Chapter Four Flashcards
Franchisor
Person who owns a franchise. A party in franchise contract that specifies methods to be followed and terms to be met by the other party
Franchisee
An entrepreneur whose power is limited by a contractual agreement with the franchisor
Franchise contract
The legal agreement between franchisor and franchisee
Franchise
The privileges conveyed in the franchise contract
Advantages of franchising
– Probability of success
– Training
– Financial assistance
– Operating benefits
Limitations of franchising
– Franchise costs
– Restrictions on business operations
– Loss of independence
– Lack of franchisor support
Churning
Terminating a successful franchise operation in order to resell it and gain additional franchise fees
Encroachment
Locating a new outlet or points of distribution too close to an existing franchisee, causing material loss of sales
Product and tradename franchising
A franchise agreement granting the right to use a widely recognized product or name
Business format franchising
A franchise arrangement whereby the franchisee obtained an entire marketing and management system geared to entrepreneurs
Master licensee
An independent firm or individual acting as a middleman or sales agent with the responsibility of finding new franchisees within a specified territory
Multiple unit ownership
Ownership by a single franchisee of more than one franchise from the same company
Area developers
Individuals or firms that obtain the legal right to open several franchise outlets in a given area
Piggyback franchising
The operation of a retail franchise within the physical facilities of a host store
Multi brand franchising
The operation of several franchise organizations within a single corporate structure
Co-branding
Bringing two or more franchise brands together under one roof
Due diligence
The exercise of prudence, such as would be expected of a reasonable person, in the careful evaluation of a business opportunity
Asset-based valuation
Estimates the value of the firms assets; does not reflect the value of the firm as a going concern
Market comparable valuation
Considers the sale prices of comparable firms; difficulties in finding comparable firms
Cash flow based valuation
Compares the expected and required rates of return on the amount of capital to be invested in the business
Franchise disclosure document
A detailed statement that provides the excepted format for satisfying the franchise disclosure requirements of the FTC
Franchise rule
A rule that prescribes that the franchisor must disclose certain information to prospective franchisees
Business brokers/ matchmakers
Specialize brokers that bring together buyers and sellers of business
Nondisclosure agreement
An agreement in which the buyer promises the seller that he or she will not reveal confidential information or violate the sellers trust
Fair market value
The price at which the property would change hands between a willing buyer and a willing seller, with both parties having reasonable knowledge of relevant facts
Franchising
A marketing system involving a legal agreement, whereby the franchisee conducts business according to the terms specified by the franchiser
