Dollinger index

418 ENTREPRENEURSHIP

Franchisee Guidelines

The potential franchisee should investigate a franchise opportunity by doing the following:^15

1. Perform a self-evaluation. Is franchising really for you? If you are very entrepreneurial, maybe
   not. Franchising requires discipline to operate under someone else’s concept. But if you are
   just getting started and like the idea of owning your own business, franchising can give you
   some low-risk experience.


2. Investigate the franchisor. Visit other company stores and talk to other franchisees. Question
   earnings. Find out how the franchisor treats the franchisees in good times and bad. Pay par-
   ticular attention to the extent to which the franchisor respects the franchisee’s territory. You
   do not want to be in competition with your own franchisor.


3. Study the industry and competition. There are no sure things, and overall industry conditions
   and the nature of the competition will affect the individual franchisee. Also look at the
   degree of regulation in the industry. Many convenience store/gas station franchisees were
   stunned in the 1980s when they had to replace their underground gas storage tanks after
   the government mandated tighter environmental controls. Few were prepared for the
   expense.


4. Study the Uniform Franchise Offering Circular (UFOC). The UFOC is the document
   required of every franchisor by the FTC. It contains some 20 items, including the history
   of the franchise; the background of the franchisor(s); a description of the franchise, the
   financial obligations of the parties, territories and sales restrictions; and matters related to
   copyrights, trademarks, logos, and patents.


5. Investigate the franchisor’s disclosures. The franchisor is obligated to report any “fact, circum-
   stance, or set of conditions which has a substantial likelihood of influencing a reasonable
   franchisee or a reasonable prospective franchisee in the making of a significant decision

Issue Questions to resolve

Franchise fee

Royalties

Quality control

Advertising

Offerings

Amount? One time or per unit?

Amount? As a percentage of net or gross? Sliding scale?

Quality specifications? Inspections and monitoring? Rewards

and sanctions?

Fee? Local budget? National? Extensiveness and

intensiveness? Messages and campaigns?

Product line? Product mix? Required offerings? Alternatives?

Franchisee-generated offerings?

Required? Additional? Financing?

Site selection requirements? Franchisor aid? Financing?

Signs? Hours? Maintenance? Décor? Personnel policies?

Types of reports? Frequency? Auditing? Sanctions?

Methods? Equity? Arbitration?

Timing? Causes? Sanctions?

Equipment

Location

Operations

Reporting

Dispute resolution

Termination

SOURCE: Adapted from R. Justis and T. Judd, Franchising (Cincinnati, OH: Southwestern Publishing, 1989).

TABLE 10.3A Issues to Be Addressed in a Franchising Agreement