Franchise Agreement
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discussion_2-1.docx2 – 1: Franchise agreement—franchisor perspective : Select one of the franchise agreements posted by your classmates in the franchise agreement wiki. Identify unique aspects of the agreement. Why do you think this franchise agreement was written with these requirements? Why would you buy/not buy this franchise based upon the factors that you discovered? Review the comments posted by three of your classmates and provide your own analysis.
Example 1
One of the franchise agreement posted on wiki was burger king. Burger King has several aspects of the franchise agreement that I think are unique. The first aspect is that the first thing that is discussed is the place of operation and the investment. The investment range for franchising a burger king ranges from $296,500 to $2,640,000. The price also includes a fifty thousand dollar initial franchise fee. According to the agreement that fee maybe less if the term is less than 20 years. I believe burger king wrote the agreement with these to term so that franchisees will know up front what is expected financially and there would not be any surprises. I would not buy this franchise just because I don’t like burger king. At the same time I do believe burger king is a great investment and would produce a return on the high investment. Another thing that I found interesting was that the franchise agreement was 738 pages. That is a lot of disclosure and information.
Example 2
I went through Chili’s Grill and bar restaurant franchise agreement. I think this franchise agreement is interesting because the franchisor agrees to train up to 4 managers. In addition, the royalty fees are 4% of gross sales. I thought this is an interesting offer as compared to McDonald’s that takes 5% royalty fees. Another clause of this agreement I like is the option to pay half of the franchise price upon signing and pay the balance 10 days before opening the restaurant. Also, the franchisee doesn’t get to directly compete with other franchisees within the same area like other restaurant. Considering these factors I could consider buying this franchise.
Reference:
Chili’s Grill and Bar restaurant franchise agreement. Retrieved from http://contracts.onecle.com/bertuccis/chilis-franchise-1997-09-22.shtml
Answer this question
Class, did you know that a Franchise Agreement is a legal, binding contract between a franchisor and franchisee, enforced in the United States at the State level.
Prior to a franchisee signing a contract, the US Federal Trade Commission regulates information disclosures under the authority of The Franchise Rule. The Franchise Rule requires a franchisee be supplied a Uniform Franchise Offering Circular (UFOC) or Franchise Disclosure Document (FDD) prior to signing a franchise agreement, a minimum of ten days before signing a franchise agreement.
Once the Federal ten day waiting period has passed, the Franchise Agreement becomes a State level jurisdiction document. Each state has unique laws regarding franchise agreements.
Can you add your insight to this?
Answer1
This is interesting...since the Franchise Agreement is under state law, a Franchisor must have to keep track of (up to 50) different sets of US law for the states in which it has a franchise. Also, this must also mean that a national franchise (McDonalds, Subway, etc) can not be tried in Federal court? I also understand that the FTC took this so as to avoid antitrust or interstate commerce issues.
Answer2
Very interesting; The FDD will include disclosure about what’s expected of you as a franchisee and what you should expect from the franchisor. The FDD discusses the experience of company executives, financing, fees to be paid, litigation, the network of franchisees, the terms of the franchise agreement and much more. It very imperative for any future franchisee to Careful study of the FDD as it can increase the likelihood that the person experience success as a franchise owner.
2 – 2: Find a franchise agreement . Identify the agreement’s benefits and requirements of the franchisor and franchisee. Would you buy this franchise?
Example 1
The franchise agreement I looked at is for Chili’s Bar and Grill Restaurant. There are six main requirements of the franchisor in this agreement. These requirements include that the franchisor will; provide the initial training of up to four managers, provide on-site pre-opening and opening supervision and assistance (which may include the opening crew), make available the research data on marketing and advertising and have the right to approve and disapprove all advertising, provide one copy of the Confidential Manual of Operating Data, provide advice and materials for managing and new developments for improvements in the restaurant business, and must seek to maintain the high standards of quality in appearance and service. The franchisee will pay the franchisor an initial franchise fee of $40,000. This will be split between the date of construction and ten days before the restaurant is to open for business. The franchisee will then pay the franchisor a monthly fee of four percent of the gross sales of the restaurant. Aside from payments, the franchisee is also responsible for other aspects such as be qualified and authorized to do business in each jurisdiction the business takes place. There are also many other requirements such as the responsibility for expenses due to training, using the restaurant building only for the restaurant business, and responsibility to maintain a competent and trained staff (Onecle 2014).
The agreement is forty-one pages long. Each section has many requirements and each requirement is a paragraph long. The agreement is very descriptive and seems to cover everything. It covers many different scenarios and offer very specific instructions, requirements, and responsibilities. I would look at data on the future of the restaurant before I decided whether or not to buy the franchise to see what type of future the restaurant is likely to have. Otherwise, I think this franchise is one to look at as a possible purchase.
Oncele. (2014). Chili’s Grill & Bar (R) Restaurant Franchise Agreement. Retrieved from: http://contracts.onecle.com/bertuccis/chilis-franchise-1997-09-22.shtml
Example 2
The UPS Store http://www.theupsstorefranchise.com/
The UPS Store will offer assistance in selecting a location, negating the lease, designing the store, and getting the store running. They will also help with advertising to build up excitement and let people in the community know the store is opening. Their public relations team will provide the tools needed to get local media coverage for the store.
The UPS Store also offers training. Before you open your store you get one month of training to help develop your business knowledge and day-to-day operational skills. UPS Store is associated with Franchise America Finance and The Bancorp Bank, and with the help of these companies they will provide access to financing resources.
They also offer support day or night to franchise owners. They are also continually researching new products and services to help owners serve their customers better. The benefits of The UPS Store franchise is brand strength, national marketing, world class training, dedicated support and tools, retail solutions, and multi-unit opportunities.
To start up a UPS Store franchise an owner needs to account for start up costs at a traditional location range from $148,734 to $347,241. Start up costs of a new Main Street location ranges between $118,714 and $216,097. Franchisees must meet the minimal financial requirements and be able to capitalize the franchise investment, including work capital and any living expenses during the set-up period. All franchisees must be able to verify a minimum of $60,000 in liquid assets. A co-applicant can help meet these requirements.
To get approval a franchisee must go through an approval process. The first step is to attend a national webinar and fill out an application. The second step is the first interview, the franchise disclosure is completed, financials are submitted, and an executive interview is conducted. The third step is the signing of the letter of intent, initial application fee is collected, and an approval letter is sent. The final step is securing the financials, site approval, lease signing, the 5 week training course is completed, and the franchise agreement is signed.
I think this is a good franchise to buy into. They have a nationally known name and people are aware of what they do. They offer training to make sure you have the knowledge and means to successfully run a store. They also help with the finances to make sure the store can be successful.
