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franchise
a business that markets a product or service developed by a franchisor, typically in the manner described by the franchisor
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franchising
the system of operating a franchise governed by a legal agreement between a franchisor and franchisee
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two main catergories of franchising
by the federal trade commision are product and trade-name franchising and business-format franchising
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product and trade-name franchising
the licensing of the product or production of the product and the ise of the trademark, logo, or other identity of the franchise; supplier-dealer, auto dealerships
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business format franchising
a form of franchising in which the franchisee secures the product and trade name benefits but also theoperating, quality assurance, accounting, marketing methods, and support of the franchisor
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master franchise
a specific type of franchise that allows individuals and organizations to buy the right to subfranchise within a delineated geographic territory
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area franchise / multiple-unit franchise
type of franchise that gives exclusive rights to open franchise-operated units within specified areas
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franchise pros
- start-up assistance
- instant recognition
- purchasing power
- advertising and promotional support
- operating guidelines and assistance
- record of success
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cooperative advertising fee
a fee paid by franchisees to a shared advertising fund that is seperate from its royalty fees
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franchise cons
- constraints on creativity and freedom
- costs
- standards and termination
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internet franchises
a type of franchise company that does not depend upon physical location for the delivery of its products or services; virtual business
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conversion franchising
when an existing or standalone business or local chain becomes part of a franchise operation
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piggy-backing or co-branding
two franchises share locations and resources
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Franchis diclosure document
the primry source of information for prospective franchisees regarding franchises
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FDD includes:
- overview and background
- fees and costs
- territory
- financial performance
- data regarding existing units
- financial statements and contracts
- procedures
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franchise agreement
contract that determines the specific parameters of the relationship betweenthe parties ina franchise
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included in franchise agreement are:
- length of time
- standards of quality and performance
- royalties
- noncompete clause
- "hold harmless clause" to protect franchisor
- intergration clauses to block franchisee from suing
- choice of venue
- clauses regarding termination, renewal, transfer
- territories
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steps to select franchise
- self reflection
- what branch
- research
- narrow your list
- broker or no
- visit chosen franchise
- contact franchise
- perform due dillagence for qualifications
- finance
- make the decision
- make it work
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franchise broker
third party consulting company that prescreens prospective franchisees and matches them with franchisors, fees generally paid by franchisors
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what is the structure of the franchise industry?
- large franchisors control most of the industry
- types include internet franchises, conversion franchising, and co-branding
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legal aspects of franchising:
- FDD is essential
- state and federal regulations govern franchising
- a franchise agreement and other legal documents will be involved
- use good counsel
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