The powerpoint presentation aims to give a simple yet detailed description of how the franchise model of business works. What are the things to look out for or consider while starting a franchise business and which franchises have been relatively successful.

2.  Franchises are generally known to the
public under a well-promoted name like
McDonald's®
 Historically, the word franchise meant the
granting of a right or privilege to an
individual or group.
 In more recent times it includes business
arrangements known as franchises,
licenses, dealerships and distributorships, to
name a few.

3.  What is franchising?
 Types of franchising
 Why franchise? Why is franchising
important to SMEs?
 Considerations for franchisor/franchisee
 Pitfalls/Be careful
 Singapore Experience

4. “A franchise operation is a contractual relationship
between the franchisor and franchisee in which the
franchisor offers or is obliged to maintain a
continuing interest in the business of the franchisee
in such areas as know-how and training; wherein
the franchisee operates under a common trade
name, format and/or procedure owned or
controlled by the franchisor, and in which the
franchisee has or will make a substantial capital
investment in his business from his own resources.”
- Definition by International Franchise Association

5.  Legal and commercial arrangement concerning
the successful business of a franchisor
 Use of franchisor’s trade name, format, system
and/or procedure under licence
 Means to raise capital and expand quickly
 Assistance to franchisee
› Marketing, management, advertising, store design,
standards specifications
 Payment by franchisee by way of royalty,
licensee fee or other means

6. › Extends to an entire operation or method of
business
› Greater assistance, control and longer duration
› Distributor merely re-sells products to retailers or
customers

7.  3 main types of franchise:
› Product distribution franchise;
› Business format franchise; and
› Management franchise.

8.  A product distribution franchise model is very
much like a supplier-dealer relationship.
 Typically, the franchisee merely sells the
franchisor’s products. However, this type of
franchise will also include some form of
integration of the business activities.

9.  Examples of famous product distribution franchise:

10.  In a business format franchise, the integration of
the business is more complete.
 The franchisee not only distributes the
franchisor’s products and services under the
franchisor’s trade mark, but also implements the
franchisor’s format and procedure of conducting
the business.

13.  A form of service agreement.
 The franchisee provides the management
expertise, format and/or procedure for
conducting the business.

14.  Franchises offer important pre-opening
support:
› site selection
› design and construction
› financing (in some cases)
› training
› grand-opening program

15.  Franchises offer ongoing support
› training
› national and regional advertising
› operating procedures and operational
assistance
› supervision and management support
› increased spending power, access to bulk
purchasing and economies of scale

16.  Developing franchise concept
 Market research
 Familiarity with local laws and
regulations
 Providing training and support to
franchisees

17.  Criteria for choosing franchisees
 Control over franchisees
 Supply of products/materials to
franchisees
 Intellectual property rights issues, e.g.
trade mark registration

18.  Demand
 Profitability of franchise, and length of
time required to recoup investment
 Track record of franchisor
 Support rendered to other franchisees

19.  Experience and profitability of other
franchisees
 Existence of competition
 Capital required
 Demands of franchisor, e.g. income
projections, deadline to open more
franchise outlets

20. Regulated by contract which usually
covers:
 Initial fee
 Royalty fee/Management fee
 Capital required from franchisee
 Territory/Area of operation
 Duration of license and renewal
 IPRs
 Termination

21.  The franchisee is not completely independent.
 In addition to the initial franchise fee, franchisee
must pay ongoing royalties and advertising fees.
 Franchisee must be able to balance restrictions
and support provided by the franchisor with their
own ability to manage the business

22.  A damaged image or franchise system can
result if other franchisees perform poorly or
the franchisor has financial problems.
 The duration of a franchise is usually limited
and the franchisee may have little or no say
concerning termination

23.  Not reading, understanding and/or asking
questions about the franchisee agreement and
other legal documents
 Not understanding the responsibilities of a
franchisee and the rights and obligations of a
franchisor
 Not seeking sound legal and financial advice
 Not verifying oral representations of franchisor

24.  Not analyzing the local market in
advance
 Not analyzing the competition
 Not making thorough due diligence of
the franchisor
 Not choosing the right location