law applies to
‘’exclusive or quasi-exclusive territory’’.

In brief, the disclosure document must be delivered at least 20 days before the execution
of the agreement or any payments are made.

The specific and important disclosures to be made are [15]

a) the date of the founding of the franchisor's enterprise and a summary of its
business history and all information necessary to assess the business experience of
the franchisor including bankers
b) a description of the local market for the goods or services
c) franchisor's financial statements for the previous two years,
d) a list of all other franchisees currently in the network
e) all franchisees who have left the network during the preceding year, whether by
termination or non-renewal, and
f) the conditions for renewal, assignment,termination and the scope of exclusivity.

Initially, there was some uncertainty whether any breach of the provisions of the Doubin
law would enable the Franchisee to walk away from the contract. However, the Supreme
Court (Cour de cassation) eventually ruled that agreements should only be annulled
where the missing or incorrect information affected the decision of the franchisee to enter
into the Agreement. The burden of proof is on the franchisee. [16]
Dispute Settlement features are only incorporated in some European countries. By not
being rigorous, franchising is encouraged.

[edit] Spain

Like in France, the franchisor submits a Disclosure Agreement 20 days prior to

Agreement which contains the rights that have to be conferred and essential terms.

The Spanish Retail Trading Act regulates franchising. A franchise is characterized by a

right to:

1) utilize a "tested business model":

2) the use of franchisor's trademark or other business identifier,
3) the transfer of "know-how" , and
4) continued commercial or technical assistance by the franchisor [15]

[edit] Italy

Under the Italian law franchise [17] is defined as an arrangement between two financially
independent parties where a franchisee is granted, in exchange for consideration, the right
to market goods and services under trademarks. In addition, articles which dictate the
form and content of the franchise agreement and define the documents that must be made
available 30 days prior to execution. The franchisor must disclose :,

a) a summary of the franchise activities and operations,

b) a list of franchisees currently operating in the franchise system in Italy,
c) year-by-year details of the changes in the number of franchisees for the
previous three years in Italy,
d) a summary of any court or arbitral proceedings in Italy related to the franchise
system, and
e) if requested by the franchisee, copies of franchisor's balance sheets for the
previous three years, or, since start-up if period is shorter.

[edit] China

China has the most franchises in the world but the scale of their operations is relatively
small. Each system in China has an average of 43 outlets, compared to more than 540 in
the United States. Together, there are 2600 brands in some 200,000 retail markets. KFC
was the most significant foreign entry in 1987 and is widespread [18] Many franchises are
in fact joint-ventures, as at their forming the franchise law was not explicit. For example,
McDonalds is a joint venture. Pizza Hut,TGIF,Wal-mart,Starbucks followed a little later.
But total franchising is only 3% of retail trade which is hungry for foreign franchise
growth.

The year 2005 saw the birth of an updated franchise law [18], "Measures for the
Administration of Commercial Franchise"[19]. Previous legislation (1997) made no
specific inclusion of foreign investors. Today the Franchise Law is much clearer by virtue
of the 2007 law [20], a revision of the 2005 Law.

The laws are applicable if there are transactions involving a trademark combined with
payments with many obligations on the franchiser. The Law comprises 42 Articles and 8
chapters.

Among the franchisor obligations are:

• the FIE (foreign-invested enterprise) franchisor must obtain

registration by the regulator
• The franchisor (or its subsidiary) must have operated at least
operated two company-owned franchises in China (revised to
anywhere)for more than 12 months ("the two-store, one-year” rule)
• the franchisor must disclosure any information requested by the
franchisee
• cross-border franchising, with some caveats, is possible (2007
law).

The franchisor must meet a list of requirements for registration, among which are:

• the standard franchise agreement, working Manual and working

capital requirements,
• track-record of operations, and ample ability to supply materials,
and
• the ability to train the Chinese personnel and provide them
• long-term operational guidance.
• the franchise agreement must have a minimum three-year term

Among other provisions is:

• the franchisor will be liable for certain actions of its suppliers

• monetary and other penalties apply for infractions of the
regulations.

The Disclosure has to take place 20 days in advance. It has to contain:

• Details of the franchisor’s experience in the franchised business

with scope of business
• identification of the franchisor’s principal officers
• litigation of the franchisor during the past five years
• full details about all franchise fees
• the amount of a franchisee’s initial investment
• a list of the goods or services the franchisor can supply, and the
terms of supply
• the training franchisees will receive
 • information about the trademarks,including registration, usage, and
litigation
• demonstration of the franchisor’s capabilities to provide training
and guidance
• statistics about existing units, including number, locations, and
operational results, and the percentage of franchises that have been
terminated; and
• an audited financial report and tax information (for an unspecified
period of time)

Other elements of this legislation are:

• the franchisee’s confidentiality obligations continue indefinitely

after termination or expiration of the franchise agreement
• if the franchisee has paid a deposit to the franchisor, it must be
refunded on termination of the franchise agreement; and, upon
termination, the franchisee is prohibited from continuing to use the
franchisor’s marks.

[edit] Australia

In Australia, franchising is regulated by the "Franchising Code of Conduct", a mandatory

code of conduct made under the Trade Practices Act 1974.

The Code requires franchisors to produce a disclosure document which must be given to
a prospective franchisee at least 14 days before the franchise agreement is entered into.

The Code also regulates the content of franchise agreements, for example in relation to
marketing funds, a cooling-off period, termination and the resolution of disputes by
mediation.

The federal government is currently considering recommended changes to the Code of

Conduct contained in the report, "Opportunity not Opportunism: Improving conduct in
Australian Franchising" tabled by a Parliamentary inquiry into franchising on 4
December 2008.[21]

Some experts have warned that any push to increase regulation of the franchising sector,
could make it a less attractive means of doing business.[22]

[edit] Russia

In Russia, under chapter 54 of the Civil Code (passed 1996), franchise agreements are
invalid unless written and registered, and franchisors cannot set standards or limits on the
prices of the franchisee’s goods. Enforcement of laws and resolution of contractual
disputes is a problem: Dunkin' Donuts chose to terminate its contract with Russian
franchisees that were selling vodka and meat patties contrary to their contracts, rather
than pursue legal remedies.[23]

[edit] UK

In the United Kingdom, there are no franchise-specific laws; franchises are subject to the
same laws that govern other businesses. For example, franchise agreements are produced
under regular contract law and do not have to conform to any further legislation or
guidelines.[24] There is some self-regulation through the British Franchise Association
(BFA).

However there are many franchise businesses which do not become members, and many
businesses that refer to themselves as franchisors that do not conform to these rules.[citation
needed]
There are several people and organisations in the industry calling for the creation of
a framework to help reduce the number of "cowboy" franchises and help the industry
clean up its image.[who?]

On 22 May 2007, hearings were held in the UK Parliament concerning citizen initiated
petitions for special regulation of franchising by the government of the UK due to losses
of citizens who had invested in franchises. The Minister of Industry, Margaret Hodge,
conducted hearings but resisted any government regulation of franchising with the advice
that government regulation of franchising might lull the public into a false sense of
security. The Minister of Industry indicated that if due diligence were performed by the
investors and the banks, the current laws governing business contracts in the UK offered
sufficient protection for the public and the banks.[25]

[edit] Brazil

In 2008, there were about 1,013 franchises [26] with more than 62,500 outlets, making it
one of the largest countries in the world in terms of number of units. Around 11 percent
of this total are foreign-based franchisors.

The Brazilian Franchise Law (Law No. 8955 of December 15, 1994) defines the
franchise as a system in which the franchisor licenses the franchisee, for a payment, the
right to use a trademark/ patent along with the right to distribute products or services on
an exclusive or semi-exclusive basis. The "Franchise Offer Circular" or disclosure
document is mandatory before execution of agreement and is valid for all of Brazilian
territory. Failure to disclose voids the agreement with refunds and serious damages.The
Franchise Law does not distinguish between Brazilian and foreign franchisors. The
National Institute of Industrial Property (INPI) is the registering authority. Indispensable
documents are the Statement of Delivery (of disclosure documentation) and Certification
of Recording (INPI). The latter is necessary for payments. All sums amounts may not be
convertible into foreign currency. Certification may also mean compliance with Brazil's
antitrust legislation.
Parties to international franchising may decide to adopt the English language for the
document, as long as the Brazilian party knows English fluently and expressly
acknowledges that fact, to avoid translation (but it follows). The Registration
accomplishes three things:

*It make the agreement effective against third parties

* Permits the remittance of payments
* Qualifies the franchisee for tax deductions

Page reference in franchising in this country: Guide of Franchising - Guia do Franchising

(http://www.guiadofranchising.com.br)

[edit] India

Franchising of goods and services, foreign to India, is in its infancy. The first
International Exhibition was only held in 2009.[27]. India is, however, one of the biggest
franchising markets because of its large middle-class of 300 million who are not reticent
on spending and because the population is entrepreneurial in character. In a highly
diversified society, (see Demographics of India) McDonalds is a success story despite its
fare differing from the rest of the world.[28]

Thus far, a franchise agreement is a contract between the franchisor and the franchisee
governed by the Contract Act 1872 and the Specific Relief Act, 1963 which provides for
both specific enforcement of covenants in a contract and remedies in the form of damages
for breach of contract.

[edit] Kazakhstan

In Kazakhstan franchise turnover for 2010 is 1 billion US$ dollars per year. Kazakhstan
is the leader in Central Asia in franchising market. There is a special law on the
franchising of 2002, there are about 300 franchise systems and franchises near the 2000
outlets [29] Kazakhstan franchise begins with the emergence of a factory "Coca-Cola",
open to sublicense Turkish licensor same brand. The plant was built in 1994. Also in
presented through franchise system country presented Pepsi, Hilton, Marriott,
Intercontinental, Pizza Hut etc.

[edit] Social franchises

In recent years, the idea of franchising has been picked up by the social enterprise sector,
which hopes to simplify and expedite the process of setting up new businesses. A number
of business ideas, such as soap making, wholefood retailing, aquarium maintenance, and
hotel operation, have been identified as suitable for adoption by social firms employing
disabled and disadvantaged people.
The most successful example is probably the CAP Markets, a steadily growing chain of
some 50 neighborhood supermarkets in Germany. Other examples are the St. Mary's
Place Hotel in Edinburgh and the Hotel Tritone in Trieste.

Social franchising also refers to a technique used by governments and aid donors to
provide essential clinical health services in the developing world.

[edit] Event franchising

Event franchising is the duplication of public events in other geographical areas, while
retaining the original brand (logo), mission, concept and format of the event.[30] As in
classic franchising, event franchising is built on precisely copying successful events.
Good example of event franchising is the World Economic Forum, or just Davos forum
which has regional event franchisees in China, Latin America etc. Likewise, the alter-
globalist World Social Forum has launched many national events. When The Music
Stops is an example of an events franchise in the UK, in this case, running speed dating
and singles events.

[edit] See also

• Franchise consulting
• List of franchises

[edit] References

1. ^ "franchise" Online Etymology Dictionary

2. ^ http://www.franchising.com
3. ^ http://www.entrepreneur.com/franchise500/index.html
4. ^ Patterns of Internationalization for Developing Country Enterprises (Alliances
and Joint Ventures) United Nations Industrial Development Organization,
Vienna, 2008, ISBN 978-92-1-106443-8, pp 65
5. ^ "Econ Study" franchise.org
6. ^ Manual on Technology Transfer Negotiation (A reference for policy-makers
and practitioners on Technology Transfer), 1996, United Nations Industrial
Development Organization, Vienna, 1990, ISBN 92-1-106302-7
7. ^ http://www.nolo.com/legal-encyclopedia/article-29512.html nolo.com
8. ^ Franchising"
9. ^ http://findarticles.com/p/articles/mi_m0FJN/is_n8_v30/ai_18728418
10. ^ Allen, kolin chakma.Foodservice’s theory of evolution: Survival of the fittest
(1998). Nation’s Restaurant News 32(4), pp.14-17
11. ^ Howard, T. (1996). Howard Johnson: Initiator of franchised restaurants.
Nation’s Restaurant News, 30(2), pages 85-86.
12. ^ Brief History (Franchise)
13. ^ http://www.peralaw.com/EU_Franchise_Disclosure.html
14. ^ http://www.franchise.org/franchise-news-detail.aspx?id=33190 franchise.org
15. ^ a b EU Franchise Disclosure peralaw.com
 16. ^ Franchise disclosure in Europe ffw.com
17. ^
http://www.eurofranchiselawyers.com/pdf/Comparative_Table_08_06_09%20pri
ntable.pdf EuroFranchiseLawyers.com
18. ^ a b "Franchising in China" franchise.org
19. ^ "China franchise regulations"
20. ^ http://www.franchise-update.com/article.php?id=316
21. ^ "Opportunity not Opportunism: Improving conduct in Australian Franchising"
22. ^ "Over regulation would harm franchising sector inquiry warned"
dlaphillipsfox.com
23. ^ Anttonen, Noora, Mika Tuunanen, Ilan Alon (2005), “The International
Business Environments of Franchising in Russia,” Academy of Marketing
Science Review, (5), 1-18.
24. ^ Franchise agreements subject to European Code of ethics {blog)
25. ^ "Franchise Industry". Daily Hansard: Column Pyramid Schemes were outlawed
in the UK by The Trading Schemes Act 1996. However, the legislation was so
worded that legitimate Franchise Schemes were caught by the legislation and
following lobbying by the British Franchise Association a memo was issued to the
British Franchise Association by the Department of Trade and Industry on the 19
July 1997 which amended the wording of the legislation. The law on statute is
now impossible to follow without reference to the memo. 363WH. 22 May 2007.
http://www.publications.parliament.uk/pa/cm200607/cmhansrd/cm070522/halltex
t/70522h0001.htm.
26. ^ http://www.allbusiness.com/legal/international-law/8887771-1.html
27. ^ "Franchise laws in India"
28. ^ Patterns of Internationalization for Developing Country Enterprises (Alliances
and Joint Ventures) United Nations Industrial Development Organization,
Vienna, 2008, ISBN 978-92-1-106443-8,
29. ^ B.Kissikov "Franchising in Kazakhstan", Central-Asian Association of
Franchising and Licensing-Association/Franchise-laws-in-India-n863929
30. ^ Kissikov Beknur. Franchising.

[edit] External links

• International Franchise Association

• American Association of Franchisees and Dealers
• Franchise Brokers Association
• Canadian Franchise Association
• Franchising Association of India
• The British Franchise Association
• The Australian Franchise Association
• The Central-Asian Franchise Association
• The Franchise Association of Southern Africa
• The Franchise Association (Ukraine)
• Asia-Pacific Centre for Franchising Excellence, Griffith University, Nathan,
Queensland, (Australia)
 • International Association of Franchisees and Dealers

5. About the origin of 'Franchise'

The origin of Franchise does seem to be old French. This page

http://www.etymonline.com/index.php?search=franchise&searchmode=none gives the
following etymology: "c.1290, from O.Fr. franchise "freedom," from variant stem of
franc "free" (see frank). Sense narrowed 18c. to "particular legal privilege," then "right to
vote" (1790). Meaning "authorization by a company to sell its products or services" is
from 1959". Another page http://www.franinfo.com/history.html provides a longer
history of the evolution of the concept. There too, it mentions the original meaning to be
'privilege or freedom'. Priyatu 07:38, 23 January 2006 (UTC)

That's pretty much it, though franc still exists with the same meaning in Modern
French, notably in the term franc-maçon, 'freemason'. -- Blisco 09:07, 8 June
2006 (UTC)

I removed the following from the entry: "from the [[French language|French]] ''franchir'':
'''vt''' to clear an obstacle or difficulty)<ref>"Harrap's shorter French and English
dictionary" ISBN 0-245-55046-1</ref>". The origin of the word is very clearly
"franchise" in the sense of freedom and this is not reflected in the paragraph I removed.
Rdavout (talk) 03:17, 17 June 2008 (UTC)

I've yet to see any strong reference from a WP:RS for the etymology that could
distinguish which stem-word's meaning was behind the application of the word to
the modern commercial concept. Certainly there are lots of unreliable websites
with a POV to push, usually ones (like the franinfo above) trying to sell franchises
or consulting services. Not good enough.LeadSongDog (talk) 13:36, 20 June 2008
(UTC)

6. Franchises can be small businesses, too!

As an employee of a family-owned and -operated franchise, I disagree with people

denigrating franchised businesses on the grounds that it's putting "independent" and/or
"locally-owned" establishments out of business. Our franchised business puts more
money directly into our community than any so-called independently-owned local
competitor. (My establishment works in the tourism industry, so we're actually capturing
several million dollars of revenue from out-of-town tourists and funneling it directly into
the local market with the exception of our 3% franchise fee and the goods we must
purchase from out of state.) In fact, most of our direct, franchised competitors are owned
by local businessmen. Only one of our competitors is corporately owned, and none of the
franchises is owned by out-of-town corporations.

Same goes for several other franchises in our town, like restaurants. I think McDonald's
has three separate franchise agreements in town (with 15 restaurants), and all three are
owned by local families. Our Taco Bell franchisee is a local businessman, and so is
Subway. Chili's (with the exception of the one in the airport terminal) is locally owned, as
are the three new Carl's Jrs. These local franchise owners contribute hundreds of
thousands of dollars to our local economy and provide large gifts to local non-profit
organizations. Yes, the cost of the supplies and franchise fees goes out of state (such as
the Taco Bell condiments, which I know are trucked in from out of state), but the profits
and employee's wages stay right here in town.

So, perhaps in other areas, franchises are owned by conglomerate corporations that funnel
money to well-to-dos in high rises on the opposite coast, but franchises can just as easily
be locally-owned, huge supporters of the community.

This article doesn't denigrate franchising but tells the truth. Franchising of retail
businesses to the extent we see today is a somewhat new business model that does
provide cheap labor and cheap venture capital for franchisors, who can maximize their
profits because they avoid the expense and risk of building and managing the physical
units that bear their brand names. The franchisor minimizes his risk and maximizes his
profits because he takes his profits off of the gross sales of the franchisee whether or not
the franchisee is operating in the red or in the black, and whether or not there are ever any
profits over and beyond overhead for the franchisee.

It is true that the local owners of franchisees DO contribute to the local economies but the
point is that retail franchisors, under current Regulation and Rule, do not have to provide
historical UNIT FINANCIAL PERFORMANCE statistics to new buyers of their
franchises and they don't. Therefore, franchisors CAN sell new franchises without
disclosing the risk factors of unit profitability and success/failure to new buyers. If the
concept is going down hill or if the saturation of the concept is great, or if the profitability
on a unit basis is low, the franchisor can still remain viable as long as he can sell new
franchises out the front door and abet the fire sale of discounted failed or failing units out
of the back door. This process is called "Churning" and is abetted by ineffective
government regulation of the franchisor. The result is that many prospective franchisees
unknowingly buy very high risk and low profitability franchises and build new units for
the franchisor. When the franchisee fails to thrive within the estimated startup costs and,
when the franchisee loses the entire investment and has to give their franchised business
away or close it down, or declare bankruptcy, whatever, they have no recourse in the
Courts against the franchisor because he has made sure that he didn't promise them
anything to begin with in writing within the franchise agreement and, apparently, under
law, the franchisor doesn't have to disclose the risk, as known to him, to the new
franchisee. Really "dirty pool" and very hard on Mom and Pop franchisees who lose their
shirts. CJKC 1 May 2009 —Preceding unsigned comment added by 69.76.198.50 (talk) 17:48, 1 July
2009 (UTC)

I was going to recommend rewording this in this article, but when I reread the article to
suggest a rewording, I realized I misread it the first time. Still, there's a slight sound of
anti-franchise bias in this statement: "Many retail sectors, particularly in the United
States, are now dominated by franchising to the point where independently-run
operations are the exception rather than the rule." So, ignore everything I just said...? :-)

7. franchising
Hide links within definitionsShow links within definitions

Definition

Arrangement where one party (the franchiser) grants another party (the franchisee) the right to use its
trademark or trade-name as well as certain business systems and processes, to produce and market a
good or service according to certain specifications. The franchisee usually pays a one-time franchise
fee plus a percentage of sales revenue as royalty, and gains (1) immediate name recognition, (2) tried
and tested products, (3) standard building design and décor, (4) detailed techniques in running and
promoting the business, (5) training of employees, and (6) ongoing help in promoting and upgrading
of the products. The franchiser gains rapid expansion of business and earnings at minimum capital
outlay.

franchisor
Hide links within definitionsShow links within definitions
Definition

The company that allows an individual (known as the franchisee) to run a location of their business.
The franchisor owns the overarching company, trademarks, and products, but gives the right to the
franchisee to run the franchise location, in return for an agreed-upon fee. Fast-food companies are
often franchised, and one example of a franchisor would be McDonald's Corporation.

8.

Franchise Foundations - How To Franchise

A HISTORY OF FRANCHISING - HISTORIC AND ECONOMIC PRINCIPLES OF
FRANCHISING; INTERNATIONAL FRANCHISING
© 1985-2010, Kevin B. Murphy, B.S., M.B.A., J.D. - all rights reserved

EARLY ENTRANTS
Author Lloyd Tarbutton states the first chain concept began early, around 200 B.C. in
China. The franchise concept perhaps started even earlier when rickshaw drivers were
granted routes, the earliest form of a protected territory.

Credit for the first company to franchise in a more traditional business sense is the Singer
Sewing Machine Company. In the 1850's, short of cash, the young company could not
afford salaried salesmen. It established a network of franchised dealers instead. The
dealers paid an upfront fee for territorial rights and $65 for all sewing machines
purchased for resale.

This was the first example of what is called a product franchise where distribution and
sales of a product line are primary. In a business format franchise, like McDonalds, the
look (trade dress) and uniformity of all business operations is specified. In a business
format franchise, a franchiser supplies techniques, or other intellectual property assets
(such as the brand) and various services, instead of complete products. The business
format franchise, like McDonalds, may provide production and distribution services, and
resembles a product franchise. However, its primary role is careful development and
control of marketing strategies.

FORD AND GM
In 1898, two other young companies, General Motors and Ford Motor Company, also
lacked capital to open retail outlets. Instead of capital, they used a network of franchised
product dealers to buy, sell and repair automobiles. Henry Ford's assembly line mass
production techniques transformed a high-priced luxury item, into a cars that was
affordable for everyone. His assembly line mass production techniques were applied in
other industries. This accounts for America's meteoric rise to become the world's number
one economy, a position it enjoys to this day.
COCA-COLA - GIVING AWAY BOTTLING RIGHTS TO ATTORNEYS
One year later, in 1899, two attorneys, Thomas and Whitehead, obtained a free, perpetual
license with a simple 600-word contract, to sell a beverage known as Coca-Cola in
bottles. Invented in 1886 by John Pemberton, Coca-Cola was sold in soda fountains until
the attorneys promised to to achieve even greater distribution and reach an entirely
different consumer base by opening a bottling plant. Just like the McDonalds franchise
chain that arose decades later, their optimistic vision was not shared or embraced by Asa
Chandler, the founder of Coca-Cola. He decided to keep the focus of Coca-Cola's energy
on the exploding growth in soda fountain distribution. Chandler was also wary of the
emerging bottling business with its attendant health and safety issues. He believed if the
attorneys were lucky enough to succeed, his company would sell a lot of the proprietary
syrup at $1 per gallon. If not, the attorneys would be out of business with no down side to
the Coca-Cola Company. Chandler thought he had the classic win-win strategy in his
pocket.

In 1901, without the capital to establish their own bottling plant, the attorneys came up
with an innovative solution. They awarded product franchises for bottling plants also
based on assembly line mass production techniques. Even though the Thomas-Whitehead
partnership (like most partnerships) shattered within a year, their idea was a huge
success. By 1919 there were 1,000 franchised Coca-Cola bottlers. Thomas and
Whitehead created the bottling franchise prototype that brought Coca-Cola to the masses.

THE COLONEL FROM KENTUCKY - KFC

Harlin Sanders, born in Indiana, wore many different hats, including practicing law in
Little Rock, Arkansas, where no law degree was required at the time. The time spent
arguing legal matters produced another talent that parlayed into another job - being an
actor. In addition to attorney and actor, his other jobs included railroad fireman, street car
conductor, steamboat ferry operator, selling insurance and tires, A chance encounter with
Standard Oil Company led to an entirely new career - ownership of a service station.

In the Depression of the 1930's, Harlin Sanders operated his Standard Oil gas station in
Corbin, Kentucky. The main petroleum industry players operated company-owned gas
stations, but quickly converted to the franchise model in the 1930's to escape a national
tax on company-owned locations. Franchise ownership also proved to be a quicker way
to repond to price changes by independent gas stations. Franchise owners could make
instant decisions.

To earn a little extra money Sanders served meals to hungry travelers in a converted back
room kitchen of his gas station. He used a 15 square foot storage room that only had
room for a table and six chairs. After his tasty chicken became legendary in the region,
Governor Ruby Laffon made him an honorary Kentucky Colonel in recognition of his
contribution to Kentucky's cuisine. With this significant boost, the Colonel closed his gas
pumps and proceeded to open a 142-seat restaurant featuring his moist and tasty finger-
lickin'chicken.
In the early 1950's, he turned down a $164,000 offer for his restaurant. Things were
going so well the Colonel anticipated a prosperous retirement a few years away, funded
by the increasing profits from his eatery. Then, in 1955 his business was destroyed by
construction of a new Interstate highway that took all traffic seven miles west of his
restaurant. The Colonel had to auction his property. The same day, he received his first
retirement income - a social security check for $105. At the age of 66, the Colonel from
Kentucky knew he couldn't rely on social security. He began to think seriously about
franchising.

In 1956, retired and bust, the Colonel traveled the long highways of Kentucky, Indiana
and Ohio. Being a good salesman, he persuaded restaurant owners to sample his chicken.
If they were interested after the meal, he taught them his cooking techniques in exchange
for a royalty of five cents for all birds cooked using his methods. Business boomed at
these restaurants after the Colonel's instruction. Soon, people began approaching the
Colonel, eager to open an outlet. The Colonel's traveling came to an end. He managed the
new franchise company with his wife from their home in Shelbyville.

Initially, all KFC franchises were full-service restaurants. Then, the Colonel's daughter,
Margaret, formulated the vision of the "Nothing But Chicken To Go" model. The
Colonel, initially skeptical of the plan, gave Margaret exclusive KFC rights in Florida as
a present on her 47th birthday. A year later the first stand-alone, take-away KFC was
born. The less overhead, less square footage and higher income locations set the standard
for future KFC's. Much more profit could be made selling buckets of chicken at a low
price, than from extensive menus, large locations and managing numerous employees.
Full-service KFC's were converted to take-aways, and the investment required to open
the new KFC model was considerably less. This stimulated demand for KFC franchises.

By 1960, there were 200 franchised KFC outlets earning $100,000 per year. By 1963 this
number climbed to 600 franchised outlets earning $300,000 per year. At the 600 outlet
mark, the Colonel managed his growing franchise empire from an office he built behind
his home, with 17 full and part-time employees. By 1980 the KFC chain mushroomed to
6,000 franchised outlets. Today there are over 10,000 KFC locations.

THE MIGHTY MCDONALDS

In 1940, no resident of San Bernardino, California dreamed the new McDonalds
hamburger stand would be the genesis of a franchise chain that would change the eating
habits and perceptions of customers throughout the world. Inspired by Henry Ford's
assembly line, brothers Dick and Mac McDonald, were the first to apply his mass
production techniques to a service business. The outstanding results of their prototype
catapulted the brothers to a level of wealth and prosperity they'd never dreamed of. They
lived in a large estate overlooking the San Bernardino valley, earned $70,000-plus a year,
a huge amount in those days, and owned two Cadillac luxury sedans. The McDonald
brothers were happy and entirely content with their lifestyle. They had absolutely no
aspirations or inclination for franchising.
Then paths crossed when an astute salesman named Ray Kroc visited their location in
1954. He wanted to see why a small hamburger stand ordered eight of his company's
milk shake multimixers, capable of blending five milk shakes at one time. Why, Kroc
wondered, did such a small establishment need to produce forty milk shakes at a time?
He found the McDonald brothers doing a remarkable business selling only hamburgers,
french fries, and milk shakes.

Kroc, an outside-the-box thinker, was very impressed with the San Bernardino prototype
and realized its potential for franchising. He convinced the McDonald brothers, who did
not share his franchise vision, to charge him with franchise responsibilities.

After further refinements to the business model that included charting procedures,
defining recipes and establishing uniform standards, Kroc achieved a level of
standardization, trade dress and brand appeal that would create fortunes for the company
and its future franchise partners. He opened the first of the chain of McDonalds
restaurants on April 15, 1955, in Des Plaines, Illinois. On that first day, Kroc's restaurant
had sales of $366.12, less than a twentieth of the average daily sales of a McDonald's
restaurant today. By 1957 there were 37 locations; in 1959 the number increased to 100;
by 1971 the chain numbered 2,500 locations. McDonalds went on to become the world's
largest chain of fast-food restaurants with over 31,000 locations in 120 countries
worldwide. For information on how to buy a McDonalds franchise, applying for a
franchise, obtaining the McDonalds FDD and details about the McDonalds franchise
program, visit the McDonalds Franchise page of our website.

EXPANSION RATES: FRANCHISED VS. COMPANY-OWNED

While franchising allowed chains like McDonalds and KFC to grow to thousands of
locations by the early 1970's, other chains that elected to go the company-owned,
company-financed expansion route posted less than enthusiastic results. For example, the
IN-N-OUT burger chain, started in 1948 but had only a dozen locations by 1973. Even
late-arrival Burger King, which started franchising in 1961, grew to 800 locations by
1971.

MCDONALD'S McCAFE - CO-BRANDING IN ACTION

McDonalds, besides its ubiquity, constantly demonstrates it’s strategic planning ability.
Consider McCafé, the brainchild of Charlie Bell, the late McDonald's President-CEO. He
opened the first McCafés more than 20 years ago in his native Australia, then took the
concept international when he moved to McDonalds U.S.A. Visitors to a McCafé find 11
kinds of coffee and tea, hot chocolate and mineral water.

McDonalds realized it’s initial market for McCafé was overseas, and the concept is in 33
countries so far. McCafés are all over Australia (406), ramping up fast in Germany (306)
and just starting in Japan. Fifteen McCafes debuted in and around Tokyo in late August
of 2007. About one in every four McDonalds in Germany includes a McCafé area. Five
hundred McCafés are planned in Germany by 2008, and between 600 and 700 by 2011.
In Germany, McCafé is the market leader in coffee shops. Its biggest competitor,
Starbucks, opened in Berlin in 2002 and now has 98 outlets, less than a third the current
number of McCafes.

It was only a question of time before McDonalds decided its McCafé concept was ready
for the U.S. market. McDonald's is now pushing a nationwide expansion of the McCafe
band name. The stratgegy was adding its espresso coffee drinks at existing McDonald's
restaurants across the U.S., so a Big Mac and a latte can be ordered at the same time. The
expansion of the McCafe concept signaled the Mighty Mac's desire to pursue the $12
billion specialty coffee market segment and grab a piece of the $60 billion coffee
industry. By the end of March, 2009, McDonalds announced more than 7,000 (a little
more than half) of U.S. McDonalds restaurants are selling the espresso-based drinks that
include hot mochas, cappuccinos and lattes as well as iced coffees and mochas. The
Mighty Mac says it is on tract to meet its mid-2009 deadline to have them in all U.S.
restaurants. The next phase will be adding smoothies and frappes to the beverage mix.
According to McDonald's CEO Jim Skinner the McDonald's goal is to become a
"beverage destination."

FRANCHISING LEGITIMIZED
By the late 1960's the success of business format franchise companies including KFC and
McDonalds were well known and hailed in the press. KFC is credited with creating
hundreds of millionaires through its franchise program, and McDonalds produced at least
as many of the new wealthy. All this success legitimized franchising and fueled the
fantasies of aspiring as well as existing entrepreneurs. Adding fuel to this fire was the
growing impact franchising has on the U.S. economy, now accounting for over 40% of
all retail sales.

IDEAS FOR SALE

Franchise companies sell the concept of a powerful formula they have developed, along
with a catchy name, uniform operating standards, and ongoing, as-needed support. For an
initial franchise fee plus ongoing royalty payments, the franchise owner receives
instruction in the company's proven business system, assistance in selecting a site, and
help building a duplicate of the successful prototype. Initial training is provided, along
with varying forms of ongoing consultation and advice. Over time, economies of scale
develop, enabling volume purchasing power and extensive media advertising.

MEGA-GROWTH - FRANCHISE DEVELOPMENT VIA THE "OPM" PRINCIPLE

The fast-food chains - including the McDonalds and Kentucky Fried Chicken - symbolize
the explosive growth potential of the franchise model. Companies can expand from a
single location to dozens within a few years. And hundreds (even thousands) within a
decade. This mega-growth is possible because franchise owners provide all expansion
capital, assume all operating and management responsibilities, and shoulder virtually all
risk. Franchising is expansion using "OPM" (Other People's Money).

EARNING MORE FOR DOING LESS

In addition to being a most economical way to open identical units quickly across the
country, franchising offers substantial and highly profitable revenue streams. These are
usually initial franchise fees as well as ongoing royalty payments. Sell ten franchises with
an initial franchise fee of $40,000 and the company makes a quick $400,000 in revenue.
Sell twenty and revenue jumps to $800,000.

On the expense side of the equation, a franchise company only needs a limited number of
personnel to sell franchises and then provide initial training and ongoing assistance. Most
of this work is at the initial stages - training and helping the new franchise owner get up
and running. As franchise owners learn how to operate the business, they require less and
less attention. Yet they continue to pay an ever-increasing sum to the parent company as
a royalty (the second revenue stream) based on a percentage of their growing, gross sales.
This places franchise companies in the enviable position of earning more and more, for
having to do less and less.

FRANCHISE PROFITABILITY - COMPANY OWNED VS. FRANCHISE-MANAGED

A study of the disparity in profitability between operating company owned vs. franchised
locations by a mature fast-food franchise company discloses the bottom line franchise
profitability advantage:

Company-Owned Statistics
No. of Units 1,550 restaurants
Revenues $1.69 billion
Expenses $1.42 billion
Pre-Tax Profit $270 million (16%)

Franchised-Location Statistics
No. of Units 4,550 franchises
Revenues $486 million (royalties, etc. paid to the franchise company)
Expenses $ 78 million (incurred operating the franchise company)
Pre-Tax Profit $408 million (84%)

Operating 1,550 company owned restaurants, the company begins with much greater
revenues ($1.69 billion), but ends up with significantly less, both in total dollar profit
($270 million) and margin. The royalty, franchise fees and other revenues generated by
its 4,650 franchise owners and resuls in $408 million in bottom-line profit for the
franchise division.

To the business community the message about franchise profitability is loud and clear.
Why assume the debt, administrative headaches and ongoing cost of operating company-
owned locations that make 16% profit, when more money can be earned at 84% profit?
On top of this, on the franchise side only a fraction of personnel are required, utilizing
only brain cells to provide management consulting advice. Jack In The Box was entirely
company-owned until 1980 when it saw the franchise light. The chain now has over
1,000 units. Increasingly, business owners are jumping ship with their company owned
locations, selling them to franchise owner-operators. They’re getting out of the trenches
and becoming highly-paid generals overseeing their franchise soldiers.
REASONS FOR THE FRANCHISE PROFITABILITY DISPARITY
Two major reasons for the franchise profitability disparity were mentioned. First,
franchise companies find themselves in the enviable position of earning more for doing
less because most of their work is finished after the franchise owner is trained and
matures a bit in operating the business. Second, a franchise company can manage a large
number of franchised locations with a skeleton team of training and support personnel,
and few significant operating expenses.

For example, in 1963, Colonel Sanders managed 600 franchised locations from a home
office built in the back of his home. He employed 17 full and part-time persons. Kumon
U.S.A., Inc., a learning center franchise with over 900 operating locations, is able to
fulfill its management responsibilities with 9 persons (source: Kumon's 1998 Uniform
Franchise Offering Circular). Another fast-food player, Carl's Jr. has a management team
of 19 individuals managing its 1,000 = plus quick service franchised restaurants (source:
Carl's Jr. 2000 Franchise Offering Circular).

Not to be outdone, the Mighty McDonalds has a franchise department with only 50
persons overseeing more than 25,000 franchised locations. Comparing franchised vs.
company-owned, it takes more than 850 employees to run the Mac's 6,500 company-
owned restaurants. Quite a difference in people power and administrative headaches. This
explains the trend with many franchise firms, including McDonalds, in altering their
dual-distribution strategy. They are selling off company-owned outlets as "turnkey"
franchises, using a healthy multiplier of gross sales or net profits to determine the selling
price, and focusing on the more lucrative, franchise management consulting side of
operations.

What a franchise company does is provide management consulting advice on an as

needed, diminishing basis. Management consulting firms in general have very high profit
margins due to low operating expenses and no cost of goods sold. These advantages are
compounded even further in a franchise environment. Initial franchise fees, for example,
tend to be highly profitable. A company charging an initial franchise fee of $40,000 only
needs to sell 20 franchises to generate an immediate $800,000 in income, with
comparatively limited marketing expenses. As franchise owners open and learn business
operations, the increasing stream of continuing royalty payments over a 10 to 20 year
period creates an lucrative annuity that vastly exceeds the amount of the up-front initial
franchise fees.

In the fast food industry, for example, a franchised restaurant generating only $500,000 in
sales (less than one-fourth the sales of a typical McDonalds restaurant) pays the franchise
company a 5% royalty of $25,000 per year. Over 20 years, that amounts to a staggering
$500,000 for each and every franchise in the network. And this total is likely to be much
higher given yearly increases in sales volumes as well as C.P.I. (consumer price increase)
adjustments over the 20-year period. So, franchise companies enter into millionaire (or
quasi-millionaire) financial relationships with each and every franchise member brought
into the network.
MANAGEMENT STRATEGY - COMPANY OWNED VS. FRANCHISE OWNED
Considerations other than franchise profitability also factor into the decision to use what
is called "dual distribution" - the penetration of markets by a mix of both company owned
and franchised units. The company owned units test ideas, build market demand and
brand awareness, while developing system-wide standards and uniformity. The franchise
owned units lead to rapid market penetration as well as innovation.

Some of the best, new product lines and ideas in many franchise chains originate from
their franchise operators, such as the Filet-O-Fish, Big Mac and Ronald McDonald in the
McDonalds chain. And the Bucket of Chicken by KFC's first franchise owner, Pete
Harman. A dual distribution strategy produces a whole that is greater than the sum of its
individual parts, allowing the entire network to quickly adapt to opportunities as well as
threats.

REFRANCHISING - CONVERSION FRANCHISING STRATEGIES.

Large, established franchise chains are heeding the message as well. Refranchising and
conversion franchising are strategies increasingly utilized by the big players in the
franchise industry. 7-Eleven, a franchise chain operating more than 31,500 company
owned and franchised stores worldwide, decided to become fully franchised in the U.S. It
implemented a franchise conversion program in 2002 to sell all U.S company-owned
stores as turnkey franchises. Yum! Brands, which operates and franchises KFC, Pizza
Hut and Taco Bell announced in December, 2007 it will reduce its company owned
restaurants by 50% in the U.S. by 2010 by refranchising them. For several years, Yum
has been selling off hundreds of its U.S. restaurants to franchise owners. Refranchising
improves profit margins because the company collects more in franchise fees and
royalties without having to operate the units. The new franchise owners also pay for the
value of an existing unit with an established track record and customer base, which can
be a very substantial amount, running into hundreds of thousands or (in the case of major
players) millions of dollars. In April of 2008, CKE Restaurants, Inc., which operates
Carl's Jr. and Hardees restaurants, announced a strategic refranchising program. It
quicky jump started this program by selling more than 60 of its company owned
restaurants as franchises. For persons interested in a McDonalds franchise investment,
the most frequently used option is buying a company owned McDonalds or an existing
franchise that's up for sale by a franchise operator. In late 2007, McDonalds announced
plans to sell 21% of its 7,000 company-owned McDonalds restaurants as turnkey
franchises over a three-year period.

MARKETING STRATEGIES: FOOD CHAINS - CANNIBALIZING THE COMPETITION

One day, sub sandwich shops like Subway and Quiznos are operating comfortably in their
$21.2 billion non-burger sandwich market. Then along comes a sudden wake up call:
Domino’s Pizza announces plans to roll out a line of four oven-baked sandwiches for
delivery with (or even without) pizzas from its 5,000-plus U.S. locations. Overnight
Domino’s becomes the largest sandwich delivery company in the nation. By the end of
2008 Domino's announces national side-by-side tasting tests - the pizza chain's
sandwiches taste better than Subway's. According to Domino's CEO David Brandon,
". . .the margin of victory was overwhelming even to us." In a sour economy where pizza
sales are not growing, the pizza chains look for another menu item that will. Pizza Hut
began delivering baked pasta dishes as well as pizza five months before Domino’s
jumped into the fray. It also delivers sandwiches regionally. Only half of Quizno’s
locations deliver, but that percentage is expected to quickly jump to two-thirds by the end
of 2008. With McDonalds, Burger King and Wendys selling salads and chicken, Subway
and Dunkin Donuts trying pizza and Arbys venturing into deli sandwiches and toasted
subs, it’s become a free for all. And Domino’s says it’s not stopping at subs.

With the blessings of corporate, an Subway area developer is opening the first of the
series of Subway Cafes - an upscale sandwich and coffee shop concept that aims to
compete with Starbucks, just as McDonalds McCafes are doing quite successfully.
Starbucks entered the fray in 2008, announcing a better-for-you breakfast in an effort to
pump up flagging sales and hopefully capture market share from McDonalds, IHOP and
other breakfast food chains. "Food has been our Achilles' heel," said CEO Howard
Schultz. He called the better-for-you breakfast part of the company's evolving health and
wellness program, a "billion-dollar" idea. The hush-hush program (its secret code name
was Morning Source) was also in response to rising customer complaints about calorie
content and health risks of traditional food offerings at Starbucks - like doughnuts,
muffins and scones.

Unfortunately, McDonalds CEO Jim Skinner revealed another Achilles' heel on

Starbucks' other foot. Because the Starbucks format makes food preparation difficult,
Skinner isn't worried Starbucks will take breakfast business away from the Mighty Mac.
In comparison, McCafes continue to land body blows on Starbucks' market share. Started
as an international idea in the late 1980's and greatly exceeding expectations, McCafes
are coming home to roust. McDonald's has already opened McCafé coffee bar offerings
in half of its 14,000 U.S. locations and is on target to bring this to 100% in the U.S. by
the end of 2009. Franchise owners are happy with the product and customer response,
and even happier that McDonalds is footing 40% of the $75,000 system improvement
fee. Just what Starbucks doesn't need at a time when it had to close 600 U.S. locations as
many cash-strapped consumers hesitate to shell out $4 for their java fix. It's a free-for-all
and everyone is slugging it out.

Howard Schultz of Starbucks may have to reach even deeper into his bag of strategic
plans. Don't count him out. He's the man who met the small chain of stores in Seattle that
sold only roasted coffee beans by the pound. Schultz took a trip to Italy, returned and sold
the Starbucks founders on the idea of grinding those beans and offering customers fresh
brewed coffee along with Lattes, Espresso and other Italian favorites. A simple cloning
idea and rest of Starbucks' phenomenal growth is history.

McCafe vs. Starbucks Update

If McDonalds was hoping to bite into Starbucks' business segment, it hasn't worked - at
least so far. "There aren't too many people who meet for business meetings in
McDonald's," said an investment manager whose company holds shares in both firms.
But bottom line: in the last 24 months, McDonalds coffee business has grown from 2
percent of sales to 5 percent of sales. The dynamic appears to be the tradeoff between
quality (Starbucks leads in this category) and value (McDonalds leads here). Starbucks'
large iced coffee sells for $2.65 in downtown Los Angeles. The one from McDonald's is
slightly bigger and sells for $2.19.

BUDGET FOR FRANCHISING A BUSINESS - CONTROLLING FRANCHISE

DEVELOPMENT COSTS
For some cost-savings franchise tips, including a budget for franchising a business and
reducing franchise development costs, click this link.

HOW TO FRANCHISE A BUSINESS - STRATEGIC PLANNING, MANAGEMENT AND

DOCUMENTATION OF FRANCHISE SYSTEMS
© 1982-2008, Kevin B. Murphy, B.S., M.B.A., J.D. - all rights reserved

ENTERING A NEW BUSINESS

A company planning to franchise must realize it is entering a new business, offering an
entirely different service (training & support) to entirely new customers (business owner-
operators). This new business requires different skills, abilities and expertise. In the new
business of franchising, it is critical to develop effective evaluation, documentation,
mentoring, training and consulting skills. Since these new skills are rarely present within
existing personnel, an outside franchise expert is needed to train existing personnel and
plan the transition. The first step involves determining whether or not a business can
franchise, and if so, what needs to be developed. Next, strategic franchise planning is
necessary to create a "blueprint" for successful expansion efforts. Experience shows that,
just like a building, the foundation developed at the beginning will create lasting
consequences affecting the relative success (or failure) of the entire venture. Legal
(franchise disclosure document, franchise agreements) and operational documents
(franchise operations manual, franchise training program) are prepared and drafted and
finally a franchise registration process is required in some 14 states, depending on which
state(s) the company sells franchises. These phases are discussed below.

THE FRANCHISE FEASIBILITY ANALYSIS PHASE

An indispensable step before any franchise development program gets underway is an
analysis of the concept and business model. Has the concept been sufficiently proven in
the marketplace? How profitable are existing prototypes or company-owned outlets?
Franchising will not solve existing problems, it will only intensify them - and usually at a
serious cost to franchise investors. Franchising is not a way to raise capital, get rich
quickly or expand a business with existing problems.

There must be sufficient profitability in the business model so that royalty and other
payments can be made and leave the franchise investor with a sufficient profit. With a
franchise feasibility analysis, a determination can be made about:

(a) whether franchising or licensing expansion ideas should be pursued, postponed or

abandoned; and
(b) assuming a positive result in (a), what needs to be fine-tuned or developed from
scratch for the franchise program.

Besides determining if and when the business can franchise, the analysis should also
include providing guidance and direction so as much of the groundwork as possible can
be done by existing personnel. This has proven to be a very effective approach and
significantly reduces franchise development costs. If the feasibility analysis is positive,
the other phases discussed below follow.

My decades of experience in the franchise industry lets me share a valuable insight about
franchise feasibility studies. Too many companies leap into franchising without doing a
franchise feasibility study, or if one is done it is performed by a franchise consultant or
group that tells everyone good news - they're all "franchise-able." Most franchise
feasibility studies I've done either identify areas that need attention before franchising
makes any sense or tell the client to forget about it and pursue other growth options.

THE FRANCHISE STRATEGIC PLANNING PHASE

A successful franchise development program begins with a solid plan - a foundation for
franchising. The long-term goal is to establish balanced, integrated, successful business
relationships with qualified individuals who support the company's goals and image.
Creating an enduring relationship requires a comprehensive strategy that addresses all
aspects of the franchise endeavor.

Often there is little or no strategic planning with new companies entering the franchise
industry. This is because they only utilize the services of a franchise consulting firm or
franchise attorney, where little or no attention is paid to strategic planning issues. Instead,
these firms draft "boilerplate" documents based on a questionnaire completed by the
client. The client, who knows nothing about franchising a business, apparently is charged
with making all strategic decisions. The boilerplate documents are presented, along with
an invoice and a handshake. These are hardly the ingredients for success in the new
business of franchising.

THE FRANCHISE DOCUMENTATION PHASE

If the company has engaged in sound strategic planning then the franchise documents are
easy. At a legal mininum, a company needs:

1. Franchise Disclosure Document

2. Training Program Curriculum
3. Franchise Operations Manual
4. Franchise Registration Application filed in certain states

The Franchise Operations Manual

Franchise operations manuals and training programs are developed, often from scratch, to
impart business operating skills to the franchise owner as well as ensure uniformity of
products and services. The franchise operations manual and training program curriculum
must be drafted with a special focus. Certain topics, chapters and policies routinely
covered in manuals for a company-owned chain, for example, are entirely inappropriate
in a franchise environment, creating significant liability (lawsuit) issues for the franchise
division.

I regularly find franchise operations manuals drafted by consultants containing

inappropriate chapters or topics. Not knowing where the bullets come from in franchise
litigation, they proceed blindly ahead using "boilerplate" manuals where most (but,
unfortunately not all) instances of "ice cream" are changed to "tax returns." Ongoing
support during the franchise relationship needs to be carefully considered, structured and
reflected in the operations manuals.

Deciding who will write the franchise operations manual is a relatively simple question to
answer, yet many new franchise companies also fall into a trap here. Bewildered by the
complexities of franchising a business, with its special legal requirements, franchise
operations manuals, training programs, etc., they “delegate responsibility.” The recepient
is usually a high-priced franchise consultant who produces the operations manual and
sometimes even the legal documents.

Putting aside the practicing law without a license issue on the legal documents, does
using someone to write your franchise operations manual who knows literally nothing
about your business, ever make any sense?

The best practice approach, developed over almost three decades of writing, editing and
reviewing hundreds of franchise operations manuals is based on a simple, common sense
notion. Let the true expert in your business write the operations manual. And who is that
expert? It’s usually the founder of the business or a handful of select personnel who know
the business inside and out. It’s true, an outside franchise expert should be involved in the
process. But the expert's role should be limited strictly to a planning and editing capacity
– helping develop the overall Table of Contents, giving samples of writing styles and
techniques, then reviewing each chapter after it’s drafted by you or your management
team.

This approach produces a professional, easy to use and update franchise operations
manual that will make a positive impression on prospective buyers. It also ensures the
most efficient use of resources and talent, so you write the franchise operations manual
instead of paying a consultant $20,000 or more for what is a relatively simple task.

For more information, including three steps for writing a franchise operations manual
visit our Franchise Operations Manual page.

Franchise Disclosure Documents - FDD

The Franchise Disclosure Document (FDD), which is similar to a securities - stock
offering prospectus, is prepared and registered with various regulatory agencies to
comply with applicable federal and state laws. This document can contain thousands of
discrete disclosures within its twenty-three chapters and attached exhibits, and obviously
needs to be prepared by a franchise attorney. This is definitely not the time to try using
do-it-yourself franchise kits - unless the idea of spending $200,000 or more defending a
franchise lawsuit is appealing.

RECOMMENDATIONS
My three decades of experience has demonstrated that in order for a franchise company
to get off to a good start, a heavy emphasis should be placed on strategic franchise
planning to manage the future franchise effort and address the franchise relationship.
Then, before the franchise program begins, management needs training in how to
effectively operate a franchise organization. At a minimum, the following programs
should be in place before franchise marketing efforts begin:

1. Franchise Lead Processing System (sm):

Key considerations for all franchise companies engaged in franchise marketing are the
careful screening of franchise applicants and using the right media. Only the cream
should be offered the privilege of joining the franchise network. Eliminating unworthy
applicants at the interviewing stage is far easier than waiting for them to develop into a
headache later on. An examination of franchise networks having troublesome franchise
owners (who often mature into a future lawsuit) shows a lack of planning and attention to
this relatively simple concept.

Before franchise marketing efforts start, a company should adopt a customized Franchise
Lead Processing System that includes instructing key personnel in:

(1) adopting the proper organizational structure;

(2) defining profile characteristics of the "best" franchise owners;

(3) developing effective interviewing techniques, procedures and checklists;

(4) using a series of tests and other measures to ensure that inappropriate candidates are
disqualified before joining the franchise network;

(5) detecting (and avoiding) red flags that arise in the marketing - interviewing phase; and

(6) adopting the appropriate media plan, schedule and budget.

One client engaged our firm to develop a more effective franchise marketing strategy.
Although they spent a lot of money in various media, quality leads were lacking and they
hadn't sold franchises. An analysis showed their franchise strategy was rooted in
traditional strategic thinking - trying to outperform rivals and hopefully grab a share of
existing demand. This wasn't happening. We recommended an alternate, blue ocean
strategy. In a blue ocean strategy, new market space is identified. The new market space
we identified was a market segment they never thought was feasible. By adopting this
blue ocean strategy, they were able to create new, uncontested market space and
franchise sales grew quickly. In many cases the only way to beat the competition is to
stop trying to beat the competition. Competing in a traditional way within limited terrain
and the need to beat a competitor is fighting it out in a red ocean that only turns very
bloody.

2. Franchise Marketing 101

Many new franchise conpanies who use a traditional law firm to enter franchising
discover they have difficulty selling franchises. That's because attorneys are not schooled
or experienced in the art of franchise marketing. One mistake is attempting to compete
head-to-head against large, established chains. The inevitable result – failure. With over
3,000-plus franchise companies spending hundreds of millions on advertising, the only
way to score big is not to act big. Rather, franchise marketing program must be selective,
concentrating on narrow targets. In a word, a company needs to position itself in a highly
competitive arena. Using the experience and knowledge gained by hundreds of other
franchise companies to guide your advertising decisions, our franchise marketing
workshops show how to do this and avoid advertising blunders that have cost other
companies tens of thousands of dollars.

3. Legal Compliance Program (sm):

A franchise lawsuit can result if inconsistent or misleading communications occur when a
franchise is first sold. Most of the legal risk is franchising centers around what happens
during the marketing cycle: the twenty-three chapters of disclosures in the franchise
disclosure document as well as who said what, and when. Defending any franchise
lawsuit, even a frivolous one, can be huge. The quicksand of litigation swallows up time
and money without limit. The cost of getting involved in even a "small" franchise lawsuit
can quickly exceed $100,000 within a couple months. Exposure can run into the millions.

Although one study of franchise disclosure documents indicated 27 percent of franchise

companies have a history of franchise litigation (slightly greater than 1 in 4), the real
percentage is much greater and probably north of 50 percent. This is because only
pending litigation and final judgments must be disclosed in franchise disclosure
documents. Most franchise litigation cases (like other litigation cases) are settled, so
they’re only required to be in the franchise disclosure document from the time they’re
filed until settled. After that, they vanish without a trace. And whether the chances of
getting sued in a franchise lawsuit and getting embroiled in franchise litigation is greater
than 1 in 2 or 1 in 4, who wants to get involved in a time-consuming, stressful and very
expensive mess?

For all of these reasons, using franchise brokers is definitely NOT recommended. Their
off-the-cuff statements made to "close a deal" make the franchise organization (and the
personal assets of its officers) liable for applicable federal or state franchise law
violations. This also explains why the overwhelming majority of successful franchise
companies set up their own in-house franchise marketing department so that actions and
statements made during the franchise marketing cycle can be monitored and controlled
within the framework of a Franchise Sales Control System (sm).

4. Franchise Sales Control System (sm):

Franchise Sales Control is the other half of a compliance equation. Franchise compliance
specifies rules and expectations. Franchise sales control is the way to detect gaps and
inconsistencies by comparing the reality of business practices to the rules of the
compliance program. When detected, the causes of the gaps are identified and corrected
before jeopardizing the franchise program. A Franchise Sales Control System is designed
with this goal. It should include a host of feedback mechanisms that monitor performance
and retrieve pertinent information for review by management personnel. Use properly,
this increases the effectiveness of franchise marketing efforts. The more important benefit
is greatly reducing the chance of sales personnel deviating from required procedures in
selling franchises. Finally, a well-designed Franchise Sales Control System has another
benefit. It creates a complete back up file for every franchise sold. These files will qualify
as business record evidence in the event a future franchise dispute ever takes place. The
files also satisfy the legal requirement of various states that franchise companies maintain
a complete set of books, records and accounts of franchise sales. Since most of the legal
risk in franchising arises during the marketing cycle, a comprehensive Franchise Sales
Control System is the company’s best protection against the quicksand of litigation.

5. Managing Franchise Relations:

As franchises are sold, the communication lines that develop between the parties will
have a major impact on the success or failure of the ongoing franchise relationship.
Controlling who is allowed to join the network through the steps outlined above is the
critical first step. Once inside the franchise network, franchise owners must be taught to
realize they are members of a team, each working for the benefit of the entire network.
Developing an awareness of this early in the relationship and implementing a franchise
feedback system has a number of important benefits. It creates a positive attitude among
franchise owners. This encourages positive behavior, like passing on innovative ideas,
paying royalty payments on time, etc. In the long run, it nips franchise relationship
problems in the bud.

FRANCHISING VS. LICENSING A BUSINESS (FRANCHISE VS. LICENSE) AND

BUSINESS OPPORTUNITY EXPANSION OPTIONS
© 1990-2009, Kevin B. Murphy, B.S., M.B.A., J.D. - all rights reserved

This differences between franchising vs. licensing has moved to its own page. Go to the
Franchise vs. License page of our franchise website.

HIRING FRANCHISE ATTORNEYS & FRANCHISE CONSULTANTS: CRITICAL

EVALUATION QUESTIONS TO ASK
©1990-2008, Kevin B. Murphy, B.S., M.B.A., J.D. - all rights reserved

Evaluating franchise attorneys and evaluating franchise consultants can seem a daunting
task. But the firm a company selects to assist its entry into franchising, refine existing
franchise efforts or make franchise investment decisions will have profound
consequences. Fees paid to one or both of these providers usually represent the cost to
franchise a business. While asking for a list of "references" is one approach (and when is
anyone ever dumb enough to provide a bad reference?) there are more objective criteria
that are not dependent on selectively disseminated information. By addressing the nine
Franchise Questions, topics and subcategories of information discussed below, you will
eliminate virtually 95% of the individuals or firms you are considering. Then efforts can
concentrate on evaluating the 5% cream of the crop that truly merit consideration:

A. FRANCHISE EXPERT:
The #1 factor in evaluating so-called expertise - are the principals really franchise
experts? There are objective criteria to determine this:

(1) Have they qualified and been allowed to testify as a franchise expert in court and
arbitration proceedings? Being involved as a franchise expert in the franchise litigation
process gives a sensitivity and radar for avoiding future franchise problems.
(2) How many books on franchising have been written by the principals?
(3) How many franchise articles have been published in journals or magazines?
(4) What is their franchise teaching experience? (see topics E and F below)
(5) What is their depth of experience in the franchise industry? (see next topic below)

B. EXPERIENCE IN THE FRANCHISE INDUSTRY:

(1) Length of time the firm has operated exclusively in the franchise industry?
(2) Experience on both sides of the franchise fence - working with franchise companies
(franchisors) as well as with individual investors (franchisees) who have purchased a
franchise?
(3) Past experience principals have owning and operating a franchised business? This
factor is absolutely critical. If the principals have owned and operated a successful
franchise, they bring a unique perspective and radar for avoiding future franchise
relationship problems from disgruntled franchise owners.

C. COMPREHENSIVE TRAINING & ONGOING SERVICES; CONTROL SYSTEMS:

(1) Can (and will) the firm train your personnel how to operate and manage the new
franchise company? Remember, you're entering an entirely different business, one
requiring new skills and abilities. If this topic is not addressed in detail, you might as well
earmark the franchise fees received when you sell franchises for a future franchise
litigation war chest;
(2) Will the firm help you review and update operational (franchise operations manual)
and legal documentation (franchise offering circular) on an ongoing basis?
(3) Has the firm developed, and will they help you put into place, franchise marketing,
sales control and legal compliance programs during the critical implementation (start-up)
phase of your franchise program?

The existence of these programs is essential to ensure only the cream of franchise
applicants are allowed to enter the network. A welcome byproduct is also creating a
series of documented files should a dispute arise in the future. Most of the legal risk in
franchising occurs during the franchise marketing cycle when franchises are sold.
Unfortunately, many franchise companies have no documentation of who said what - not
a good place to be if a future dispute arises. If your company's done a good job here with
these programs, then you've eliminated most of the risk.
D. LEGAL EAGLES: FRANCHISE ATTORNEYS
(1) Is the law practice devoted 100% exclusively to franchise law - and for how long?
(2) Total number of franchise disclosure documents(formerly called franchise offering
circulars) drafted and reviewed?
(3) Experience filing franchise registrations and working with state examiners in all 14-
plus franchise registration states?
(4) Experience representing franchise companies as well as persons buying a franchise?
(5) Experience owning and operating a successful franchise? Knowing both sides of the
fence is a tremendous asset. Subjective factors, such as being a member of the American
Bar Association's Forum Committee on Franchising, for example, are of little value.
Membership in a franchise committee or franchise association only means the franchise
attorney pays a yearly membership fee, usually with the motivating purpose being tax
deductible travel expenses and learning about subjects they don't know very well. A
franchise attorney with an MBA is especially helpful to address both the business and
legal aspects of the industry. You can do a Google search with "MBA franchise
attorney" as a search term and narrow the field considerably.

E. ACADEMIC: UNIVERSITY & COLLEGE

Experience teaching franchise courses at graduate and undergraduate university levels?

F. ACADEMIC: PROFESSIONAL
Experience teaching franchise courses to franchise attorneys and general practice
attorneys?

G. BLEND OF BUSINESS & LEGAL SKILLS:

Specialist franchise attorneys and law firms produce tight legal agreements (sometimes
overly so, leading to future franchise relationship problems) and usually adequate
franchise disclosure documents. Setting aside the overly tight contract issues, the problem
is most franchise attorneys - franchise lawyers are not capable of making sound, strategic
business decisions and providing practical, ongoing advice. That's not what they do -
their focus is drafting legal documents. It also explains why they tell you to find someone
to write your franchise operations manual and provide franchise planning advice. It's also
why they give you an FDD "questionnaire" to complete. Instead of customized strategic
franchise planning, you get a cut and paste FDD. Some franchise consultants, on the
other hand, have good business sense and planning skills, but lack the requisite legal
skills. Remember the famous definition of a consultant - a person in between jobs.
Questions:

(1) Does the firm have the proper blend of business savvy and in-house franchise legal
expertise? It's always a big cost-savings plus if the franchise attorney also has an MBA.
As mentioned above, do a Google search with these twin attributes ("franchise attorney
MBA") and narrow the field to the select few to consider. This approach also eliminates
the need to hire a separate franchise consultant charging $20,000 to $30,000 or more for
strategic franchise planning and writing your operations manual.
(2) Can the firm produce good legal documentation (franchise disclosure documents) and
help you edit (or create on your own) consistent operational documents like the franchise
operations manual, training program, etc. If your franchise agreement says "x" but your
franchise operations manual or advertising materials say "y" about the same issue, be
prepared to pay hefty franchise litigation fees and deal with franchise litigation attorneys
in the future.

(3) Can the firm provide competent and practical ongoing advice in critical areas like
effective franchise marketing, media decisions, interviewing franchise buyers,
implementing a franchise advisory council, adopting the best franchise organizational
structure, etc? Ask most franchise attorneys (and franchise consultants) what is the best
franchise organizational structure to adopt and 99% will say an LLC or a corporation.
That answer entirely misses the point and shows their lack of knowledge about this topic.
Mistakes made in these areas can easily cost the franchise company tens, if not hundreds
of thousands of dollars.

(4) Can the firm train your management team in how to operate a franchise company so
you don't have to budget and absorb the overhead associated with permanent franchise
staff? The new business of franchising is paved with legal and business pitfalls. Doing it
right, from the very beginning, will save your company a lot of headaches down the road.

(5) Will the firm be there to provide business and legal guidance, as well as answering
questions that arise in the critical first phase where franchise prospects are interviewed
and franchises are sold, trained and opened? One new franchise company president
remarked "I'd call the attorney and he'd tell me to call the franchise consultant. I'd be
talking to the franchise consultant and midway into the call, she'd say this was a legal
issue and to call the franchise attorney. It drove us crazy."

H. CONTRACT FAIRNESS:
Does the firm give you an option of choosing between:
(a) an hourly rate and;
(b) a flat contract amount, where you don't have to worry about accumulated hours and
an unknown total amount?

I. RED FLAGS - BEWARE OF ANY OF THE FOLLOWING:

• Combination teams where one entity does one part of the project and another the other
part. For example, a consulting firm does franchise planning, and operational
documentation, while an attorney "they know very well" writes the FDD legal
documentation. Often a combination approach arises when a company hires a franchise
attorney without an MBA and franchise ownership experience. The attorney ultimately
tells the client they need a "franchise consultant" for franchise planning and to write their
franchise operations manual. Thus another person or firm enters the picture, often
charging as much as the franchise attorney and the franchise budget quickly doubles.
• Or, a variant of the above, a company (usually a franchise consulting firm) that says
they will do everything, including the legal FDD, state franchise registration filing, etc.
But, in the “fine print” of its contract, they require your attorney (who you obviously
have to pay) to review and approve everything they do because the company (it says) is
not rendering legal advice. Actually, by providing documents that affect legal rights, they
are rendering legal advice, but in an illegal manner. It’s called the unauthorized practice
of law. You end up paying two attorneys - yours and theirs. Besides the expense, it sets
you up for future franchise problems. Who does their attorney represent? The franchise
packaging group, of course, and definitely not you. He or she is typically a recent law
school graduate who hasn't figured out what they're doing is illegal and could cause them
to lose their license to practice law. Besides that, they represent the franchise consulting
group, whose interest is to churn as many franchise packages per year as possible. You
end up with a bad franchise disclosure document and sloppy franchise operations
manuals. To save time, the franchise agreement gets watered down so it's easier to push
through some franchise registration states. Some of the "t's" may be crossed and some of
the "i's" dotted, but not most of them. The end product are documents that set you up for
future franchise litigation difficulties. Spending a couple hundred thousand in a franchise
lawsuit these days can happen in just a few months.

• Firms that advise you to franchise your business, and they've never seen your business!
You'd be surprised how often this happens.

• Firms that do a franchise feasibility study for clients and tell every one of them they
have what it takes to franchise.

• Firms that say they'll write a franchise operations manual for your company. How
someone, who knows absolutely nothing about your business, could ever come close to
anything but a mediocre product at best, is a frightening thought. The use of boilerplate
manuals produced by consulting groups is yet another future litigation time bomb. You
are the true expert in your business. With competent guidance, writing samples and
editing, you'll be able to produce professional and workable franchise operations manuals
and save yourself $20,0000. Learn how by visiting our informative page Writing
Franchise Operations Manuals.

• Pricing quotes that seem exceedingly high or low (especially "do-it-yourself" fill-in-the-
blank franchise kits). For an informative discussion about franchise kits, franchise
templates, etc. visit our writing your franchise operations manual page.

• If you are buying a franchise, BEWARE of any attorney recommended by the franchise
company. Even worse, beware of franchise companies who say you don't need to use an
attorney. There are a number of these online.

• Firms (or individuals) that have EVER been sued for fraud, misrepresentation, the
unauthorized practice of law or violating any franchise law. For a very informative article
read Francorp Attorneys Walk Out Over Illegal Practice of Law.
DON'T FORGET TO ASK THIS CRITICAL QUESTION!!