FAQ

WHAT IS A FRANCHISE?

A franchise (or franchising) is a method of distributing products or services

involving a franchisor, who establishes the brand’s trademark or trade
name and a business system, and a franchisee, who pays a royalty and
often an initial fee for the right to do business under the franchisor's name
and system. Technically, the contract binding the two parties is the
“franchise,” but that term more commonly refers to the actual business that
the franchisee operates. The practice of creating and distributing the brand
and franchise system is most often referred to as franchising.

There are two different types of franchising relationships. FOCO is the type
most identifiable. In a FOCO franchise model, the franchisor provides to the
franchisee not just its trade name, products and services, but an entire
system for operating the business. The franchisee generally receives site
selection and development support, operating manuals, training, brand
standards, quality control, a marketing strategy and business advisory
support from the franchisor. While less identified with franchising, traditional
or product distribution franchising is larger in total sales than FOCO
franchising.

Franchising Is About Relationships

Many people, when they think of franchising, focus first on the law. While
the law is certainly important, it is not the central thing to understand about
franchising.  At its core, franchising is about the franchisor’s brand value,
how the franchisor supports its franchisees, how the franchisee meets its
obligations to deliver the products and services to the system’s brand
standards and most importantly – franchising is about the relationship that
the franchisor has with its franchisees. 

Franchising Is About Brands

A franchisor’s brand is its most valuable asset and consumers decide

which business to shop at and how often to frequent that business based
on what they know, or think they know, about the brand.  To a certain
extent consumers really don’t care who owns the business so long as their
brand expectations are met. If you become a franchisee, you will certainly
be developing a relationship with your customers to maintain their loyalty,
and most certainly customers will choose to purchase from you because of
the quality of your services and the personal relationship you establish with
them. But first and foremost, they have trust in the brand to meet their
expectations, and the franchisor and the other franchisees in the system
rely upon you to meet those expectations. 

Franchising Is About Systems and Support

Great franchisors provide systems, tools and support so that their

franchisees have the ability to live up to the system’s brand standards and
ensure customer satisfaction.  And, franchisors and all of the other
franchisees expect that you will independently manage the day-to-day
operation of your businesses so that you will enhance the reputation of the
company in your market area.

When selecting a franchise system to invest in, you want to evaluate the
types of support you will be provided and how well the franchisor is
managing the evolution of the products and services so that it keeps up
with changing consumer expectations.  Some of the more common
services that franchisors provide to franchisees include:

 A recognized brand name,

 Site selection and site development assistance,
 Training for you and your management team,
 Research and development of new products and services,
 Headquarters and field support,
 Initial and continuing marketing and advertising.
WHAT ARE COMMON FRANCHISING
TERMS AND DEFINITIONS?

• FOFO MODEL : This type of franchise includes not only a product,

service and trademark, but also the complete method to conduct the
business itself, such as the marketing plan and operations manuals. 

• Non Disclosure statement: Also known as the NDA, or Franchise Non

Disclosure Document, the disclosure document provides information about
the franchisor and franchise system.    

• NDA: The Franchise Non Disclosure Document, NDA, is the format for

the disclosure document which provides information about the franchisor
and franchise system to the franchisee.    

• Franchise: A license that describes the relationship between the

franchisor and franchisee including use of trademarks, fees, support and
control.    

• Franchise agreement: The legal, written contract between the franchisor

and franchisee which tells each party what each is supposed to do.    

• Franchisee: The person or company that gets the right from the

franchisor to do business under the franchisor’s trademark or trade
name.    

• Franchising: A method of business expansion characterized by a

trademark license, payment of fees, and significant assistance and/or
control.    

• Franchisor: The person or company that grants the franchisee the right

to do business under their trademark or trade name.    

• FOCO: A franchise where the franchisee simply sells the franchisor’s

products without using the franchisor’s method of conducting business.    

• Royalty: The regular payment made by the franchisee to the franchisor,

usually based on a percentage of the franchisee’s gross sales.    

• Trademark: The marks, brand name and logo that identify a franchisor

which is licensed to the franchisee.  
WHAT INFORMATION DOES A
FRANCHISE DISCLOSURE DOCUMENT
(FDD) CONTAIN?

The purpose of the Franchise Disclosure Document (FDD) is to provide

prospective franchisees with information about the franchisor, the franchise
system and the agreements they will need to sign so that they can make an
informed decision. 

The Items Contained in a Franchise Disclosure Document

• Item 1: The franchisor and any parents, predecessors and affiliates.  This
section provides a description of the company and its history.   

• Item 2: Business experience.  This section provides biographical and

professional information about the franchisors and its officers, directors,
and executives.    

• Item 3: Litigation.  This section provides relevant current and past criminal
and civil litigation for the franchisor and its management.     

• Item 4: Bankruptcy. This section provides information about the franchisor

and any management who have gone through a bankruptcy.   

• Item 5: Initial fees. This section provides information about the initial fees
and the range and factors that determine the amount of the fees.   

• Item 6: Other fees. This item provides a description of all other recurring
fees or payments that must be made.    

• Item 7: Initial investment. This item is presented in table format and

includes all the expenditures required by the franchisee to make to
establish the franchise.   

• Item 8: Restriction on sources of products and services. This section

includes the restrictions that franchisor has established regarding the
source of products or services.   

• Item 9: Franchisee's obligations. This item provides a reference table that

indicates where in the franchise agreement franchisees can find the
obligations they have agreed to.   
• Item 10: Financing. This item describes the terms and conditions of any
financing arrangements offered by the franchisor.    

• Item 11: Franchisor's Assistance, Advertising. Computer Systems and

Training. This section describes the services that the franchisor will provide
to the franchisee.   

• Item 12: Territory. This section provides the description of any exclusive

territory and whether territories will be modified.    

• Item 13: Trademarks. This section provides information about the

franchisor's trademarks, service and trade names.    

• Item 14: Patents, copyrights and proprietary information. This section

gives information about how the patents and copyrights can be used by the
franchisee.   

• Item 15: Obligation to participate in the actual operation of the franchise

business.  This section describes the obligation of the franchisee to
participate in the actual operation of the business.   

• Item 16: Restrictions on what the franchisee may sell. This section deals
with any restrictions on the goods and services that the franchisee may
offer its customers.   

• Item 17: Renewal, termination, transfer, and dispute resolution. This

section tells you when and whether your franchise can be renewed or
terminated and what your rights and restrictions are when you have
disagreements with your franchisor.    

• Item 18: Public Figures. If the franchisor uses public figures (celebrities or

public persons), the amount the person is paid is revealed in this section.    

• Item 19: Financial Performance Representations. Here the franchisor is

allowed, but not required, to provide information on unit financial
performance.    

• Item 20: Outlets and Franchisee Information. This section provides

locations and contact information of existing franchises.   

• Item 21: Financial statements. Audited financial statements for the past

three years are included in this section.        

• Item 22: Contracts. This item provides of all the agreements that the
franchisee will be required to sign.   
• Item 23: Receipts. Prospective franchisees are required to sign a receipt
that they received the FDD.

WHAT ARE THE ADVANTAGES AND

DISADVANTAGES OF OWNING A
FRANCHISE?

Advantages:

“Owning a franchise allows you to go into business for yourself, but not by
yourself.” A franchise provides franchisees (an individual owner/operator)
with a certain level of independence where they can operate their business.
A franchise provides an established product or service which may already
enjoy widespread brand-name recognition. This gives the franchisee the
benefits of a pre-sold customer base which would ordinarily takes years to
establish. A franchise increases your chances of business success
because you are associating with proven products and methods.
Franchises may offer consumers the attraction of a certain level of quality
and consistency because it is mandated by the franchise agreement.

Franchises offer important pre-opening support: site selection, design,

construction, financing, training, and a grand-opening program 

Franchises offer ongoing support: training, national and regional

advertising, operating procedures, operational assistance, ongoing
supervision and management support, increased spending power, and
access to bulk purchasing.

Disadvantages:

The franchisee is not completely independent. Franchisees are required to

operate their businesses according to the procedures and restrictions set
forth by the franchisor in the franchise agreement. These restrictions
usually include the products or services which can be offered, pricing and
geographic territory. For some people, this is the most serious
disadvantage to becoming a franchisee. In addition to the initial franchise
fee, franchisees must pay ongoing royalties and advertising fees.
Franchisees must be careful to balance restrictions and support provided
by the franchisor with their own ability to manage their business. A
damaged, system-wide image can result if other franchisees are performing
poorly or the franchisor runs into an unforeseen problem. The term
(duration) of a franchise agreement is usually limited and the franchisee
may have little or no say about the terms of a termination. 

HOW DO I MAKE MY FRANCHISE

SUCCESSFUL?

Making any business reach its full potential takes talent and hard work. If
you've selected your franchise well, your franchisor will be able to help you
avoid many of the mistakes new, independent start-up businesses make.
Below, we've listed 10 keys for franchise success.

Make sure you have enough money.  

 Determine how much you have to invest, how much you're willing to
risk and how much you will need to live on for at least 12 months.   
 Make sure you understand the initial investment required.   
 Make a careful and rational decision about buying the franchise. 
Listen to your attorney and accountant and do not be pressured by
the franchise salesperson.

Follow the system.  

 Franchisees often get their business up and running and then begin
to change, add or modify existing products, advertising, hours,
services, and even the quality and consistency they are licensed to
deliver.  This violates the franchise agreement and puts you in
jeopardy of having your franchise terminated!  
 By following the system, you:
o Preserve the brand 
o Protect your investment and that of your fellow franchisees

Don't neglect your family and friends.   

 Be prepared to work long hours, but also make sure to budget time
for your family and friends.   
 Don't forget to acknowledge the sacrifices your family makes.   
 Allow your family and friends to share in your new life.
Be an enthusiastic franchisee. 

 The success of any business is linked to the level of enthusiasm you

bring to the job.   
 Enthusiasm brings a level of excitement and energy to the operation
that everyone can feel-including your customers and staff.  
 Let your staff in on the fun.  Acknowledge their good work with
recognition or a raise.   

Recruit the best and treat them with respect.  

 Good help is hard to find-great help is essential.   

 To keep the good staff you've hired:  
o Rotate routine and boring jobs.   
o Be fair. Don't show favouritism.   
o Work with your staff to develop the schedule.  
o Treat your employees with respect.  Don't allow employees to
be disrespectful to any other employee.   
o Keep employees informed of new marketing and other
promotions.   
o Remove hassles-ask employees which procedures are working
and which aren't.   
o Make their workdays challenging.   
o Provide timely performance reviews and wage salary
increases.  

Teach your employees.  

 In franchising, training should be continuous.  Employees are you

front line. 
 Training classes are a good way to show your employees that they
matter to you.  
 Get all the training you can from the franchisor.   
 regularly train and retrain all your employees.   
 Hold refresher and advanced classes on a regular basis.   
 Alert your franchisor when you need additional training.  
 Take advantage of every training opportunity, whether it's offered by
the franchisor or by local schools, trade associations and other
sources.  

Give customers great service.  

 The most important thing you can do is to get everyone to smile!  

 Let the customer know you're happy they chose your business.  

Get involved with the community. Customers like to shop in places that

support them.  

 Sponsor Little League team 

 Support a civic or youth group 
 Give tours of your business for school groups 
 Set up a kiosk at community events 

Stay in touch with your franchisor and other franchisees:  

 Stay in communication with the franchisor: Letters, newsletters,

emails, phone calls, faxes, training classes, regional meetings,
conferences and conventions.  
 Communicate with other franchisees by participating in the franchise
owners association.  

Watch the details.  

 Success is in the pennies! If you watch your pennies, the dollars will
take care of themselves.  
 Minimize costs and maximize sales.  
 Watch out for shrinkage (merchandise that is missing or unaccounted
for).  
 Work hard every day. Choose your time away from the franchise
wisely.