Republic of the Philippines

Bulacan State University

City of Malolos
Tel. No. (044) 919-7800 to 99 Local 1022

College of Business Administration

AY 2020-2021

MODULE
IN
FRANCHISING
(ELEC 303)

Prepared by:
Amabelle Bernadette A. Alcaraz
Daisy A. Camua
Maricel C. Galang
Dr. Catalino Mendoza
OVERVIEW OF THE MODULE

A business that brings in profit to the owner and has captured the curiosity

and interest of its market will actually strive to extend. Franchising is one of the
fastest developing and well known concepts for business expansion. It is where
a franchisor who has created a certain way of doing a business gives a
franchisee the right to utilize that business concept in exchange for a certain fee.

In conjunction with the right to use the business concept of the franchisor will

permit the franchisee the intellectual property rights connected with the business
concept and provide support and training to the franchisee. In principle, an effective
business is being duplicated and managed by entrepreneurs who are called
franchisees with the supervision, control and help of the proprietor of the business
concept owner, the franchisor.

This module will help the readers understand the idea, issue, and concerns of
having a franchised business. This will help them understand the trade better.
Franchising shows that working as a team with collaboration can make the business
stronger and competitive.

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TABLE OF CONTENTS

UNIT 1: INTRODUCTION TO FRANCHISING AN OVERVIEW 5

LESSON 1: Franchising History  6
LESSON 2: Definition of Franchising 8

UNIT 2: UNDERSTANDING THE FRANCHISOR AND FRANCHISEE RELATIONSHIP 11

LESSON 1: Franchising Process 12
LESSON 2: Franchise Agreement 16

UNIT 3: LEGAL ASPECTS OF FRANCHISING 23

LESSON 1: Franchise Regulation 25
LESSON 2: Laws Governing Franchise Business 33

UNIT 4: FRANCHISING DECISION 40

LESSON 1: ADVANTAGES AND DISADVANTAGES OF FRANCHISING 43
LESSON 2: CONSIDERATION IN SELECTING FRANCHISES 46
LESSON 3: MISTAKE TO AVOID IN BUYING A FRANCHISE 49

UNIT 5: HOW WILL YOU MARKET YOUR FRANCHISE BUSINESS? 57

LESSON 1: What is Marketing? 59
LESSON 2: Development of the Marketing Plan 62
LESSON 3: Developing the Franchise Sales Plan 65

UNIT 6: STRATEGIC PLANNING FOR GROWING FRANCHISORS 75

LESSON 1: Business Planning for the Growing Franchisor 76
LESSON 2: The Ongoing Business Planning Process 80
LESSON 3: Habits of Highly Successful Franchisors 80

UNIT 7: CAPITAL FORMATION STRATEGY 86

Lesson 1: THE INITIAL AND ONGOING COSTS OF FRANCHISING 88
Lesson 2: CAPITAL FORMATION STRATEGY 89
Lesson 3: VENTURE CAPITAL AS A SOURCE OF GROWTH FINANCING FOR THE
FRANCHISOR 91
Lesson 4: DEBT FINANCING ALTERNATIVES FOR THE GROWING FRANCHISOR 91
Lesson 5: THE USE OF INITIAL PUBLIC OFFERING BY GROWING FRANCHISORS 92

UNIT 8: MANAGEMENT AND LEADERSHIP ISSUES IN BUILDING A FRANCHISING

ORGANIZATION 95
LESSON 1: Management and Leadership Issues in Franchising Business 96
LESSON 2: Building a Management Team 99

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LESSON 3: GUIDELINES FOR ESTABLISHING BOARD OF DIRECTORS AND ADVISORY
BOARD 101

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 UNIT 1

INTRODUCTION
TO
FRANCHISING

4
UNIT 1: INTRODUCTION TO FRANCHISING AN
OVERVIEW
TITLE OF THE LESSONS: 
● History of Franchising 
● Franchising Definition

DURATION: 3 HOURS (Week 2)
INTRODUCTION:
Over the years, different business concepts arise around the world and
become profit generation. Franchising is one of the most common business concepts
for entrepreneurs since it is adaptable. There have been multiple numbers of
franchise concepts here in the Philippines in recent years, and there is more and
more capitalist who wants to venture in this kind of enterprise.
   
Franchising is an organizational form used in different industries, especially in
retail and service chains, to create job opportunities and economic and local
development and take advantage of the mastery and responsiveness of small-scale
entrepreneurs to embrace the local market (Cochet et al., 2008). It explains that any
individual with or without experience or understanding in business may operate
because there will be someone who will train and guide them along the way.
 
Suitable techniques and procedure:
● Practical Exercise/Question
● Discussion and Explanation of the Lesson
● Additional Readings
● Self-Assessment
● Key Takeaways

OBJECTIVES:

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 In this lesson, the student will acquire knowledge of the concept of franchising
history. Students must also learn that franchising provides opportunities for
individuals and business firms who want to expand the number of dispersion outlets
carrying their products and services, which can be purchased by the target
consumers and help boost the economy.
 

PRACTICAL EXERCISE/QUESTION: Pretest

 Essay:
If you intend to start your own business but do not know how a company is
established, a franchise business is the best option for you. Having a successful
franchise business includes having a good relationship with the franchisor. What
attributes of a franchisor will you look at which you think may help you become a
successful franchisee?
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DISCUSSION AND EXPLANATION OF THE LESSON:

LESSON 1: Franchising History 

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 Franchising is the most common business concept around the world. A good
franchise model depends on the treatment and relationship of the franchisor to its
franchisees. Franchising became an emergent trend in the business industry. It is
also a contractual agreement between a franchisor and a franchisee that permits the
franchisee to operate a retail outlet employing a name and format created and
supported by a franchisor. Nowadays, franchising is one of the fastest-growing forms
of business in the world. It can be conceptualized as a system of marketing goods
and services or technology, which is based upon a near and continuous
collaboration between lawfully and financially separate and autonomous
undertakings, that is, the franchisor and its franchisees, whereby the franchisor
grants its franchisee the right, and imposes the commitment, to conduct business
following the franchisor’s concept (Antonowicz, 2011)
In late 1800, William E. Metzger of Detroit became the first official franchisee
of General Motors Corporation. That time GM Corp. sell directly to customers from
assembly plants and thru agents on a consignment basis. During those times,
General Motors doesn’t have enough capital to operate or open a retail outlet.
Because of this, they began selling automobiles through the franchise system. From
that simple beginning, franchising as a concept spread throughout the US economy
in the early 20th century. Henry Ford followed these examples after establishing a
mass production system for the Model T and look for an efficient mechanism for the
distribution of the product. His search also ended in franchising. He focused on
establishing dealers in as many communities as possible throughout the United
States.

Other franchises began after; Rexall Drugstore began developing franchising

in 1902 by Lewis Ligget; Western Auto in Kansas City began in 1909; Ice cream
maker named Howard Johnson also offered three “superior” ice creams.

The franchising concept did not bloom in the early 1950s, but during 1955,
Ray Kroc started scribbling the success story of McDonald’s in which it stressed
quality, service, cleanliness, and value (QSCV).

During the 19th century, Singer Sewing Machine formed its franchised
business in the Philippines, 50 years later. In 1910, it was introduced to the
Philippines when the country was still in the United States colony. The type of
franchising that time was then called product distribution franchising. A & W

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Restaurant opened in the country by the early 1980’s they were about 50 franchises
in the country. During that time, franchising was only for big business. 

Things began to change when the Philippine Franchise Association (PFA)

was established in 1995. There were about 100 franchise concepts at that time, and
today, they have 1,093 franchise brands or ideas and creating 124,000 franchise
outlets that will create 1 million jobs for Filipinos.

LESSON 2: Definition of Franchising

From the French word, Honesty or Freedom; is a method of doing business

wherein a franchisor permits proven ways of doing business to a “franchisee” for a
fee and a percentage of sales or profits. It is also defined as a contractual agreement
between a franchisor and a franchisee that permits the franchisee to operate a retail
outlet employing a name and format created and supported by a franchisor.
Franchising is commonly understood as a “contractual agreement between two
legally independent parties in which one firm, the franchisee, pays the other firm, the
franchisor; the right to sell the franchisor’s product and/or services, the right to use
its trademarks and business format and concept in a given area for a specified
period.

ADDITIONAL READINGS AND REFERENCES:

Is Franchising for You? – Armando “Butz” Bartolome, 2012
Franchising in Frontier Markets – Wouter Deelder, Robin A. Miller, 2009
www.philstar.com www.forbes.com www.investopedia.com

SELF ASSESSMENT [10 points]: True or False

________1. The owner of the franchise business is the franchisee. [F]

________2. The franchise is a prevalent method to start a business. [T]
________3. Franchising is defined as a contractual agreement between franchisor
and
franchisee. [T]

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________4. There are only a few business concepts under franchising. [F]
________5. Ray Kroc is the founder and owner of Mc Donalds Corporation. [T]
________6. Marketing Department and Sales Department can be separated. [T]
________7. The owner of the franchise agreement is the franchisor. [F]
________8. Putting up a branch of a certain brand or product is a form of
franchising. [T]
________9. The franchisee automatically owns the business when franchised. [F]
________10. Franchised and company-owned are the same. [F]

      

      TASK TO-DO [20 POINTS]: 

● List down at least four types of franchise businesses around your area.
Write your answer on a separate sheet.
Instructions for the Task:
1. Identify each franchised business, e.g., KFC BSU Graceland-Fastfood
2. State an overview regarding the type of product and service they offer in the
market.
3. Do you think it is marketable? Explain why?
4. Completeness [10pts], Clearness of the statements [5pts], Promptness of
submission [5pts].
5. Submission should be made before moving to Unit 2.

 
KEY TAKEAWAYS:
● Franchising is the fastest developing form of business around the world.
● Franchisors are the owner of the business concept.
● Franchisees are the owner of the business agreement.

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 UNIT 2

UNDERSTANDING THE
FRANCHISOR-FRANCHISEE

RELATIONSHIP

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UNIT 2: UNDERSTANDING THE FRANCHISOR AND
FRANCHISEE RELATIONSHIP
TITLE OF THE LESSONS: 
● The Franchising Process
● The Franchise Agreement

DURATION: 3 HOURS (Week 3)
INTRODUCTION:
This module covers the relationship between the franchisor and the
franchisee, an ongoing contractual business governed by the Franchise Agreement.
It also discusses the relationship parameters so that both parties know their rights
and obligations to the relationship.

How ready are you? Assessing your readiness to franchise your business will
help you earn fame and fortune in the long run – Noel Siggaoat, CFE.

Being ready doesn’t mean that you only have sufficient capital to invest in the
specific franchise business you want to buy. Becoming prepared is enough to decide
and start up your willingness to the franchise. Knowing the different companies that
offer a franchise concept and comparing the best offers they have, the decision will
follow. 

Suitable techniques and procedure:

● Practical Exercise/Question
● Discussion and Explanation of the Lesson
● Additional Readings
● Self-Assessment
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 ● Key Takeaways
 
 OBJECTIVES: 
            At the end of this lesson, the students will be able to learn to:
1. know the process of getting a franchise;
2. understand the legal constraints of a franchising business; and
3. choose the most suited franchising business to one’s capabilities.

PRACTICAL EXERCISE/QUESTION: Pretest

How long should the business have been running before it must be franchised? 
How can you say that a specific business is franchisable?
 
DISCUSSION AND EXPLANATION OF THE LESSON:

LESSON 1: Franchising Process

The business model of franchising has been one of the most prominent ever
developed. Its popularity has to do with its demonstrated track record of success and
the relative ease in which people can become franchise commerce proprietors.

A franchise is a type of permit that a party (franchisee) acquires to allow them

to have access to a business's (franchisor) restrictive knowledge, process, and
trademarks to allow the party to offer products or give services under the business's
title. In trade for gaining the franchise, the franchisee often pays the franchisor an
initial start-up and annual licensing fees.
—            FRANCHISEE 
 The owner of an individual store or business concept in a franchise agreement.
—            FRANCHISOR 
The owner of a franchise in a franchise agreement.

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 Figure 1. Franchisor and Franchisee
(www.whichfranchise.co.za)

Understanding the Franchisee-Franchisor Relation

The relationship between the franchisors and the franchisees begins with a
Franchise Contract. What is a Franchise Contract?

Franchise Contract 
● the primary structure that holds the franchisor-franchisee relationship;
● an essential document that defines and stipulates the extent of actions and
conditions of the business; 
● the legal basis of the relationship. 

The Franchise Contract should indicate provisions that pertain to the following:

1. Termination
2. Transfer
3. Renewal

The Franchising Process

1. The franchisor will send the franchisee brochures and other materials, and
most likely request the franchisee to complete a questionnaire;
2. Assessment of the company's Uniform Franchise Offering Circular (UFOC),
the Federal Trade Commission (FTC) requires that this document be provided
to disclose detailed information about the franchiser at least ten days prior to
any franchise purchase. That information includes the following:
o the franchisor, its predecessors, and its partners
o business experience/history
o litigation 
o bankruptcy 
o initial franchise fee 

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 o other fees 
o initial investment 
o limitations on sources of products and services 
o franchisee's obligations 
o territory trademarks 
o patents, copyrights, and proprietary / exclusive information 

o obligation to participate in the actual operation of the franchise

business 
o restrictions on what the franchisee may sell
o renewals, termination, transfer, and dispute resolution 
o public figures 
o earnings claim 
o list of outlets 
o financial statements 
o contracts
o receipts

3. Visit several numbers of the franchisor's existing franchisees as you can.

4. Check the franchisor's business plan, operations, manuals, and market analysis.

Franchise businesses in the country enjoy a higher gross rate of 90%

compared to the general retail industry’s 25%, according to the Philippine Franchise
Association (PFA). 
With return on investments (ROI) coming in less than a year, franchising is an
ideal business option for first-time entrepreneurs.
Although the usual process varies from one franchisor to another, a franchise
business concept application typically involves these four significant steps.

1. Reach Out to Your Target Franchisors

Contact different companies that offer a franchise in your preferred industry. It
permits you to know more about the prerequisites, costs, and other important details
about running a specific franchise trade.

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Here are some ways to reach franchise providers:
Talk to franchisors directly - Find your target franchisors' contact data on their official
site, usually on the Franchising or Franchise With Us page. A few franchisors
(particularly those without website) can reached through their Facebook page.
Attend a Franchise expo - Franchise expos are a one-stop-shop for a trying
franchisee. Companies all over the Philippines (and indeed overseas) assemble in
one place to offer franchising opportunities. Make the foremost of your franchise
expo participation, so you can choose the companies worth investing in. Go to the
booths of franchisors you’re truly curious about beginning a franchise business with.
Inquire a lot of questions, as well. Franchise expos moreover hold workshops on
different trade topics. You will need to sign up for one, as it’s an incredible chance for
beginners like you to learn from industry experts.

Prepare and Submit Franchise Requirements Typical Franchise Application

Requirements
● Completed franchise application form – Visit the website and download
and print the form from the franchisors' website and make sure to fill it out
completely.
● Letter of Intent (LOI) – This letter states your reasons for applying for a
franchise business formally, including your personal contact information and
the address of your proposed location/site. Some franchisors do provide a
template for LOI on their website. If your target franchisor doesn't have their
own site, you may look for a sample Letter of Intent as your guide when
drafting yours.
● Map of your proposed site – A simple sketch or a Google Map attachment
or screenshot of photos of your chosen business location.
● Resume or curriculum vitae –Make your resume as detailed as conceivable,
highlighting your business experience, in case there's any.
● Valid IDs – Most franchisors ask applicants to submit a photocopy (front and
back) of at least two valid government-issued IDs.

Other Business Document Requirements

● Proof of billing named after you
● Bank statements for the last 3-6 months
● Business registration papers
● Taxpayer’s Identification Number (TIN)

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 ● Composed agreement with the lessor of your desired business location

1. Meet the Franchisor

The franchisor will review your franchise application archives to evaluate your
capability as a franchisee—particularly your available capital, professional
involvement, educational foundation, business connections, and other important
points of interest.
At the same time, your location will be assessed and evaluated to decide its
suitability as a franchise business area.
If you pass the first screening, the franchisor will invite you to a meeting and
interview at the company’s office. Follow-up meetings may moreover be scheduled a
while later.

What Happens During Meetings with a Franchisor?

Meeting the franchisor could be a crucial step in your application. As
prospective business accomplices, both parties ought to know on the off chance that
they’re an excellent fit for each other before closing the bargain.
The company’s store manager/supervisor, sales officer, or any agent may talk about
the following details with franchise applicants in a series of meetings:
● Details of the franchise business – The franchisor will show the company
background, as well as the points of interest of the franchise concept.
● Your franchise qualifications – The company representative may inquire and
throw questions to profound deeper into how you’ll manage and organize the
franchise business. For example, you might be incurred if you’ll be hands-on
in running the day by day operations or assign somebody else to do it.
● Your target location – Do you own the area? Or planning to lease or buy it?
The franchisor might need to know about it and assist you to discover the
perfect location for your establishment or match you with appropriate
destinations in its database.

2. Next steps of your application – The officer in charge will let you know what
you need to do following in case you choose to push through with buying the
franchise. For instance, it may require you to go to customer service and
management training.

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In reviewing the Franchise Agreement, a franchisee must pay close attention
to these details: 
● Length of effectivity of the contract
● Renewal scheme, terms, and fee
● Total establishment venture costs, including the franchise expense, royalty
charge, etc.
● Franchise package inclusions
● Franchise location (The exclusive territory or area granted to a franchisee)
● The franchisor approves suppliers of products and supplies for the franchise
business
● Grounds for termination of the contract

LESSON 2: Franchise Agreement

If you agree to all terms listed in the contract, you can sign the document. In
case not, keep exploring franchise business opportunities in other companies.
Franchisor must first know all the aspects to contemplate so that their investment
won’t go to waste. 
There are several factors to consider in franchising a business. Here are as follows;
1. Differentiation – It doesn’t mean your product or service is unique or entirely
new.
2. Continuing Value - Can your franchisee do without you in the long run? The
most straightforward way to do this is to be the sole source of proprietary
goods and services. 
3. Affordability - How much capital will a franchise need in order to put up a
replica of your store?
4. Operating Prototype - Do you have an operating prototype of the business
you want to franchise? If the business already have a successful prototype,
you can start to think of franchising it.
5. Return on Investment (ROI) – Will it be profitable?
6. Credibility - Does you brand brings confidence among customers or with
potential franchisee?
7. Adaptability - Will your business still be relevant in other markets with different
taste, cultures and conventions?
8. Teachability - How long will it take you to teach someone with no background
in your business?

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 9. Capital - Do you have the capital to invest in the development of a franchise
program?
10. Long-term Commitment - Do you commit to perform your obligations as a
franchisor for the long-term?

Already chosen on the type of business you’ll begin? After doing your research
and finding an appropriate area, you'll be able start your franchise business
application with potential franchisors. Anticipate the application process to require a
long time, at least a month for a food cart franchise. After considering these factors,
the capitalist may now know if the franchise business meets his needs and can
profitably help him gain his expected return having this kind of concept.
A master franchise agreement gives the franchisee rights than an area
improvement agreement. In expansion to having the right and obligation to open and
operate a certain number of units in a characterized area, the master franchisee, too,
has the right to sell franchises to other individuals inside the region, known as sub-
franchisees. Takes over numerous of the tasks, obligations, and benefits of the
franchisor, such as providing support and training and receiving fees and royalties.
A franchise is an agreement or license between two legally independent
parties which gives: 
● the franchisee may be a person or group of people will have the right to sell
and market a product or service using the trademark or trade name of
another/owner of the business-the franchisor
● the franchisee has the right to market and sell a product or service using the
operating methods of the franchisor
● the franchisee must pay the franchisor fees and royalties for these rights 
● the franchisor has the responsibility to provide rights and support to
franchisees

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 Figure 2
Franchise Agreement

Note: See previous topic of Franchise Agreement (Process on how to franchise)

Essential Documents:
1. The site/location. 
The site being offered should fit the business plan.
2. The projected financial plan. 
Determine the number of potential customers and projected sales.
3. The franchise agreement
The obligations of both parties should be clearly stipulated.

Questions to be asked by the franchisee to the franchisor:

1. How long have you been in business?
2. Where is your first franchise branch? 
3. How much is the total investment?
4. What are the inclusions of the investment?
5. How do I apply for a franchise? 
6. When do I get to see the documents I need for my review?
7. What kind of support do I receive from you when I want to become a
franchisee?
8. What niche does your company have? 
9. Is it possible to obtain a list and addresses of your franchisees?
10. How often do you meet with franchisees? 

Questions to be asked by the franchisee to the other franchisees:

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 1. How did you decide on getting this franchise?
2. How many franchise outlets/branches are you opening?
3. What kind of support do you usually get from the franchisor? 
4. Given another chance to purchase, will you get the same franchise business? 
5. Are you in touch with your fellow franchisees?

ADDITIONAL READINGS AND REFERENCES:

https://www.moneymax.ph/personal-finance/articles/franchise-business-application
https://www.franchiselawsolutions.com/franchise-agreements/
An Introduction to Franchising – Barbara Beshel, 2000
How to Select a Franchise – Small Business Trends/ Anita Campbell 2012

SELF-ASSESSMENT: Franchisor/Franchisee familiarization

Write Franchisor or Franchisee on the blank provided. 10pts
_______________ 1. Who buys the concept? (Franchisee)
_______________ 2. Who sells the business? (Franchisor)
_______________ 3. Who prepares the franchise agreement? (Franchisor)
_______________ 4. Who pays for the franchise? (Franchisee)
_______________ 5. The owner of the individual store. (Franchisee)
_______________ 6. They provide marketing and advertising. (Franchisor) 
_______________ 7. Who receives the franchising fee? (Franchisor)
_______________ 8. Who uses the tradename? (Franchisee)
_______________ 9. They provide training for the staffs. (Franchisor)
_______________ 10. They provide and submit franchise requirements.
(Franchisee)

POST TEST
Multiple Choice: Write the letter of the appropriate answer on the blank.

__________1. It is the primary structure that holds the franchisor-franchisee

relationship.
a. Contract Agreement c. Franchising Process
b. Franchising Contract d. Franchising Agreement

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__________2. It is a contract that binds the franchisor and the franchisee to the
franchise relationship and indicates the franchise's terms and conditions.
a. Contract Agreement c. Franchising Process
b. Franchising Contract d. Franchising Agreement

__________3. An essential document that determines the number of potential

customers and projected sales.
a. Projected Financial Plan c. Business Plan
b. Franchise Agreement d. Contract

__________4. This document clearly stipulates the obligations of both parties. 

a. Projected Financial Plan c. Business Plan
b. Franchise Agreement d. Contract

___________5. The franchise contract indicates provisions that pertains to the

following except one:
a. Termination c. Process
b. Transfer d. Renewal

__________6. They require Uniform Franchise Offering Circular (UFOC) to reveal

detailed data about the franchisor at least ten days earlier to any franchise purchase.
a. Department of Trade and Industry
b. Bureau of Food and Drugs
c. Securities and Exchange Commission
d. Federal Trade Commission

__________7. It is an extremely vital document that defines and stipulates the extent
of the business's actions and conditions.
a. Contract Agreement c. Franchising Process
b. Franchising Contract d. Franchising Agreement

__________8. It is the first step that needs to be done in the franchising process.
a. Evaluation of the company’s Uniform Franchise Offering Circular
b. Sending of brochures and materials

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 c. Reviewing of the franchisor’s business plan, operations, manuals,
etc.
d. Visiting franchisor’s existing franchisees

___________9. It is something that should fit the business plan of the franchisor.
a. Site/Location c. Franchise Agreement
b. Projected Financial Plan d. Franchising Contract

___________10. Who needs to ask if there is any support he will receive on the
franchise business?
a. Franchisor c. Franchisee
b. Customers d. Franchisor and Franchisee

      TASK TO-DO [20 POINTS]: 

Franchise business familiarization.

Instructions for the Task:
1. Search for a kiosk or food cart type of business which operates more than
3yrs to assess its stability. 
2. List down at least 5 different business concepts (food or non-food) and 
3. Discuss the context of their business.
4. Do you think it is sustainable? Why?
5. Completeness [10pts], Clearness of the statements [5pts], Promptness of
submission [5pts].
6. Submission should be done before moving to Unit 3.

 
   
  
      

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 UNIT 3

LEGAL ASPECTS
OF FRANCHISING

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UNIT 3: LEGAL ASPECTS OF FRANCHISING

TITLE OF THE LESSONS: 

● Franchise Regulations
● Laws Governing Franchise Business
DURATION: 3 HOURS (Week 4)
INTRODUCTION:
There are several "givens" in franchising. These are the different factors to
consider in venturing in this kind of business format. It's not just about the important
capital. It's about how you will secure yourself being a franchisor dealing with the
agreement from your Franchisee. 
This unit will discuss the importance of the franchise agreement and the
different legal documents to conform to franchising. As a capitalist, how will you
choose a franchise format base on the various considerations to consider.

Suitable techniques and procedure:

● Practical Exercise/Question
● Discussion and Explanation of the Lesson
● Additional Readings
● Self-Assessment
● Key Takeaways
 
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OBJECTIVES: 
 
           At the end of this lesson, the students must know the legal documents to be
prepared in franchising a business. They will also comprehend what governs the
franchise agreement and understand the legal information that must be disclosed
between the two parties. 
  
PRACTICAL EXERCISE/QUESTION: Pretest
Write at least four different government agencies concerning the application to
operate a business.

Write your answer here: (20 pts: 5 points each)

Government Agencies and their respective role in operating a business.
1.

2.

3.

4.

DISCUSSION AND EXPLANATION OF THE LESSON:

LESSON 1: Franchise Regulation

Business policies are the rules created by an organization to govern its actions.
They characterize the limits inside which decisions must be made. It also deals with
the acquisition of resources with which organizational goals can be achieved. A
business policy must have different features:
● Specific- Policy should be definite. In case it is uncertain, then the
implementation will become difficult.

25
 ● Clear- Policy must be unambiguous. It should avoid the use of jargon and
connotations. There ought to be no errors in taking after the policy. No
misunderstandings.
● Reliable/Uniform- Policy must be uniform enough to be efficiently followed by
the subordinates.
● Appropriate- policy should apply to the present organizational objective.
● Simple- A policy should be simple and must easily be understood by all in the
organization.
● Inclusive/Comprehensive- To have a broad scope, a policy must be
comprehensive.
● Flexible- Policy should be adaptable in operation. This does not mean that a
policy should always be altered, but it should be broad in scope to ensure that
the line managers use them in repetitive/routine scenarios.
● Stable- Policy should be stable. It will lead to indecisiveness and uncertainty
in the minds of those who look into it for guidance.

WHAT ARE THE LEGAL ISSUES OF FRANCHISING? 

A good relationship between the franchisor and Franchisee is critical for the victory of
both parties. Since franchising sets up a business relationship for years, the foundation must
be carefully built by clearly understanding the franchise concept. Unfortunately, knowing the
legal language of franchising can be daunting. An experienced franchise attorney's advice
should be sought to help a prospective franchisee understand the legal issues and protect them
from making costly mistakes. Franchising is administered by government and state laws that
require franchisors to supply prospective franchisees with data that describes the franchisor-
franchisee relationship. The two fundamental diversifying lawful reports are the: ✔ the
Disclosure Document, which may be in the format known as the UFOC. ✔ franchise
agreement
Disclosure Statement – also known as the UFOC, or Uniform Franchise Offering
Circular. The disclosure document provides data about the franchisor and franchise
system while;
Franchise Agreement – is a legal, written contract between the franchisor and
Franchisee, which tells both parties what each is supposed to do as discussed in the
previous unit.

Franchisors must consider the three given factors in franchising. This will help
them better understand the franchise business that they are venturing in.

26
 These factors are a. Mindset b. Governing Documents and c. Parties in a
Franchise.
a. Mindset 
● I will follow a system.
● I should have the ability to tolerate differences in opinion and should be able
to accept the consensus.
● I should be able to accept that the brand is superior.
● I will learn the art of communication.
● I will be committed to hands-on management.
● There will be business risks, and success will depend on my ability to
manage.
 

b. Governing Documents
Franchise Agreement
● FA begins by describing the franchise's nature, its trademarks briefly, know-
how, copyright and who owns them.
● FA should specify how long the agreement would last.
● Renewal periods grant the franchisor to review the FA.
● FA also carries the grounds for termination of the contract.
● Another part if FA is it explains the due cost and date a franchisor is to be
paid. Included in these fees are Franchise fees, Royalties, and Marketing
Contribution.
● The territory determines the geographical boundaries a franchisee may
operate.
● FA also specifies that a franchisee may only buy from the suppliers approved
by the franchisor. A detailed list of accredited suppliers is also provided in the
operations manual.

Operations Manual
● This embodies the operational system of the franchisor.
● Franchisees are to follow the operations manual.
● This is an extension of the franchise agreement.
● Franchisors change portions of the operations manual from time to time.

27
 ● Franchisees are to make sure they are following the latest changes in the
manual.
● The operations manual is not meant to be kept but should be used in the
branch.
● The operations manual is on loan and is returned at the end of the franchise
term.
● Memos and Written Document
● Franchisors issue directives from time to time on operations
● Franchisees are to follow these written documents
c. Parties in Franchise
● Franchisor 
● Franchisee
Note: Familiarization on Franchisor and Franchisee is in the previous unit/lesson.

Shopping for a Franchise

Deciding what franchise concept to pick takes a lot of careful consideration,
deliberation, and extensive research. There are many things to consider in buying a
concept.
Look at the landscape
Identify first what type of business/ industry you're interested in going into.
✔ See what fits your pocket -When meeting with the potential
franchisor, ask what the normal ROI will be. 
✔ Make a list -Come up with the list of potential franchise
concepts that have passed muster.
✔ Check it twice -  Check if the company is registered with DTI. A
✔ Look for support - Determine what kind of help you can expect
from the franchiser in marketing, employee training, operations,
inventory management, quality control, and others.
✔ Make it legal - It is important to know what rights and privileges
you will have under the agreement. Remember, do not be afraid
to throw and ask questions.
Upon considering these things, then a franchisor can now choose a better
partner for their planned business. Franchisees must also secure several licenses
issued by the different government agencies. Licenses are permits issued by the
various government agencies that allow an individual or companies to

28
conduct business. It is the authorization to start a business approved by the local
government.
Before getting these requirements, the Franchisee must know the business
format they are into Sole Proprietorship, Partnership, Corporation or Cooperative. 

Sample: Images copied from Pinterest

29
 Figure 3
Disclosure Document

FORM OF OWNERSHIPS

Single Proprietorship exists when one person owns the entire business;

● One person is the sole owner of the business.
● Unlimited personal liability for business debts.
● Termination of business upon the death of the owner.
30
 ● Relative freedom from government control.
● No income tax on business, only on the owner.

A partnership exists when two or more persons have come together to set up a

business contributing money and other items of value;
● Two or more persons are owners of the business
● The partnership agreement defines the partner's rights and duties.
● At least one partner must have unlimited liability for the debts of the firm.
● One of the partners can bind others when acting within the scope of the
business.
● No income tax on the partnership itself.

Corporations exist when the legal basis for the corporations' existence is embodied
in a set of articles of incorporation duly registered with the Securities and Exchange
Commission.
● Stockholders are the owners who are distinct and separate from the
corporation.
● There are more opportunities to raise capital since there are numerous
numbers of stockholders.
● Continuity of being a stock owner is unaffected by the death or transfer of
stock shares.
● Subject to more government control than other form of ownership.
● There is income tax on corporate profits and dividends paid after they are
given to stockholders.

 Cooperative All members have equal voting power irrespective of the amount of

their capital contribution.
● Coop may also become a source of funding in the business.

After identifying what business type, the capitalist may now acquire permits and
these are as follows:

31
    For Sole Proprietorship: 
● DTI REGISTRATION
● BARANGAY CLEARANCE
● MAYOR'S PERMIT
● BIR CLEARANCE (IF APPLICABLE)

For Partnership and Corporation:

A corporation requires five to 15 incorporators who must each subscribe to at
least one share. The larger part or majority of the incorporators must be residents of
the Philippines. There must be at slightest five directors, each of whom must too hold
at least one share.
 
They are required to secure permits at the Securities and Exchange
Commission. The essential requirements that need to be prepared for the
registration are:
 
● Name Verification Slip (which can be obtained from the SEC's website if you
prefer to have it before going to an SEC office)
● Articles of Partnership or AP
● A Joint Affidavit of partners to alter their partnership name on the off chance
not been expressed or stated in the AP
 
There are, in any case, additional requirements depending on the nature of your
trade. These requisites may include:
● Endorsement or Clearance from other government agencies. Check if this
applies to your business.
● FIA Form – 105 (for partnerships with a foreigner as a partner)
 

In general, corporations must have a paid-up capital of 5,000 (minimum)

Philippine pesos. At least 25 percent of the corporation's capital stock must be
subscribed, and 25 percent of the subscribed capital must be paid up. These
minimum capitalization requirements may vary depending on the percentage of
foreign investment, as discussed below. The SEC requires the corporation's general
information sheet's yearly accommodation and audited financial statements for stock
organizations with paid-up capital of at least 50,000 Philippine pesos.

32
 After obtaining these documents and approved by the SEC, the business owner
may now get a Baranggay Certificate where the business is going to operate, SSS
or Social Security System registration for the company and employees. Forms are as
follows: 
● Social Security Forms R-1 and R-1A
● Photocopy of Securities and Exchange Commission Articles of Partnership
● Business location sketch or area map
● Validated Miscellaneous Payment Return also known as SS Form R-6 or SS
Form R-6 with Special Bank Receipt (proof of payment for the Employer
Registration Plate)

Register with other government mandated agencies must follow thru:

● The new National Health Insurance Act (RA 7875/RA 9241) is requiring all
company owners in the Philippines to register their employees with Philippine
Health Insurance Corporation (Philhealth) and to pay their share of
contribution to the said agency. Registering your employees ensures that they
will be covered by this health insurance, which can greatly reduce
hospitalization costs and other healthcare needs.
● Pag-IBIG FUND. As stated in RA 7742, SSS members who earn at least
Php4,000 per month must be registered with the Home Development Mutual
Fund (HDMF) which is the agency that administers the Pag-IBIG Fund. This
agency works towards providing its members with adequate housing (loans)
through a viable saving scheme.

Obtain a Mayor's Permit by complying with these requirements: 

● Business Permit Application Form
● Baranggay Clearance
● Certificate of Registration from SEC
● Public Liability Insurance for Malls, Restaurants, Cinemas, etc.
● Authorization Letter of the owner with proper identification
● Contract of a lease
● Title and tax declaration 
● SSS Certification
● Community Tax Certificate or Cedula 
● Other documents you might prepare depending on the type of business you
will operate. Business permits are renewed every year.

33
NOTE: Registration with the Department of Labor and Employment (DOLE) is also a
must for business operations with five or more employees.

Register with the Bureau of Internal Revenue

A Mayor's Permit must be submitted some time recently preparing before
obtaining a Certificate of Registration with the BIR. Registering with the Bureau of
Internal Revenue will permit you to issue official receipts, register books of accounts,
and (for partnerships and corporations) to obtain a separate Tax Identification
Number.
There are no franchise-specific statutes in the Philippines, resulting in no legal
definition of a franchise. However, the 'Advisory on Due Diligence to be Undertaken
by a Prospective Franchisee' (DTI Advisory) of the DTI defines a franchise
agreement as:
"a written contract or agreement between two or more parties by which a Franchisor
grants the Franchisee the right to engage in the business of offering, selling or
distributing goods or services under a marketing plan/system/concept, for a certain
consideration. Unless otherwise provided, said right includes the use of a trademark,
service mark, trade name/business name, know-how, logo-type advertising, or other
commercial symbols associated with a particular business."
Furthermore, under the IPC (Intellectual Property Code), franchise
agreements are considered technology transfer arrangements. Technology transfer
arrangements (TTAs) are contracts or understandings including the exchange of
systematic knowledge for the manufactured product, the application of a process, or
the rendering of a service counting administration contracts; and the transfer, task or
permitting of all shapes of intellectual property rights, including licensing of computer
software program created for the mass market.

LESSON 2: Laws Governing Franchise Business

           As stated in the previous studies, the Franchising Agreement is a contract
between the franchisor and Franchisee. The contract law applies to FA or the
Franchise Agreement. Below are some of the key principles in contracts, according
to Atty. Jericho del Puerto.
● Principle of Autonomy
34
 ● Principle of Relativity
● Principle of Adhesion
● Principle of Mutuality
To further enhance information about the above contract law:
✔ Principle of Autonomy – allows the parties to freely stipulate to whatever
terms and conditions provided they are not contrary to law, morals, good
customs, public policy or public order.
✔ Principle of Relativity – binds only those who agreed and cannot favor or
prejudice a third person, even if he is aware of such contract and has acted
with knowledge thereof.
✔ Principle of Adhesion – penalizes the one caused the ambiguity in the
contract and thus interpretation will be against such party.
✔ Principle of Mutuality – binds both contracting parties with its validity or
compliance not left solely to the will of one of them.

Intellectual Property Law

REPUBLIC ACT NO. 8293
An act prescribing the intellectual property code and establishing the
intellectual property office, providing for its powers and functions, and for other
purposes.
The use of intellectual property bears a social function. To this end, the State
shall promote the diffusion of knowledge and information for the promotion of
national development and progress and the common good.
It is also the State's policy to streamline administrative procedures of
registering patents, trademarks and copyright, liberalize the registration on the
transfer of technology, and enhance the enforcement of intellectual property rights in
the Philippines. Under section 4 the term "intellectual property rights" consists of:
 a) Copyright and Related Rights; 
A copyright is a legal protection extended to the owner of the rights in an
original work. Original work refers to every production in the literary, scientific,
and artistic domains.
b) Trademarks and Service Marks;
A trademark as "any visible sign capable of distinguishing goods". Early
jurisprudence has taken it to mean "a sign, device or mark by which the articles
produced or dealt in by a particular person or organization are distinguished or

35
distinguishable from those produced or dealt in by others, and must be affixed to
goods or articles."

c) Geographic Indications;
Geographical indications identify a good as originating in a particular region or
locality, where a given quality, reputation or other characteristics of the good is
essentially attributable to its geographical origin.

d) Industrial Designs;
An industrial design is the ornamental or aesthetic aspect of an article. In this
sense, design may be three-dimensional features (shape or surface of an article), or
the two-dimensional features (patterns or lines of color). Handicrafts, jewelry,
vehicles, appliances - the subject of industrial designs range from fashion to
industrial goods.
The owner of a registered industrial design has the right to prevent third parties from
making, selling or importing articles bearing or embodying a system which is a copy,
or substantially a copy, of the protected design, when such acts are undertaken for
commercial purposes.

e) Patents;
A government authority or license conferring a right or title for a set period,
especially the sole right to exclude others from making, using, or selling an invention.
● A patent is the granting of a property right by a sovereign authority to an
inventor. 
● A patent provides the inventor exclusive rights to the patented process,
design, or invention for a certain period in exchange for a complete disclosure
of the invention.

f) Layout-Designs (Topographies) of Integrated Circuits; and

Republic act no. 9150
An act providing for the protection of layout-designs (topographies) of
integrated circuits, amending for the purpose certain sections of republic act no.
8293, otherwise known as the intellectual property code of the Philippines and for
other purposes.
"1. An Industrial Design is any composition of lines or colors or any three-
dimensional form, whether or not associated with lines or colors: Provided, That

36
such composition or form gives a special appearance to and can serve as pattern for
an industrial product or handicraft;

"2. Integrated Circuit means a product, in its final form, or an intermediate form, in

which the elements, at least one of which is an active element and some or all of the
interconnections are integrally formed in and/or on a piece of material, and which is
intended to perform an electronic function; and

"3. Layout-Design is synonymous With 'Topography' and means the three-

dimensional disposition, however, expressed, of the elements, at least one of which
is an active element, and of some or all of the interconnections of an integrated
circuit, or such a three-dimensional disposition prepared for an integrated circuit
intended for manufacture." -chanrobles virtual law library

g) Protection of Undisclosed Information 

The protection of trade secrets is one of the TRIPS (Trade-Related Aspects of
Intellectual Property Rights) Agreement, which mandates that member states shall
protect undisclosed information and data submitted to governmental agencies. Here
in the Philippines, protection of undisclosed information is considered an intellectual
property right by legislation. 

Technology Transfer Arrangements refers to contracts or agreements involving

the transfer of systematic knowledge for the manufacture of a product, the
application of a process, or rendering of a service including management contracts;
and the transfer, assignment or licensing of all forms of intellectual property rights,
including licensing of computer software except computer software developed for
mass market.

ADDITIONAL READINGS:
An Introduction to Franchising – Barbara Beshel, 2000
How to Select a Franchise – Small Business Trends/ Anita Campbell 2012
https://www.ykclaw.ph/how-to-register-a-partnership-business-in-the-philippines/
www.franchise.org
https://www.slideshare.net/jdpconsulting/philippine-franchising-law
https://www.officialgazette.gov.ph/1997/06/06/republic-act-no-8293/

37
https://www.ipophil.gov.ph/services/industrial-design/
https://www.investopedia.com/terms/p/patent.asp
https://www.chanrobles.com/republicactno9150.htm#.X1nRu2gzbIU
http://www.iplaw.ph/ip-views/Protection-Trade-Secrets-Against-Modes-of-
Discovery.html

SELF-ASSESSMENT: Enumeration. Write your answer in the space provided.

10pts
1. It is a type of ownership wherein there is only one owner of the
business. ________________________________________
2. A government entity where the capitalist seeks certificate so that they
can operate their business within the vicinity.
___________________________
3. These type of businesses must be registered at the Securities and
Exchange Commission _________________ and
4. ______________________
5. BIR stand for?
_______________________________________________
6. This carries the grounds for termination of the contract.
____________________________________
7. It provides information about the franchisor and franchise system.
____________________________________
8. This addresses the operational system of the franchisor.
____________________________________
9. This office gives permission to the owner of the business to operate.
____________________________________
10. Agency that protects the employees’ rights.
________________________

Key to correction:
1. Sole Proprietorship
2. Baranggay
3. Partnership
4. Corporation
5. Bureau of Internal Revenue
6. Franchise Agreement
38
 7. Disclosure Statement
8. Operations Manual
9. Mayor's office
10. DOLE
 
 
 TASK TO-DO [15 POINTS]: 
Government agency familiarization.

Instructions for the Task:

For each government office listed below, write the different requirements to be
submitted so that permit or certificate may be granted.

DTI (Department of Trade and Industry)

1.
2.
3.
4.
5.

Mayor's Permit
1.
2.
3.
4.
5.

BIR (Bureau of Internal Revenue)

1.
2.
3.
4.
5.

39
 ● Submission should be done before moving to Unit 4.
 
   
       

40
 UNIT 4

FRANCHISING
DECISION

UNIT 4: FRANCHISING DECISION

TITLE OF THE LESSON:

● Advantages and Disadvantages of Franchising

● Consideration in Selecting Franchises
● Mistakes To Avoid in Buying A Franchise

41
DURATION: 6 HOURS (Week 5-6)

INTRODUCTION

Franchising is now considered a sunrise industry because of the sector's

significant contribution to the economy. As a way of doing business, franchising
lessens the risk for a neophyte entrepreneur because he is buying an established
brand and customer base. He does not have to worry about building the business
from scratch. With the spread of the franchising concept, nowadays, more and more
people see the wisdom behind going to the franchising route.

Franchising provides numerous advantages for potential business owners,

but several disadvantages are also considered before you start embarking on a
franchise purchase.

Suitable Techniques and Procedure:

• Discussion and Explanation of the lesson

• Practical Exercise/Question
• Powerpoint Presentation
• Additional Reading
• Quiz

OBJECTIVES:

At the end of this chapter, the student shall be able to:

• Identify the various advantages and disadvantages of franchising.

• To evaluate the business opportunity and risks, problems, and mistakes on
buying a franchise.
• Ability to decide to choose a business that suits his or her needs

PRE-TEST

INSTRUCTIONS: Write TRUE if the statement is correct and FALSE if the statement
is wrong.

_______1. The franchisee receives training from the franchisor.

_______2. Franchising requires hard work, determination and commitment.

42
_______3. The franchise fee is the amount paid to the franchisor periodically.

_______4. The location of the franchise is a critical factor in the business.

_______5. A franchise contract has no expiration dates.

_______6. Franchising restricts the movement of the entrepreneur.

_______7. Blunders of other franchisees can damage your franchise reputation.

_______8. Franchises have a higher success rate than start-ups.

_______9. Owning a franchise offers you a chance to be your own boss.

_______10. Buying a well-known franchise is very expensive.

Discussion and Explanation of the Lesson

43
Franchising Decision

A. Advantages and Disadvantages of Franchising

B. Consideration in Selecting Franchises

C. Mistakes to Avoid in Buying a Franchise

WHAT ARE YOUR OPTIONS WHEN YOU BEGIN YOUR BUSINESS?

If you want to start a business, you have to decide if you're going to be an

independent business owner or a franchisee. Options for beginning a business:
✔ start a new business
✔ buy a franchise business

For a new entrepreneur, the decision to own and operate a business can be a
high-risk option, mainly because the likelihood of failure is said to be higher than in
the acquisition of a franchise. However, if the entrepreneur can adapt appropriately
to these challenges and concerns, he will eventually reap lots of exceptional
rewards.

STARTING A NEW BUSINESS

In creating a business from scratch, you have several advantages and
disadvantages as an entrepreneur.

Table 1. Advantages and Disadvantages being an Entrepreneur

Advantages Disadvantages
Usually, lower start-up cost Requires more time and energy to
create an image, build patronage
Independence and creative freedom High risk of failure
Freedom with location and Takes longer to become profitable
procedures
You may establish your policies and It has the most significant uncertainty

44
 procedures about the market demand for your
new product or service.
You can select and train your Financing may be more difficult to
employees on your way. obtain
You can also avoid the "goodwill  
"expenses of buying an existing
business and the possibility of
unknown contingent liabilities.
No inherited problems from an  
existing business

LESSON 1: ADVANTAGES AND DISADVANTAGES OF FRANCHISING

Like any other business, franchising has its advantages and disadvantages.
Any start – entrepreneur should carefully weigh the option based on the gains and
drawbacks before deciding.

The following are the advantages when an entrepreneur engages in the

franchising, meaning he obtain a license to operate a franchise locally:

Table 2. Advantages and Disadvantages of Franchising

ADVANTAGES DISADVANTAGES
Lesser Possibility of Failure. There is a High Cost of buying a franchise. Franchise fees
lower chance of failure in the franchise in the Philippines may range from P20,000 to P50
formula we tried and tested. According to the million. The underlying capitals may likewise
Philippine Franchising Association, a franchise incorporate costs from pre-opening, individual,
has a high degree of resiliency in the industry. and different situations relying upon the
establishment contract.

Increase in new market Location. Some The franchisor controls business operations. It
areas have been targeted as crucial areas for is quite common for the franchise agreement to
development. The developing number of the state that the franchisee must follow what is
populace has come about to making of a few written in the operating manual. Franchising
foundations like new streets, school, shopping restricts the entrepreneur's movement because
centers and subdivisions which later becomes actions and decision that may be taken regarding
target areas for the reason of supplying the the franchise. It must be within the parameters
demand of people. set.

Customer preferences for a franchised Fierce competition. The franchise service is an

product or services. Regular clients search attraction to the customer. That's why a part of

45
 recently made businesses start what an
for a known franchise since they like it. The
established venture offers. Moreover, other
consistency and nature of the items, just as
competing organizations are fast to respond if a
the franchise's services, give the client a
particular strategy has been demonstrated to be
"homey" feeling.
extraordinary "come-ons" to clients.

Advantages in using a successful brand

The pressure to continuously meet the market
name. The franchisee acquires the
expectation. The franchise organization should
franchisor’s advertised trademark or brand
create and continue in retooling its methodology
title. The reputation enjoyed by a broadly
to distinguish it from its competitors. It must
acknowledged brand or trademark is sufficient
proceed to guarantee the interesting
for individuals to purchase the item. In this
characteristics that set it separated from the other
way, having a fruitful brand title guarantees
competitors.
the business on a certain degree and client.

Better Management through training The expiration of the franchise. Franchise

provided by franchisor. Typically, one contracts have expiration dates. When the
prerequisite of the agreement is for the terminations date is reached, the franchise ought
franchisee to receive training from the to renegotiate once within the contract.
franchisor. This will allow the franchisee to Termination may be an advantage or impediment
develop managerial skills and help alleviate depending on the condition of the business.
the lack of it to ensure the business's success. Moreover, renewing the contract implies spending.
It will likewise help the franchisee get the
essential and vital data (advertising,
accounting, purchasing, human relation etc.) In addition, applying for a new contract does not
required in the overall operations. mean that the franchise contract may be renewed.
There may be ground wherein the franchisor
might have seen the franchisee's inadequacy in
keeping up the outlet. The endorsement depends
on the evaluation of the franchisor.

Better access to technical and other Note that buying a franchise is a collective
assistance. The franchisor must give the effort. It is you, the franchisor, and every other
needed support to make the task of start-up franchisee that operates under the company's
and continued operation less demanding. Site brand name. This community can be supportive,
selection advice, office layout, employee empowering, collaborative, but it can be
selection, and administration training are just overwhelming too. You need to be able to rely on
a few of the franchisors' assistance. Joining every part of your franchise system; mistakes and
up with a franchising operation increases the disappointments of another franchisee can harm
possibility of monetary help to be granted to the whole franchise system's reputation, including
the franchisee. your own.

Ease in building reputation. The franchisee

does not need to stress about making a
much-sought reputation, unlike in setting up a
new business wherein there's the possibility of
46
lean sales because of lack of recognition. The
franchisee will reap the benefits of joining an
organization that has built up safety,
efficiency, quality, strength, and product.

In new business, there is greater

uncertainty of profit compared with a
franchise. In franchising, one may be able to
use an existing franchise's sales in a nearby
location to project the sales of another
franchise that is to be put up roughly. Besides,
existing franchise outlets will lead the
prospecting franchisee to select one that pulls
in customers.

Greater purchasing power. Franchisees

can get supplies, equipment, services, etc.,
at a lower cost. Better affirmation that the
trade will make money, simply because they
are part of a big organization. Obtaining
power is achieved due to the volume
discount on buys made collectively by the
organization.

High-performance standard. The franchise

organizations have operating manuals and
procedures given to franchises that permit
the efficient operation.

Lesser advertising cost. The advertising

scope of a franchise organization is
nationwide. Franchises get a quality
advertisement for a little amount they shed.

If you want to become an individual business owner or a franchisee, research

is the most critical activity in making your decision. You can end up making the costly
decision of your life without sufficient knowledge.

LESSON 2: CONSIDERATION IN SELECTING FRANCHISES

In spite of the fact that franchising offers, to a certain degree, a smaller

amount of work in comparison to starting a new business, it comes with it, in any
case significant preparations. The planned franchise ought to take the initiative to
explore the franchise; the entrepreneur ought to study the franchise well before
47
buying. One may inquire about an existing franchise owner to answer all the
questions the entrepreneur has or, one may also ask professional advice, particularly
in contracts offered. Never commit the mistake of buying a franchise without careful
evaluation. In evaluating what franchise to procure, the following points are vital to
consider:

1. Cost of investments

a. Franchise Fee
b. Set-up operation
c. Operational expenses and purchase
d. Royalties
e. Advertisements

2. Franchisee’s preference and interest

3. Location of the franchise

4. Reputation of the franchise organization

5. Franchise support and assistance

5. Possibility of obtaining a master franchise

✔ Cost of investment. The amount to be shed for a franchise is significant.

Some franchises cost around P25,000 to an amount of P50 million. The
prospective franchise must know how much money he/she has and the
amount he/she wanted to invest. A franchise requires more than the franchise
charge to be spent. These are more often than not the financial consideration
of owning a franchise within the Philippines.
✔ The Franchise Fee (initial franchise fee) is the one-time payment made by a
franchisee to the franchisor for joining the franchise system, usually upon
signing the Franchise Agreement. It is regularly a flat payment instead of a
percentage royalty and is utilized by franchisors to offset the franchisor's
franchisee start-up costs, marketing for franchisees, and other corporate
costs. Franchise Fee. Depend upon what type of business. Here are of some
franchisee fees asked by franchisors.

Note: All amounts are in Philippine Peso. Data are from the brochure handed out by
the companies given.

48
 Initial Capital Investment Initial Capital investment:
P25 to 35 Million P7 million
(Philippines)
to 8.5 million
US $ 450,000 to 800,000
Franchisee Fee: N/A
(international outlet)
Royalty fee: N/A
Franchise fee: N/A

Initial capital investment: Initial Capital Investment:

P20-25m P 200,000 to 1,200,000

Franchise fee: P815,000 Franchise Fee: N/A

Royalty Fee: 5% Royalty fee: N/A

Marketing Fee: 5 %

Initial Capital
Investment: P 280,000

Initial Capital Franchise Fee: N/A

investment: P18-25m Franchise Fee:
Royalty fee: N/A
P 15-22 m

Royalty Fee: 7.5 %

Marketing Fee: 5.5 %

Initial Capital Initial capital investment

Investment: P6-7 m P1.25 m

Franchise feel: P600,000.00 Franchise fee: P280,000.00

Royalty fee: 7 % gross sale Royalty fee: 7.5 %

Marketing fee: 3 % gross sale
Marketing fee: 5.5 %

49
 ⮚ Set up operations. These are expenses brought about for the
renovation or the construction of the building. This, too, includes
those that will be spent on the arrangement and decoration of
the building. Some franchises have this within the franchise
contract, but there are lots that don't. The set operation fees
depend on the size of the area and the facilities required.

⮚ Operational expenses and purchases. First, the franchisee

may need to shell out the amount to guarantee the operation
flow since the initial deals may not be sufficient to cover the
required uses.

⮚ Royalties. This is often the amount paid to the franchisor

periodically. More often than not, royalties are per year basis.
Franchisors ask for 5 to 15 % from the franchisee. This is often
the mode of income of the franchisor.

⮚ Advertisements. Franchises are required to pay some

designated amount for ads. This can be a relatively little amount
compared to the benefits the franchise outlet would get, mainly if
the advertisement is good. The advertisement also covers the
grand opening promotions that usually cost around P10, 000 to
20,000. Moreover, another 2-3% of the gross sales should be
allotted by the franchisee to local store marketing.

✔ Franchisee’s Preference and Interest. Having a business that fits the

entrepreneurs' personality may help entice his/her to do the work
exceptionally. The entrepreneur may find the work not as a work but as a way
to appreciate him/herself. Some businesses require the presence of the
proprietors. If the franchisee is interested in the line of work and operations, at
that point, there needs to be no issues with this.

✔ Location of the Franchise. Usually, a critical factor in the business. One

ought to have searched for an area with access to a sizable number of
50
 people, has a floor region that can accommodate clients, and has accessible
parking space for clients and service vehicles. Additionally, location is crucial
in the sort of franchise one considers taking.

✔ The reputation of the Franchise Organization. One should check the

franchise organization before joining in. Check if the franchise organization
provides what is listed in the previous discussion. Don’t jump unless you know
where you’ll fall.

✔ Franchisor Support and Assistance. Prospective franchisees should check

whether the franchise organization has continuing services like product and
services, development, promotion, public relations designs, quality control
programs, and financial and administrative programs.

✔ Possibility of obtaining a master franchise. They are the ones that offer
sub-franchises to other individuals interested in the business. More often than
not, the costs of master franchises are smaller than the sub franchises. They
are the ones that offer sub-franchises to other individuals curious about the
business. More often than not, the costs of master franchises are smaller than
the sub-franchises.

LESSON 3: MISTAKE TO AVOID IN BUYING A FRANCHISE

If you're a start-up entrepreneur who plans to buy or secure a

franchise, it is critical to bear in mind that a franchise is not a guarantee of
success. You must continuously evaluate the cost of purchase, the risks and
other disadvantages and compare them against the benefits you expect.
Frequently, buying a franchise may help bring success in a rush, since it provides
successful management and operating procedures to guide the business. But this
happens mainly because the franchise buyer has the necessary ability,
resources, and determination to make it succeed. Besides, he is able to
anticipate the possible risks, problems, and mistakes and make provisions for
addressing them to this benefit. A few of these mistakes, in fact, can be identified
as:

1. Buying a franchise with minimal capital left for operations

51
 After paying the franchise fee, a franchise must have sufficient
funds to sustain the process until it generates profit.

2. Being the first in the franchise system

It is crucial to make sure your business objectives align with

what the franchisor's business model can provide, among other things.
Unless you are exceptionally confident that the product will succeed,
you are taking a significant risk by being the first to urge a franchise in
a specific region. The first franchise outlet ordinarily endures significant
operation challenges, which may cause the franchise to fail.

3. Not entirely following the franchisor's business plan

A few franchisers modify their franchisor's business plan to suit

their style. This may be an unwise move, as the franchisor has
invested a lot in making its system product or service acceptable.

4. Complacency on the part of the franchiser

Franchising requires hard work, commitment, and determination.

Today's victory can mean tomorrow's failure if the franchisor becomes
complacent and oblivious to the rapid market environment shift.

5. Not thoroughly reading through and understanding the Franchise

Disclosure Document (FDD)

By law, all franchisors are required to present a record called a

Franchise Disclosure Report (FDD) to potential clients. The FDD is split
into parts called "items." Each item covers a diverse portion of the
business from top to bottom. As you examined through your FDD, keep
a detailed list of notes on any areas that are confusing or vague. After
you have specific Items to go over further, contact the franchisor and
ask to have them explained. Sometimes, this is a perfect way to get the
business's finer points presented when opening a conversation
between you and the franchisor. In particular, it's helpful to keep track
of each responsibility laid out within the FDD. These are commonly
misunderstood and overlooked by numerous franchisees and can
cause problems down the road in the event that they aren't addressed
upfront with the franchisor.

52
KEY TAKEAWAY

• The advantages of franchisees include lower risk, lower start-up costs, existing
brand recognition, and marketing support from parent companies.

• Potential franchisees can choose a franchise based on their venue, preferences,

resources, and needs, which means that entering into a franchise agreement can be
a flexible process.

• Royalty payments

• Franchisee benefits include:

✔ Higher chances of success due to the tried and tested business model
✔ Franchisor support, training, and expertise
✔ Brand recognition

Key Terms

• Franchisor: a company or individual authorizing another company to sell or

distribute its products or services in a given region

• Royalty: regular payment from the franchisees to the franchisor for the right to be a
franchisee

REFERENCES

Suggested Readings and Websites:

Asor, W. (2009). Entrepreneurship in the Philippine Setting. Rex Bookstore, Inc.
Camposano, J. (2008). Entrepreneurship for Modern Business
Bashel, B. An Introduction to Franchising. The Money Institute.www.the-money-
institute2000.
Franchising & licensing: Two Powerful Ways to Grow Your Business in - PDF Free
Download. Retrieved from https://epdf.pub/franchising-amp-licensing-two-powerful-
ways-to-grow-your-business-in.html

SELF ASSESSMENT (10 POINTS)

I. Write TRUE if the statement is correct and FALSE if the statement is wrong.

53
_______1. Buying a franchise means entering into a formal agreement with your
franchisor.

_______2. The franchise fee is the amount paid to the franchisor periodically

_______3. A franchise contract has no expiration dates.

_______4. Training will help the franchisee develop his managerial skills.

_______5. Buying a franchise means the on-going sharing of profit with the
franchisor.

_______6. A franchisee must have sufficient funds to sustain their business

operations.

_______7. Franchisees have to pay the franchisor a significant percentage of their

revenues.

_______8. A franchisee has total control of their business.

_______9. One of the main characteristics of a franchise is uniformity.

_______10. The franchisors are involved in the day-to-day operations of each

franchised outlet.

II. MULTIPLE CHOICE

Direction: Choose and encircle the letter of the correct answer.

1. Fee paid from franchisee to franchisor based on the percentage of sales

a. Royalty fee c. Franchise fee
b. Advertising fee d. License fee
 
2. When a company makes a legal arrangement to authorize others to use their
products, services, or business format for a fee, it is called

a. Franchising c. Franchisor
b. Franchisor d. Unrealistic

3. Which of the following criteria is required to be a successful franchisee?

a. Willing to work long hours c. Willing to face personal sacrifices

b. Be an organized person d. All of the above

54
4. When deciding the franchise to buy, which of the following aspects should be
considered?

a. Potential business growth c. Profitability of the business

b. Whether you enjoy the line d. All of the above
of work
5. Which of the following is NOT a part of the Franchise Opportunities Handbook
information?

a. Franchise fee c. Royalty fee

b. Numbers of franchised units d. Number of franchisees who
failed
6. For the prospective franchisee the most significant single factor to examine is:

a. Site-Selection Assistance c. Start-Up Cost

b. Franchise Fee d. The Franchisor
7. What can be a disadvantage associated with the use of a franchise?

a. Lack of flexible decision making for the franchise

b. Brand recognition for franchisor

c. Ease in building a reputation

d. Lesser Possibility of Failure

8. Which of the following best describes the relationship between the franchisor and
franchisee?

a. Customer/Vendor c. Business partners

b. Direct competitors d. None of the above

9. What can be an advantage associated with the use of a franchise?

a. Presence of fierce competition c. Greater purchasing power.

b. Problems associated with d. Operation is controlled
expiration of the franchise by the franchisor

10. It’s a one-time fee to the franchiser

a. Royalty Fee c. Advertisement fee

b. Franchise Fee d. Training fee
55
TASK TO DO ( 30 points)
Scoring rubric
Completeness (15 points),
Cleanliness of the statements ( 10 points),
Promptness of submission (5 points)

Write your answer on a separate sheet of paper

After reading about the advantages and disadvantages of franchises, and you were
to start a business in the future, which would be better investing in a franchise or
starting a business from scratch? Write three reasons for their choice at least one
drawback.

“Success is not the key to happiness. Happiness is the key to success. If you
love what you are doing, you will be successful.”

– Albert Schweitzer

ANSWER KEY
PRE TEST

1 TRUE
2 TRUE
3 FALSE
4 TRUE
5 FALSE
6 TRUE
7 TRUE
8 TRUE
9 TRUE
10 TRUE

56
QUIZ 1
I. TRUE OR FALSE

1. TRUE
2. FALSE
3. FALSE
4. TRUE
5. TRUE
6. TRUE
7. TRUE
8. FALSE
9. TRUE
10. FALSE

II. MULTIPLE CHOICE

1. a
2. a
3. a
4. d
5. d
6. d
7. a
8. c
9. c
10. b

57
 UNIT 5

HOW WILL YOU MARKET

YOUR FRANCHISE
BUSINESS?

58
UNIT 5: HOW WILL YOU MARKET YOUR
FRANCHISE BUSINESS?
TITLE OF THE LESSONS:
● What is Marketing?
● How to create a Marketing Plan?
● Developing a franchise sales plan

DURATION: 6 HOURS (Week 7-8)

INTRODUCTION:

The biggest challenge facing today's franchise business is to know how to

develop and sustain a healthy business in the face of a rapidly evolving marketplace
and environment. The franchisor must have a unique sale and marketing plan to
provide the prospective franchisee's needs and wants.

In order to develop successful strategies and action programs, the franchisor

needs up-to-date information on the environment, competition, and market segments
to be served. In order to measure progress toward objectives and identify areas for
improvement, franchisors use a variety of research techniques.

Suitable Techniques and Procedure:

• Discussion and Explanation of the lesson

• Practical Exercise/Question
• Additional Reading
• Quiz

OBJECTIVES:

At the end of this chapter, the student shall be able to:

● Discuss the three components of the marketing program

● Identify and describe the critical elements of the marketing plan
● To understand why it is essential to have a marketing plan and explain the
franchise sale plan.

59
PRE –TEST

Directions: Write TRUE if the statement is correct and FALSE if the statement is
wrong.

______1. The researcher must define the total population covered by the study.
______2. The franchisor must have a unique sale and marketing plan to provide the
franchisee's needs and wants.
______3. The production department is responsible for the implementation of the
marketing plan.
______4. Market segmentation is the process of dividing the market into a distinct
group of buyers with different needs, characteristics, and behavior.
______5. Franchisors used psychological testing methods as part of the qualification
process for prospective franchisees.
______6. Market positioning is the process of dividing the total market into distinct
groups of buyers based upon either demographic, geographic, and preference.
______7. The marketing plan occupies a significant part of the franchisor's overall
strategic plan.
______8. Management needs updated reports to make a better decision.
______9. The marketing plan acts as an outline for all of the firm's marketing
activities.
______10. A marketing strategy refers to the process of establishing the image or
identity of a brand in such a way that consumers perceive it in a certain way.

60
LESSON 1: What is Marketing?

Before looking at the details of each component of the franchise sales and
marketing plan, let's look at the critical factors in understanding the marketing
discipline.

What is Marketing?
.
Marketing is the on-going process of:
1. Determining the consumer demand level for the goods and services of the
company.
2. Complementing the strengths and weaknesses of the company with the
established demand.
3. Delivery of products and services more effectively and reliably than that of
competitors
4. Tracking changes in consumer demand; trends in the industry; political,
social, environmental, and legal issues; technology; and competition to ensure
that the products and services of the company remain competitive and in line
with the demand of the consumer.

In the sense of franchising, this must always be done on two levels:

1. Marketing to potential franchisees
2. Marketing of patented goods and services to potential consumers

Consultants also describe the well-known marketing mix as the basis for a
marketing program. This mix comprises product, price, location, and promotion. Both
marketing plans and decisions are based on one or more of these components of the
marketing mix. Some of the typical issues presented by each aspect of the marketing
mix, as applied to a franchise, are:

Product
● What products and services is the franchisor going to offer consumers
through their franchisees and company-owned centers?
● What are the different features, options, and styles that will include each
product or service as unique, higher quality, or proprietary?

61
 ● How can it be feasible to package and offer these goods and services to the
consumers?
● How will franchises be packaged to draw in potential franchisees?

Place
● In what way can the franchisor distribute the products and services
to the marketplace? Dual distribution, or exclusively through franchisees?
Why was this strategy chosen?
● What are the numerous advantages and disadvantages of franchising
alternatives to distribution channels?
● In which geographic markets should the goods and services of the franchisor
be sold (determined by, for example, demographics and population analysis,
primary vs. secondary market surveys, local competitor analysis, analysis of
local and regional consumer habits)? Will the franchisor draw franchisees in
those markets?
Price
● What will consumers be willing to pay for goods and services offered by the
franchisor?
● How are prices determined?
● To what point can franchisors suggest price ranges?
● Which pricing policies would be developed in respect of discounts, credit
terms, allowances, and introductory or particular pricing schedules when the
franchisor sells the products directly to the franchisee? To the consumers
through the franchisees?

Promotion
● What strategies will be taken to ensure targeted franchisors are aware of the
business format of the franchisor?
● What strategies will be created to ensure the consuming public is aware of the
company's goods and services?
● What sales, advertising, public relations plans, programs, and strategies
should be adopted?
● How will human and financial resources best be allocated to advertising and
promotional programs?

62
Key Components of the Marketing Program

Stage 1: Marketing Planning and Strategy Formulation

Effective marketing planning and strategy formulation have three distinct stages:
marketing research, market analysis, and marketing plan development. The tasks of
the management team at each point are listed below.

Market Research
Market research is the process of collecting valuable information through
researching the market or a customer. It begins with the development of a database
of information on the history of the franchisee; services and personnel; its products;
trends in its industry; the size of its overall marketplace; the characteristics of its
traditional customers and its targeted franchisee; the strengths and weaknesses of
its existing competitors; and the various entry barriers for prospective competitors.
This knowledge is usually the end product of market research, which must be
undertaken before a formal marketing plan is created.

a. External data is accessible and virtually free of charge from state and local
economic development agencies, chambers of commerce, trade associations,
other public libraries, local colleges, universities, or other industry
associations.

b. Internal sources of information include surveys; meetings with suppliers,

customers, and company employees to obtain additional information on
trends in the industry; consumer preferences; and existing marketing efforts'
strengths and weaknesses.

Market Analysis and Segmentation

The information collected during the franchisor's market research must then be
properly arranged for it to be useful in the planning process. Subsequently, the
market analysis should include information on the segmentation of the franchisor's
target markets, trends within its industry, and an assessment of the franchisor's
direct and indirect competitors.

63
 One of the objectives of market research is the segmentation and targeting of
the franchisor's market, which will act as a starting point for market planning. Market
segmentation is the process of dividing the overall market into distinct groups of
customers based on either demographic variables (e.g., age, gender, race, or
income), the geographical location of consumers, or even social-political patterns
preferences.

Market targeting is the assessment and selection of one or more of these

market segments, which will target marketing efforts and resources. When particular
markets have been identified, the franchisor must formulate plans and strategies to
position its franchise offering and its goods and services in such a way as to attract
these desired segments of the market. Market positioning involves manipulating the
marketing mix elements to reach the targeted consumer/franchisee effectively and
efficiently.

Purpose of Marketing Plan

a. Serve as a road map for all marketing activities of the firm
b. Ensures the marketing activities are in agreement with the corporate strategic
plan
c. Forces marketing manager to review and think through objectively all steps in
the marketing process
d. Assist the budgeting process in matching resources with marketing objectives.

LESSON 2: Development of the Marketing Plan

Franchising As a Growth Strategy

In order to achieve its long-term growth objectives, the franchisor needs a

well-designed marketing plan to implement in positioning its franchise offering and its
goods and services on the marketplace. Like strategic planning, marketing planning
must be a continuous process that will enable the franchisor to adapt to changes in
the market, law, or technology to avoid strategies from becoming static or quickly
obsolete. Also, marketing planning must be consistent with the franchisors' overall
strategy and objectives. Managers in all departments and at various levels of the
company must also be active in the process of marketing planning and be kept

64
aware of marketing strategies. At the same time, they are being implemented
continuously. For example, an ambitious marketing plan that is likely to triple the
company's franchise revenues should not be implemented without consulting the
organization's training and field support departments. Otherwise, the company is
expected to be ruined by neglected and improperly trained franchisees.

Key Elements of the Marketing Plan

Naturally, the marketing plan's content varies with each franchisor in terms of
the topics to be addressed, the relevant trends and the scope of market research,
the target industry, and the resources that can be devoted to implementing the plan.
Nevertheless, the following main components of all types and sizes can and should
be included in the franchisors' marketing plan:

Table 3. Marketing Plan Key Elements

PLAN
DESCRIPTION
ELEMENT
What's the plan? Summary of essential points in the marketing
Executive
plan and what it will accomplish. It's an outline for a manager who
Summary
may not have time to look at the whole thing.
Where are we, and how did we get here? This section is mainly
Assessment of historical but also analytical in that it must do more than just tell a
the Current State story. It must also explain why the franchisor's marketing strategies
of Affairs have changed and ensured that they are consistent with current
market trends and available technology.
What market trends and factors should be addressed, and the
external/internal barriers that need to be overcome before
marketing strategies can be implemented successfully? SWOT
Discussion of analysis of the franchisor's products and services and the market
Current Issues conditions affecting its ability to sell franchises. The subsection
and "opportunities and threats" should address key external factors that
Opportunities affect the company's marketing strategies, such as legal, political,
economic, or social trends, in the macro-environment. The exact
impact of those trends will vary depending on the products and
services provided by the company.

65
 How will you demonstrate good corporate citizenship? The
subsection 'Strengths and Weaknesses' should address the key
internal factors (resource constraints, research and development,
organizational structure and policies, intellectual property
The Internal protection, distribution channels, service and warranty policies,
Factors pricing strategies, and promotional programs) in the micro-
environment that affect the marketing strategies of the franchisor.
Following the SWOT Analysis, the last subsection, "Issues and
Concerns," should address strategies and tactics to leverage the
franchisor's marketing strengths and compensate for its marketing
weaknesses.
What are the goals and objectives? Strategies should then be
discussed, outlining the specific steps and timetables involved to
Marketing
achieve marketing goals and objectives. It also involves dealing
Objectives and
with sales and profitability projections; the franchisor's marketing
Strategies
staff must work closely with the finance department to ensure
accuracy and consistency.
This section of the plan should set timetables for achieving specific
Execution of
goals and objectives, identify the individuals responsible for
Marketing
implementation, and project the anticipated resources needed to
Program
complete the established objectives.
This section should address the establishment and operation of
management systems and controls structured to monitor the
Monitoring of company's franchise marketing plans and strategies. The relative
Marketing Plans failure or success of these programs, such that performance can be
and Strategies adequately measured, should be measurable. The Marketing
Department should prepare quarterly reports for distribution to other
key members of the franchisor's management team.
In the case of marketplace changes identified in the plan, this
Alternative
section should address the alternative strategies available to the
Marketing
franchisor. At the heart of successful strategic marketing, planning
Strategies and
is the ability to predict the positive or negative changes that might
Contingency
arise in the marketing plan and implement alternative strategies if
Plans
they occur.

66
 Note that the marketing plan will continue to evolve and can be updated every
month or adjusted for specific target markets. It is essential to be able to adapt
quickly to consumer demands and prospective franchisee investment preferences.

Stage 2: Implementation of the Marketing Program

Once market research has been carried out, and a marketing plan has been
prepared, the next step in developing a marketing program is the implementation of
the franchisor's goals and strategies. A separate Marketing Department is
responsible for executing the marketing strategy in several growing franchisors. This
will require the marketing department to set up specific systems and controls to track
marketing performance and, when necessary, develop appropriate measures to
keep the franchisor on its growth and development path. These periodic
performance audits may also seek to improve the franchisor's productivity by
reducing excessive promotional expenses and minimizing advertisement costs.

Early-stage and rising franchisees typically experience four distinct phases in

the organization's department's evolution responsible for developing and
implementing sales and marketing functions. Founders are responsible for the sales
and marketing activities at the company start-up.

Marketing plans are virtually non-existent at this initial stage; marketing

strategies are developed with an approach to "whatever works',' and sales are to
"anyone who will purchase" the franchise. Eventually, the company's founders are
too busy with other demands to continue the sales function; hence professional
franchise sales staff is developed. As the franchisor reaches its third stage of
growth, all sales and marketing efforts need to be centralized into a formal
department. It is typically in this phase that top marketing executives start preparing
formal marketing plans with guidance and input from other department managers. As
the franchisor encounters changes in the external and internal operating
environment, the marketing department experiences the fourth and final phase of the
organization, during which adjustments are made to the organizational structure to
adapt and react to these changes in the environment.

LESSON 3: Developing the Franchise Sales Plan

67
 Usually, managing the franchise sales program rests with the sales vice
president or the franchise marketing officer. This individual is responsible for
developing the franchise's sales plan, which is a crucial step in executing the overall
marketing plan. The sales plan sets out the specific steps and resources needed to
attract prospective franchisors. Different sales plans for each type of franchise the
company offers may have to be developed.

The key to creating a successful franchise sales plan is establishing a

genuine understanding of the target franchisee. This requires developing a detailed
prospect profile that includes an analysis of targeted age, gender, education,
business sophistication, income levels, net worth, family size, health, communication
skills, personality traits, habits, hobbies, and career objectives. Most of this
information will be obtained through the use of a confidential franchise application
and personal interviews.

Many sophisticated franchisors have resorted to detailed psychological testing

methods as part of the prospective franchisees' qualification process. If the tests
reflect a personality that refuses rules and procedures or lacks any attention to
detail, franchisors will reject the applicant irrespective of business acumen or
financial net worth. There are many qualities and features franchisors are looking for
when establishing standards for the appropriate type of franchisee. Of course, the
requirements differ between franchisors and industries. Neither the know-it-all nor
the naive will probably make very good franchisors. Those who appreciate the value
of rules and procedures and can follow them would be the best franchisors.

The key elements of a franchise sales plan are:

I. Introduction
A. Description of the targeted franchisee
B. Overview of the techniques and procedures to be implemented to
generate the maximum number of leads and prospects whose
characteristics match those of the model franchisee
C. Procedures for a meeting, disclosing, and closing the sale
D. Post-closing procedures

II. State of the Nation

68
 A. Why people buy franchises
A broad range of well-educated and financially stable
executives and professionals lack the aspirations and enthusiasm they
desperately need to continue their job. Franchising allows these people
to be in the business of their own but not on their own. To be an
entrepreneur is an opportunity but without the inherent risk and
uncertainty of launching a non-franchised business. It is an opportunity
for large corporate employers to prevent unnecessary job loss risks of
downsizing and restructuring and manage their destinies. When you
understand why people are buying franchises, you'll need to find out
why they are buying your franchise.
B. Why people buy your franchise
Customers will usually opt to purchase your franchise for the
following reasons:
1. They are interested in your industry, but without assistance, they
lack the training skills to pursue this interest.
2. They have a friend, relative or business partner within your system
who is already a franchisor. (Happy franchisees tend to lead to more
fulfilled franchisees.)
3. Within your system, they were customers or employees of a
franchise (or company-owned store) and were pleased by your goods
and services' quality and value.
4. They recognize your product or service as being on the leading edge
and want to take advantage of a ground-floor opportunity.
5. They were inspired by your advertising materials' quality and
professionalism, the integrity of your sales representatives, and the
enthusiasm and passion of your management team.
III. Lead generation and qualification
A. Selection of effective media and methods
1. National/regional/local newspapers and magazines
Direct advertising in specific publications with focuses such as
business, income opportunity, general interest, and topic-
specific.

2. Direct mail

69
 Direct mail advertising items also include brochures,
catalogs, postcards, newsletters, and sales letters. A business
can buy mailing lists of potential customers via a distributor for
the mailing list.
3. Trade shows
The event will offer feedback for potential franchise owners
while fostering brand recognition and product exposure.
4. Public relations
Public relations help create brand recognition, and credibility
and results are obtained by supplying information to the media
in news releases and pitches.
5. Internet Web site
The benefit of these websites is that the host company will
invest advertising dollars in promoting the site as a whole,
thereby increasing the exposure and the chances of attracting
interested leads on the Internet.
6. Internal marketing
This involves developing lead generation and reward
programs from the current franchisee network, signage, and
brochures within the franchisee's facilities, incentives to
franchisees, and employees to generate potential leads and
actual franchise sales.
7. Miscellaneous sources of lead generation
Leads for prospective franchisees can come from many non-
traditional sources, such as military bases, college placement
offices, local business groups, outplacement offices of large
corporations, charitable organizations, staff agencies, and
investment clubs.
B. Procedures for qualifying a lead and making a presentation
1. Where and how should franchises be awarded. Get the
prospect to the franchisor's headquarters, if at all possible. Make
prospects feel special once they arrive. Doors should be open,
not closed. People are meant to be smiling, not frowning.
2. Qualities of an effective franchise salesperson and
presentation. Sales staff should be there to help, not to place
pressure on the prospect. Sales staff should listen to the

70
 prospect's needs and queries; let the prospect decide to
purchase the franchise. Sales staff should be confident, not
steadfast.
3. Data gathering on the prospect. All related historical and
financial data shall be collected and checked. There is no detail
to be missed. Carefully examine the prospect, searching for any
early warning signs of a potential loss.
4. Materials and tools for the sales team. Beyond personal
presentations, brochures, flip charts, and reviews of the
franchisees' facilities, audio-visual materials are highly
recommended. Legal compliance (time of filing, prevention of
unwanted or improper earnings claims and misrepresentations
concerning support and assistance, etc.) is also essential.
IV. Closing the Sale
A. In order to counteract the inevitable negative input, sweaty palms,
and cold feet that the average prospect would encounter, keep in touch
throughout the ten-day waiting period.
B. Let all the mystery and confusion about each party's rights and
obligations be resolved before the franchise agreement is signed.
C. Consider closing an event by the franchise, not a mere procedure.
This is probably the most significant financial transaction in the life of
the prospect
. D. Keep in contact with the franchisor after completing the franchise
documents before the formal training starts.

V. Managing the Sales Team

A. Establishment of the group and individual sales goals and objectives
B. Timing and the timeline for the franchise sales
C. Travel and promotional budgets to support sales efforts
D. Personal, ethical and professional standards of your sales team (no
leisure suits, no gold chains, no lies, and no unauthorized earnings
claims)
E. Reporting and record-keeping requirements (communications with
prospects should be carefully documented; see Chapter 6)
F. Respect for prospect review and qualification procedures (data
gathering and verification, committee approval, profile testing, etc.)

71
 G. On-going sales and compliance training for the team (sales and
closing methods and techniques, legal documents, etc.)
H. Coordination of efforts with other departments (operations, training,
finance, legal, etc.)
I. Costs and benefits of the use of outside sales organization

Stage 3: Marketing Program Monitoring and Feedback

When marketing and sales plans have been developed and implemented,
systems must be placed to monitor the performance of the sales and marketing
departments and the market and competitors. The research divisions are responsible
for gathering data to develop, modify, and enhance marketing plans.

A comprehensive monitoring and review system helps the Sales Department

recognize the strengths and weaknesses of the plans and strategies. It is initially
introduced and implemented to attract potential franchisees, assesses the success
of those efforts, and adjusts plans to respond to changes in the marketing macro-
environment, and thoroughly remove marketing strategies and sales techniques that
have been a complete failure.

The key components of effective monitoring and intelligence gathering system

include

1. Acquiring and maintaining adequate computer equipment capability to

manage and organize market data
2. Tracking the progress and challenges of competitors
3. Remaining involved in industry groups and trade associations
4. Regularly reading trade journals and industry publications
5. Meeting primary suppliers and consumers to understand the trends and
preferences of the industry
6. Buying the products of the competitors to observe pricing, packaging,
labeling, and features
7. Keep track of information that could be readily available from federal, state,
and local governments
8. Staying up-to-date on political, economic, social, and legal issues
9. Trends and developments impacting marketing plans and strategies

72
 The franchisor should monitor their sale and marketing continuously. They are
holding meetings with their staff to discuss and analyze the common reasons or
objections raised by the prospective franchisee to improve and develop their sale
and marketing strategies to attract more customers.

KEY TAKEAWAYS

● A marketing plan is an integral part of your overall business plan, and every
business should regularly update its marketing plan.
● A marketing plan will guide your marketing efforts each year.
● Always ensure that your marketing strategy is consistent with the goals and
plans you've made for the business.

REFERENCES:

Suggested Readings and Websites:

N.A. (2018). Franchising & licensing: Two Powerful Ways to Grow. Retrieved from
https://epdf.pub/franchising-amp-licensing-two-powerful-ways-to-grow-your-
business-in.html
Sherwan, J. (2004). Franchising and Licensing. American Management Association.

SELF ASSESSMENT (10 POINTS)

COMPLETION TEST

Directions: Each sentence below has a blank space. Each blank indicate that
something has been omitted. Inside the box are words that fit the meaning of the
sentence as a whole. Write your answer on the space provided for

Franchisor Marketing Planning Sale Plan Marketing Segmentation

Market research Psychological test Vice president of Sales

73
 Market positioning Research Division Marketing Department

1. The ________________must be consistent with the franchisors overall

strategies and objectives.
2. ________________ is the process of dividing the total market into distinct
groups of buyers based upon either demographic variables, geographic
location of consumers, or even social-political trends and preferences.
3. _________________involves manipulation of the elements of the marketing
mix in order to effectively and efficiently reach the targeted
consumer/franchisee.

4. ___________ is the process of gathering information from your target

customers.
5. The franchisors used _____________________method as part of the
qualification process for prospective franchisees
6. The______________ is responsible for development of the franchise sales
plan
7. The ______________ is usually responsible for acquiring data which are used
in the development and enhance marketing plan.
8. The __________________is responsible for the implementation of the
marketing plan.
9. The _______________identifies the specific steps and resources required to
attract prospective franchisees.
10. The______________ owns the overall rights and trademarks of the company 

TASK TO DO (30 points)

Scoring rubric:
✔ Completeness (15 points),
✔ Cleanliness of the statements (10 points),
✔ Promptness of submission (5 points)

Write your answer on a separate sheet of paper.

1. Give three reasons why market research is an important component in developing

a sale and marketing plan?

74
2. As a franchisor, how will you develop an effective marketing plan that will increase
sales and profit for your organization.

ANSWER KEY
Pre-Test
True or False
1. True
2. True
3. False
4. True
5. True
6. False
7. True
8. True
9. True
10. False

Quiz 1

Completion Test

1. Marketing planning
2. Market segmentation
3. Market positioning
4. Market research
5. Psychological test
6. Vice President of sale
7. Research division
8. Marketing department
9. Sale plan
10. Franchisor

75
 UNIT 6

STRATEGIC PLANNING
FOR GROWING
FRANCHISORS

76
UNIT 6: STRATEGIC PLANNING FOR GROWING
FRANCHISORS
TITLE OF THE LESSONS:
● The Strategic Business Plan
● The Ongoing Strategic Planning Process
● Habits of Highly Successful Franchisor
 
Duration: 6 hours (Week 10-11)

Introduction:
Business planning is critical to a growing franchisor's long-term success,
whether it will be effective and, at the same efficient, along with the customers'
satisfaction. This module covers the strategic planning process to strive for the
continuous improvement of the franchise system. Such process is designed to
ensure that maximum value will be delivered to all the franchise's stakeholders. 
This module also helps to understand the importance of formulating the vision,
mission, and objectives of an organization to be more profitable through strategic
courses of actions designed to smooth implementation or executions. 

Objectives:
   At the end of this module, the students will be able to learn to:
1. Analyze the important role of top management in the conduct of strategic
planning;
2. Evaluate the strategic process of conducting plans; and
3. Develop a sense of interest and focus on engaging in business.

77
PRE TEST 
Give at least three importance to planning in doing business. Use the table
below for your answers.

  Importance of Planning

Importance of Planning Discussion

1. 1.

2. 2.

3. 3.

78
LESSON 1: Business Planning for the Growing Franchisor

The Business Plan

A comprehensive business plan demonstrates the franchisor's management
team's ability to focus on long-term achievable goals, provides a guide to effectively
implement the articulated goals once the capital has been committed, and constitutes
a yardstick by which actual performance can be evaluated according to Andrew
Sherman. Business plans can be used by newly formed franchisors as well as
established franchisors. 

Parts of Strategic Business Plan:

1. Executive Summary
This introductory section of the plan explains the business's nature and highlights the
important features and opportunities offered to an investor by the company. 

The executive summary should not exceed to three pages that include the following:
● The company's history and performance to date.
● Distinguishing and unique features of the products (goods and services)
offered to both consumers and franchisees.
● the market scenarios.
● A brief summary of the background of the leadership team comprising the
investors behind the franchisee.
● the prices of the products the franchisee is offering.

2. Marketing Research And Analysis

This section must present to the readers on the overall scenario where
franchising business. The relevant information on the operations of the franchising
business and franchising industry which include the measure and quality of the
market for both franchisees and consumers, trends in the industry, marketing and
sales strategies and techniques, evaluation of the competition (direct and indirect),
estimated market share and anticipated deals, pricing arrangements, advertising and
public relations, methodologies, and a description of the workforce.
 

79
The following are the descriptions of how to satisfy marketing analysis and research
logically in a question form.
1. Describing the typical consumer. How and why is the customer attracted to
patronize the franchisee's facility? What relevant market trends affect
consumers' decision to purchase products and services from the franchisee's
facility?
2. Describing the typical franchisee. How and why is the probable franchisee
would want the franchisor's business concept? What components have
influenced the prospect's choice to buy the franchise? What steps are being
taken to draw in additional candidates that meet these criteria?
3. Describing the market. What is the surmised size of the total market for the
services offered by the franchisee? The approximate market for franchisees?
4. Describing the strategy. What marketing strategies and tools have been
adopted to captivate the franchisees and consumers? Where do the referrals
for prospective franchisees came from? Do existing franchisees make
referrals? Why or why not? 
5. Describing the performance of the typical franchisee. Are current stores
profitable? Why or why not? What factors influence their performance?

Rationale For Franchising

This explains the underlying reasons for selecting franchising in lieu of the
available growth and distribution strategies. It also identifies the selection decision on
whether a dual distribution strategy will be pursued and under what circumstances a
company-owned unit be established. Explaining to the readers what method(s) of
franchising will be selected, whether single units only, sales representatives, area
developers, or sub franchises. Particular risks and legal issues must also be
considered since this can influence the franchisor in their decisions. 

The Franchising Program

  The overview of the franchising program elucidating the indications of the
franchise agreement (FA), a description of the typical location site, an overview of the
proprietary business format and trade identity, the training programs, manual of
operations, support services, targeted markets and registration strategies, the
offering of regional and area development agreements, and arrangements with the
workforce. 

80
 A comprehensive analysis of sales and earnings estimates and personnel
needed for a typical facility should be included and tackled the marketing strategies
relevant to franchising such as trade shows, industry publications, and sales
techniques.
This also shows the typical length of time between first meeting with a prospect
through a grand opening and beyond as well as the various steps and costs during
this time (from the viewpoint of both the franchisor and the franchisee) that discuss
strategies for the growth and development of the franchising program and its concept
as a whole over the next five to ten years agreement.

3. Corporate and Financial Matters

The brief description of the current officers, directors, and shareholders of the
corporation must be elucidated and discussed, including the overview of the capital
contribution to the company this far should be provided and the description of how
these funds have been allocated. Elaborating the corporation's current and
anticipated monthly operating costs, including operating and managing the prototype
facility and the administrative expenses in setting-up a franchise sales and services
office. The issues on the pricing of the franchise fee, royalties, and promotional fund
contributions should be well discussed and explained for the benefit of both
franchisees and franchisors with the franchisees' payment histories to its present
status in the industry as an obligation to comply with the franchise agreements.
 
4. Operations And Management
The franchising business's sequels should always be dependent on its
operations and management capabilities of one franchisee. This provides the
organizational and management structure uniquely designed according to the
franchising business's needs. It delineates every individual's identity by defining each
position by title with a description of duties and responsibilities and appropriate
compensation. This also verifies the management team members and the plan in
establishing the hiring requirements for the next three to five years period. One of the
common questions to be satisfied is, what strategies will be adopted to attract and
retain qualified franchise professionals? Supported by the description of the
company's external management team (attorney, accountant, etc.). 
  

81
Exhibits
This section includes shows in the presentation copies of the franchisor's
trademarks, marketing brochures, press coverage, and sample franchise
agreements, and area development agreements.

LESSON 2: The Ongoing Business Planning Process

A business plan is commonly the franchisor's focus where they can get brief
information regarding the company's status in the franchising industry. Specifically,
the franchisor properly launches the franchising program to attract qualified investors
and what resources will be needed to sustain the program, which is considered the
investors' key concern. Once a franchisor meets 50 to 100 units-or more, the focus
changes from a mere business planning instead of more intensive planning, which is
the strategic planning.  
The strategic planning process should clearly distinct itself in annual meetings
among the franchisor's leadership, periodic operational planning retreats, and a
written strategic plan that should be supported with business operations planning that
include the following

a. Environmental analysis (SWOT)

1. Internal environment
2. External environment
b. Strategy matching (formulations of Strategies to the kind of operations)
c. Global, International, National, Regional, Business Level, operational level
d. Strategic Control, which matches the financial capability of the organization,
is doing the business by establishing the financial parameters and
controls.
e. Review and implementations of strategic courses of actions
 

82
LESSON 3: Habits of Highly Successful Franchisors
Doing business requires individual investors and management teams a well
structured psychological quotient, intelligent quotient, Emotional Quotient, and
Adversity Quotient, and sometimes Spiritual Quotient to championed what has been
in their hands, decision. And to realize those, they (the investors and management
team) should perform and observe the following:

1. An ability to adapt to challenges and changes in the marketplace.

● How do we react to unpreventable and constant changes in the environment?
● How well do we plan, anticipate change, and face the reality of what's
happening in the trenches?
● Do we listen to our franchisees?

2. A genuine commitment to the success of every franchisee.

● A chain is only as strong as its weakest link.
● How is this commitment demonstrated?
● Is this how our franchisees truly perceive our commitment?

3. A culture committed to overcoming complacency.

● Are we committed to research and development?
● What steps are in place to continually improve and expand our systems and
capabilities? 
● How quickly do we abandon a failing franchisee?

4. A team ready to break old paradigms

● Are we committed to thinking outside the box?
● What recent examples do we have where creative thinking solved a problem
or created a new opportunity?
● Are we using a computer and communications technologies such as email,
intranets, interactive computer training, and private satellite networks to
support and communicate with our franchisees?

5. A total devotion to excellent customer service

● What systems do we have to guarantee excellence in our interactions with
focused on home and business clients?

83
 ● Do we have a process for gathering feedback and reacting to circumstances in
the field?
● When is the last time we conversate directly with our franchisees' customers?
● What are we doing to educate our selected customers on quality and
product/service differentiation issues? How can we achieve "Good
Housekeeping Seal of Approval"—type status with our customers (e.g., known
as setting the standards for quality)? What can we do at the community/public
level to promote and improve this image (e.g., controlling and improving the
customer's buying experience)?
● Do we treat our business partners as our customers?

6. A commitment to taking the time to really understand and analyze the economics
of the core business (by all key players in the organization)
● Do the franchise and royalty fee structure make sense? Is it fair for the
franchisees?
● How often are royalties and other financial matters reviewed and analyzed?
Are key observations and trends shared within the field?

7. A bona fide understanding of the critical factors that make our franchisees
successful.
● What are the common characteristics of our top 20 percent franchisees in
each division?
● What can we learn from these common characteristics?
● What can we do to recruit more candidates with these same characteristics
and skill sets?

84
POST TEST
Multiple Choice: Encircle the letter of the correct answer.

1. It is a well-prepared business plan that demonstrates the franchisor's

management team's ability to focus on long-term achievable goals and
provides a guide to implementing the articulated goals effectively.
a) Executive Summary
b) Strategic Business Plan
c) Marketing Research and Analysis
d) Rationale for Franchising
2. It is an overview of the capital contributed to the company and an explanation of
how these funds have been allocated.
a) Franchising Program
b) Marketing Research and Analysis
c) Operations and Management
d) Corporate and Financial Matters

3. This section is included in the presentation copies of the franchisor's trademarks,

marketing brochures, press coverage, and sample franchise agreements and area
development agreements.
   a) Rationale for Franchising
b) Marketing Research and Analysis
c) Operations and Management
d) Exhibits
 
4. This provides a background of the program regarding key aspects of the franchise
agreement, a description of the typical site, and an overview of the proprietary
business format.
a) Marketing Research and Analysis
b) Rationale for Franchising
c) Franchising Program
d) Strategic Business Plan
5. This section identifies each position by title with a description of duties and
responsibilities and compensation.
a) Operations and Management
b) Corporate and Financial Matters

85
 c) Rationale for Franchising
d) Exhibits
 6. It manifests itself in periodic meetings among the franchisor's leadership, periodic
strategic planning retreats, and a written strategic plan updated annually.
a) Ongoing Strategic Planning Process
b) Strategic Business Plan
c) Mission
d) Franchising Program

7. Shown are examples of genuine commitment to the success of every franchisee

except 
a) Is this how our franchisees truly perceive our commitment?
b) A chain is only as strong as its weakest link.
c) How is this commitment demonstrated?
d) What can we learn from these common characteristics?
 
8. This section of the plan explains the nature of the business and highlights the
significant features and opportunities offered by an investment in the company.
a) Introduction Plan
b) Strategic Business Plan
c) Executive Summary
d) Franchising Program

9. It is a detailed analysis of sales and earnings estimates and personnel needed for
a typical facility.
a) Strategic Business Plan
b) Executive Summary
c) Franchising Program
d) Ongoing Strategic Planning Process
 
10. This section discusses the anticipated monthly operating costs incurred by the
corporation, both current and projected.
a) Corporate and Financial Matters
b) Exhibits
c) Rationale for Franchising
d) Operations and Management

86
KEY TO CORRECTION:
1. B
2. D
3. D
4. C
5. A
6. A
7. D
8. C
9. C
10. A

87
 UNIT 7

CAPITAL FORMATION
STRATEGY

88
UNIT 7: CAPITAL FORMATION STRATEGY
TITLE OF THE LESSONS:
● The Initial and Ongoing Costs of Franchising

● Private Placement as a Capital Formation Strategy

● Venture Capital as a Source of Growth Financing for the Franchisor

● Debt Financing Alternatives for the Growing Franchisor

● The Use of Initial Public Offerings by Growing Franchisors

Duration: 6 hours (Week 12-13)

Introduction: 

The access to affordable debt and equity capital continues to be an issue for
the growing franchisor even though franchising has been proven to be a viable
method for business growth and development of which financial luxury is unlimited.
The franchisors' consistent financial appreciation and profitability have already
participated in a successful public offering for investment purposes.

With the different management teams, other allocations of capital, various

sources of revenues, and different growth strategies, franchisors have significantly
created their niche in the industry that eventually created a name in the capital
market. 
In financing, a given transaction is always dependent on the available amount
of capital and other resources and the willingness and experiences of the
management team, more specifically of the business owners whose strength is
always their current and projected financial health.  

Objectives:
   At the end of this module, the students will be able to learn to:
1. evaluate the costs to incur in establishing a franchise business;
2. decide on what should be the best strategy that can be considered suited in
raising the capital requirement; and
3. critically analyze the key elements of registering a franchise.

89
PRE TEST 

Discuss the differences of capital requirement between business

franchising and starting a new business of your own.

Franchising Own Business

1. 1.

2. 2.

3. 3.

Lesson 1: THE INITIAL AND ONGOING COSTS OF FRANCHISING

90
 Franchising is less capital intensive than internal expansion, but it still requires
a solid capital structure. Franchisor uses the initial franchise fees paid by the
franchisee as its capital for growth and development. However, suppose the
franchisor has not adequately developed its operations, training program, and
materials before offering and selling a franchise. In that case, such action could
subject the franchisor to claims of fraud and misrepresentation because the
franchisee has an excellent reason to expect the business format franchise is
complete and not still ‘‘under construction.’’

Problems of Undercapitalized Franchisors:

1. Ineffective marketing programs that eventually hired unqualified employees.

2. Inability to provide high-quality ongoing support and assist the franchisees to
grow and prosper.
3. May completely bar a franchisor from offering and selling until such time that
financial condition improves or imposes restrictive bonding and escrow
provisions to protect the franchisee's fees.

Start-up Costs include the ff:

1. outside consultants are required to develop operations manuals 
2. there must be a training programs for the employees
3. sales and marketing materials such as using a celebrity for endorsement/
advertisement
4. personnel recruitment of employees
5. accounting and legal fees
6. research and development
7. testing and operation of the prototype unit
8. outside consulting fees
9. travel costs for trade shows and sales presentations.

Lesson 2: CAPITAL FORMATION STRATEGY

91
Capital formation is a term used to define the net capital build up during an
accounting period for a particular country. The term refers to capital goods additions,
such as equipment, tools, transportation assets, and electricity.

           Small and medium-sized (SMEs) franchisors often initially turn to the private
capital markets to fuel their growth and expansion. One of the most challenging tasks
the growing franchisors face is capital structure and access to resources as it needs
to maintain its development plan. Access to affordable debt and equity capital is a
problem even though franchising has already matured as viable business growth
methods.

There are enough franchisors whose balance sheets have become more
respectable. They have participated in successful public offerings, who have played
(and won) in the merger and acquisition game, and have validated consistent
financial obligation and profitability. These progresses have played a role in providing
young franchisors access to affordable capital in recent years.

The amount of capital potentially available and the sources willing to finance a
franchise depend largely on the franchisor’s current and projected financial asset, as
well as the experience of its organization and a host of other component, such as
trademarks and its franchise sales history.

Private Placement as a Capital Formation Strategy

Private Placements
The term private placement memorandum's usage and popularity are
recognized worldwide to mean a document, referred to as a “memorandum,” which
features what the company is “offering” in return for investment capital. Read it
backward, and you get “memorandum placement private,” i.e., a document relating
the subscription of securities via a private offering. In addition to the term private
placement memorandum, the most admired word for such document is a program
prospectus and an offering circular and a private placement memorandum. 

92
 A private placement memorandum is a disclosure document whereas
disclosure agreement is discussed in the previous units, drafted by an issuing
company and given to investors for their capital (hopefully).
The importance of writing a private placement memorandum also referred to
as Offering Memorandum or “OM” for short, can make the difference between getting
support and not being taken seriously by investors. Along with the company's
business plan, an OM will lead the investor through the securities features of the
offering, including the terms. The OM is essentially a long contract, the last part being
the subscription agreement that will be elaborated on the next topic.
The private placement memorandum is an indication to tell the company's
story, its product and service offerings, the benefits to investors, long-term payout
and strategy, and more. Giving a possible prospect an investor ready private
placement memorandum is good business practice and looks professional.

Subscription Agreement
The private placement memorandum will usually contain the subscription
agreement, the contract between the company selling securities and the investor who
is buying them. The subscription agreement defines the terms and has numerous
places for the investor to fill out and usually gives instructions on where to send a
check for subscribing to the securities or bank wire details. The subscription
agreement is essential for any issuer, and the private placement documents should
include it. The subscription agreement is critical for the private placement
memorandum as it is the remaining section of the document, that without an investor
cannot give his capital.

Lesson 3: VENTURE CAPITAL AS A SOURCE OF GROWTH

FINANCING FOR THE FRANCHISOR

A rapidly growing franchisor should also consider venture capital as a source

of equity financing when it needs supplementary capital to bring its business plans to
fruition but lacks the collateral. Or current ability to meet debt-service payments
typically required to qualify traditional debt financing from a commercial bank.
Many venture capitalists have been willing to consider a commitment of capital
to an emerging franchisor.

93
Venture Capital
● It generally refers to the early-stage financing of young emerging growth
companies at relatively high risk, usually attributable to the company's
newness or even the entire industry.

Venture Capitalist
● A highly trained finance expert who manages a pool of venture funds for
investment in growing companies on behalf of a group of unassertive
investors.

Lesson 4: DEBT FINANCING ALTERNATIVES FOR THE GROWING

FRANCHISOR

● Early-stage franchisors have not had much luck with commercial banks over
the past two decades because most creditors prefer to see ‘‘hard collateral’’
on the balance sheet. This often lacks start-up franchisors who have only their
intellectual property, a projected royalty stream, and a business plan to
pledge.
● A second problem is that most lenders choose to see the proceeds allotted
primarily to the purchase of ‘‘hard assets’’ (to further serve as collateral),
which is the opposite of what many franchisors want to do with their capital.
● Most early-stage franchisors need capital for ‘‘soft costs,’’ such as the
development of manuals, advertising materials, and recruitment fees.

The use of liability in the capital structure, commonly known as leverage, will
affect both the franchisor's valuation and its overall cost of capital. The maximum
debt capability that a growing franchisor will ultimately be able to handle involves a
balancing of the costs and risks of a default of a liability against the desire of the
owners to maintain control of the enterprise by protecting against the dilution that an
equity offering would cause.

94
Lesson 5: THE USE OF INITIAL PUBLIC OFFERING BY GROWING
FRANCHISORS

Initial Public Offering (IPO) 

● It is a process whereby a growing enterprise opts to register its safeties with
the Securities and Exchange Commission (SEC) for sale to the general
investing public for the first time.

‘‘Going Public’’ 
● is the epitome of financial success and reward.

Many national franchisors have completed public offerings and maintained strong
market capitalization values over the past decade.
However, the decision to go public requires significant strategic planning and
analysis from both a legal and business perspective.

The planning and analysis process involves:

1. A weighing of the costs and benefits of being a public company.
2. An understanding of the process and costs of becoming a public company.
3. An understanding of the company's obligations, its advisors, and its shareholders
once the franchisor has completed its public offering.

Benefits of IPO:

1. Significantly greater access to capital.

2. Increased liquidity for the franchisor’s shares.

3. Greater prestige in the financial markets.

4. Enhancement of the franchisor’s public image (which may increase franchise

sales.

5. Opportunities for employee ownership and participation.

6. Broader growth opportunities, including the potential for the merger, acquisition,
and further rounds of financing.

7. An abrupt increase in the wealth of the franchisor’s founders.

95
Costs of IPO:

1. The dilution in the founders’ control of the entity.

2. The pressure to meet market and shareholder expectations regarding growth and
dividends.

3. Changes in management styles and employee standards.

4. Compliance with complex regulations forced by federal and state securities laws.

5. Stock resale restrictions for company insiders.

6. Vulnerability to shifts in the stock market.

7. The sharing of the franchisor’s financial success with hundreds, even thousands of
other shareholders.

Franchisors who are not intimidated by the disadvantages of being publicly

held:

1. Those who are operating in a disclosure-oriented business.

2. Those who are already compelled to provide audited financial statements.

3. Those who feel that being publicly held will increase credibility, which generally
increases franchise sales.

ADDITIONAL READINGS AND REFERENCES:

Franchising and Licensing, Andrew J. Sherman

https://www.prospectus.com/private-placement-memorandum-philippines/
https://www.franchisehelp.com/franchisee-resource-center/capital-formation-
strategies-for-the-growing-franchise/

POST TEST: ESSAY

           Being a franchisor, what are the things you will consider in finding resources
for the fund being undercapitalized? Explain your answer on a separate sheet of
paper. (20pts)

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 UNIT 8

BUILDING
A
FRANCHISING ORGANIZATION

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UNIT 8: MANAGEMENT AND LEADERSHIP ISSUES
IN BUILDING A FRANCHISING ORGANIZATION

TITLE OF THE LESSONS: 

● Building a Management Team
● Guidelines for Establishing a Board of Directors (BOD) and Advisory Boards (AD) 
DURATION: 3 HOURS 
INTRODUCTION:
     
In finding a perfect partner in a specific business, it is better not just to look for
those who have plenty of money for capitalization but also those who can help you
outgrow your business. Managing any type of business is not that easy. You have to
find people who will work for you and those who will help you grow your business. 
     
Managing a franchise system requires ingenious technique and a great deal of
carefully thought out planning. We can tell our clients who are new to the franchise
business concept to never look at a franchise aspirant for the value of the franchise
fee because if that becomes your priority, you will most likely have a short-term span
in the franchise marketplace.

Suitable techniques and procedure:

● Practical Exercise/Question
● Discussion and Explanation of the Lesson
● Additional Readings
● Self-Assessment
● Key Takeaways
 
OBJECTIVES: 
 
           At the end of this lesson, the students must acquire knowledge in managing a
franchise business concept. How they can find and build a workforce based on the
needs of the business. 
 

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PRACTICAL EXERCISE/QUESTION: Pretest
List down a set of criteria that you might presume in finding an employee. Explain
your answer on a separate sheet. (10 pts)

DISCUSSION AND EXPLANATION OF THE LESSON:

LESSON 1: Management and Leadership Issues in Franchising

Business

After marketing a franchise concept successfully, a good franchisor will

consistently provide meaningful support and guidance to the new franchise partners.
A franchise model's value should include up to much more than just collecting a
franchise fee. There should be considerable value six months, two years, and even
ten years into the franchise contract. Like any other marketing or sales model, it is
much more effective and profitable for a franchisor to retain satisfied, profitable
franchisees than to continue going out and looking for new ones. The most significant
franchise concept utilizes the following elements of business:
1. Technology – In today's business industry, it is fundamental that a franchisor
grasps the devices and systems accessible to them from a technology
standpoint. With increasing technological capabilities and standards, great
technology is available at a fraction of the price for most Franchisors. 
2. Professionalism – Having spent a great deal of time working with business
persons and working with so many business owners, we have seen our fair
share of inexperienced business awareness. It is explicit that most small
business people live life on their terms and have a great deal of pride in their
accomplishments. The tricky franchising element is that now the entrepreneur
or business owner will need to be polished, educated, and always go the extra
mile when dealing with franchisees. Franchisors do not have the personality or
the assurance that most entrepreneurs do. If they see a crack, they will
suppose the foundation is crumbling. As a Franchisor, you cannot ignore the
"small stuff."
3. Creativity - a franchisee is continually reassessing their involvement in a
franchise model. It is the never-ending question of, "why am I paying for this?"
As a franchisor, we have to continually answer that question with new ideas,
insightful business strategy, and assistance when needed. The most

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 significant franchise concepts are the ones that are not a "one-trick pony." The
business is well developed, has a reliable management team, is ambitious,
and provides a long term stream of innovative and out of the box ideas to
improve they're downline and make their daily lives more productive.
McDonald's is an excellent example of this being done the right way.
4. Partnerships – Everyone loves a discount and a "Friend in the Business." A
franchisor must find what needs the franchisees regularly have, and then
research what resources to assist their needs. This comes by way of strategic
associations and unions with outside vendors and companies. If a franchise
model utilizes a large amount of printed materials, the franchisor better finds a
quality printing partner, for example. These partnerships are great ways to
continually add value to the franchisee's business and undoubtedly harbor
happy and secure franchisees.
5. Communication - As a strong franchisor, it can sometimes be easy to forget
about the other side of the coin. A franchisee usually will have a much
different angle on things than the franchisor does. Good franchise
management requires looking at the different scenarios and situations from all
the corners that a circumstance might occur and making impressive decisions.
Do not think that a franchisee is going to be "good to go" for the long-term
because their signature is affixed on the agreement. Talking to them or picking
up the phone is a great way to manage relationships with franchisees because
communication is one important tool.

Relationship Management

The franchising pith is relationship management, and franchisees enter into

the relationship with a desire that the leader of the franchise model will be committed
to each franchisee's success. Work hard to continue to create advancements to the
franchise system and be a role model in communicating clearly and viably the
franchise system's vision and goals. Though styles can and will vary, franchise
companies' more successful leaders typically have several personality traits and
characteristics. 
● Show compassion. Franchise leaders display a heartfelt dedication to the
system's success and understand the assumption that if the franchisees win,
the franchisor will also win. Their attention is not just on the strongest or the
highest in sales but also on those struggling. No franchisee left behind.

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 ● Are effective communications and listeners. Franchisor leaders must be
strong communicators and public speakers and can motivate and inspire
franchisees, especially when changes to the process are being introduced.
They are also good listeners and actively seek the input and constructive
criticism of their franchise network and solve problems to their legitimate
concerns. 
● Have business acumen. Franchise leaders commit themselves to continue to
become knowledgeable to the fundamentals of the business and the art of
franchising. They stay up high of new market trends and are often respected
market leaders and pioneers in their industries. 
● Are mentors and coaches. Franchise leaders think alike coaches and
mentors—they are reachable, team builders, care about each member, and
genuinely enjoy and love the process of helping others and developing their
businesses. They do not coach their armchairs; they often visit the field and
show their commitment to the franchise model in person and with enthusiasm.
They tend to do it with respect and do not hesitate to respect others when it is
earned. 
● Are change agents. Franchise leaders do welcome and embrace change.
They know that the franchise system must continue to evolve and do not fear
being the agents and advocates to implement these changes. Change will
also occur within the franchisor's organization—the management team in the
early stages of the franchising program's launch the right team as it grows and
becomes more complex. The franchisor's leadership must be flexible and
willing to make the necessary changes and manage turnover rates, which tend
to be a problem to the franchise concept and raise concerns and issues by
and among the franchisees. The leadership must continue to modify and
innovate to the system's communication and computer technology to ensure
maximum system performance.

LESSON 2: Building a Management Team

Recruiting and retaining a skillful management team can be one of the most
challenging aspects of managing a franchise system's growth. Early-stage
franchisors are not only competing with larger firms with more extensive resources
but also with each other. But many newbie franchisors have improved their ability to

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compete for talented staff by offering benefits that more prominent franchisors may
not necessarily provide. These are the opportunity to participate in ownership and
critical decision making, flexi-schedules, an casual work environment, less red tape,
and an openness to new ideas and development. Creativity, flexibility, and forceful
performance-based reward are the best tools available to small and emerging
franchisors.

Emerging growth franchisors must custom-tailor their recruitment/hiring

programs to find employees who are willing to wait patiently from a pure
compensation perspective or who will value non-compensation-based factors in
evaluating different positions. Such as management practices, corporate culture,
flexible hours, training opportunities, or special rewards and incentives—or who are
less proficient but have an attitude that makes them easily trainable. However,
proceed carefully and create a balance. Many of the companies during the 1990's are
now out of business and their employees are out of jobs because they hire young
workers who want to have a little devotion to their job.

Therefore, recruitment efforts should focus on sharing the franchisor's

medium-term objectives and career growth opportunities, leadership style, training
opportunities, and consideration for the work/life balance. Highlight the programs that
will facilitate life issues like child care, affiliations to health hubs, proper dress code,
and telecommuting support. In reviewing and evaluating potential candidates,
emerging growth franchisors need to look for workers who have strong
communication skills, be flexible and take due responsibility, and have a positive
attitude with high energy levels. These unsubstantial skills may need to compensate
for lack of direct experience or academic credentials.
Recruiting needs to be a lot more structured. Job descriptions should be prepared,
shared, and appropriately modified with the new employee's input to clear
expectations from the beginning. However, it is also critical that the employee
understands that early-stage franchisors are not the same as larger franchisors. The
components of the job description may change quickly as different growth objectives
are set and subsequently achieved. A process that looks for applicants who are
naturally curious, enjoy problem-solving, are creative, and are flexible will make sure
that there are progress even in an early stage franchise.

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 The human resource team for an early-stage franchisor must be very well
equipped on the franchisor's objectives and strengths since they are a cheerleader
and one part, salesman. For smaller franchisors, the HR will not have the tools of big
salaries and signing bonuses to work with, so they must be provided with a strong
knowledge of the franchisor's objectives and intangible strengths.

Tips on how to easily manage your franchise business:

A reliable franchise system works to help hardworking people build something
for themselves and their families without reinventing the wheel. Of course, as the
owner, you also will need to be committed to the tried and proven business concept
and the franchise model that has worked for others who came before you. Learning
how to manage your franchise business best and applying those lessons is crucial to
owning and operating a successful franchise. Rich offers steps for managing a
franchise. - Richard Hornberger 
1. Follow the proven system. Those who become franchisees came before you; it's
very likely to work for you, too, if you follow the methods already structured.
2. Hire the best people and treat them right. As the owner, your most valuable
possession is your staff. Build a team with great staff members and can help you
solve issues and problems. 
3. Delegate to your employees. Franchisees can't do everything with their
businesses, that is why we hire employees. Delegation relieves some of the
franchisee's load and provides the employee with a sense of importance and
proprietorship in the business. This will help to thrive loyalty from your employees
and create a winning group environment.
4. Use what your franchisor gives you. Implement the programs and products your
franchisor offers your business.
5. Manage your time efficiently. Do not feel relaxed. Always work with your team.
Look at the bigger picture and then attend to the task you need the most. To avoid
bottlenecks. If there is a problem, do not sit on that specific circumstances in a longer
period of time but rather move on to the next thing, and address / reevaluate after a
while.
6. Acknowledge the fact that you will likely need franchise mentoring and
assistance. It would be of great help you being humble and receptive to help and
mentoring because it won't merely minimize mistakes and save money, time, and
disappointment.

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7. Give yourself a chance to work on your business. Ensure that your customers
are receiving the best-personalized service. 
8. Managing the business includes managing the company culture. As the
business owner, it is your job to create an enormous culture from the top
management down to the lower level. Sure you have the ideal employees and
equipment. Identifying current trends and taking advantage of them falls under this
umbrella, ensuring your team is sticking to a philosophy. 
9. Ensure you have the right group working in the proper roles. Ensure that you
have the right people who fit the job because this is the owners' common mistakes.
Do not let them lose focus. Remind them of their work specification but do not let
them down.
10. Have a road map for the next few months and even the next few years. As a
manager, you need to have a long term plan and vision that you want to achieve.
You have to have an idea of bringing the organization to the next level. Do not sit nor
rest in the office. 
11. As the manager of your franchise business, remember that YOU are setting
the tone. A tremendous determining factor for franchise business concept success is
how effectively you manage your franchise. It's the same on how you set your tone
inside your house. The business owner needs to maximize the franchise system's
entire value by following the established methods and honoring the brand you bought
into.

LESSON 3: GUIDELINES FOR ESTABLISHING BOARD OF DIRECTORS

AND ADVISORY BOARD

           Being a leader is not just being a boss according to Marie Forleo. It takes so
much responsibility to be one. Matt Mayberry says that True leadership is much more
than authority and acknowledgment from the outside world. Instead, authority is all
about creating individuals and making a difference to reach their full potential.
From a behavioral theory, Good leaders are made, they are not born. If you have the
aspiration and determination, you can become an effective leader. Good leaders
develop through a never-ending self-study process, education, training, and
experience (Jago, 1982). 

104
 This guide will assist you through the journey to inspire your workers into a
higher level of teamwork. There are several things you must know and do because
these do not often come naturally and be acquired through continual development of
work and study. Good figureheads are continually working and studying to improve
their leadership skills; they are not resting on their past laurels.
Leadership is a procedure by which a person influences others to accomplish a task
and directs the organization to make it more connected and binded.

The quality of the franchisor's leadership team is critical to the long-term

success of the franchise system. But whom does the senior administration team turn
to for counsel and direction? Who will provide the general policy and direction to the
franchisor's executives around which a specific growth plan is built and executed?
For most early-stage and growing franchisors, the answer is twofold: (1) a formal
Board of Directors and (2) an informal Advisory Board (or series of advisory
boards for specific purposes).

These two boards are often confused but play very different roles and have
different controls. The BOD is required under virtually all applicable state corporate
laws, and it owes very specific fiduciary duties to the shareholders of the corporation,
as described below. The primary governance structure is that the shareholders elect
the directors, who, in turn, appoint the officers. The directors' role is to set wide-range
of goals and policy objectives for the franchisor that will benefit and protect the
interests of the shareholders, and it is incumbent on the officers to develop and
implement plans to meet these goals and objectives as stated by Andrew Sherman.
A strong director has broad business experience, strong industry knowledge, and
adequate time to devote to truly understanding its key challenges and weaknesses.
The objectivity to challenge the management team's decisions is a great listener and
sounding board for the team and has for the most part been well trained at the
university of hard knocks. The board members should take their imperative seriously
and not be too casual when it comes to critical tasks, like board assembly
preparation and attendance, taking confidentiality lightly, or pursuing what shows up
to be personal agendas. Members of the board and the board as a whole must be
continuously guided by the answer to "What is in the best interest of our
shareholders?"

105
 On the other hand, an Advisory Board (AD) is not required by state corporate
laws, it does not owe the same levels of fiduciary duties to the shareholders (and
hence cannot generally be held as responsible for their acts or recommendations),
and can be much more informal concerning the number of meetings and agendas for
meetings. The Advisory Board can be gathered for common purposes, or a series of
Advisory Boards could be set up for particular purposes, such as technical analysis,
marketing strategy, recruitment and selection, and compensation, or research and
development. An AB can also be an excellent way to get a second opinion on some
issues without hindering existing relationships. 

Figure ___.
Typical Organizational Chart

One critical difference between a Board of Directors (BOD) and an Advisory

Board (AD) is the management's ability to either acknowledge or overlook the
recommendations of any AD, a worry they do not have when a mandate comes down
from the Board of Directors. Also, because the Advisory Board members do not have
the same duties to the company and its shareholders, they can mediate disputes by
and among the officers or between the officers and the directors. They can also
identify the potential board of director candidates or be a recruiting ground for
eventual seats on the board.

106
Formal Responsibilities of BOD

Each act or decision of the board of directors must be performed in good faith and
for the corporation's benefit. The directors' legal obligations fall into two broad
categories: a duty of care and a duty of loyalty. 
✔ Duty of Care. The directors must carry out their obligations in great
confidence with diligence, care, and expertise within the corporation's best
interests. Each director must actively collate information before making
decisions regarding company policies and strategies. In doing so, the board
member is responsible to rely primarily on the data provided by officers and
professional advisors, provided that the board member does not know any
irregularity or inaccuracy in the information. 
✔ Duty of Loyalty. The duty of loyalty requires each director to exercise their
powers in the corporation's interest and not in his or her interest or the interest
of another person (including a family member) or organization. The duty of
loyalty has several specific applications, such as the duty to keep away from
any conflicts of interest in your dealings with the company and the duty not to
personally take over what is more appropriately an opportunity or business
transaction to be offered to the corporation. 
✔ Duty of Fairness. The last commitment a director has to the corporation is
that of fairness. For example, the responsibilities of fairness questions may
come up if a director of the company is also the building owner. If any
transaction component involves fraud, undue overreaching, or a waste of
corporate assets, it will likely be set aside by the courts. For the director's
dealings with the corporation to be upheld, the "interested" director must
demonstrate that the transaction was affirmed or approved by an unengaged
lion's share of the company's board of directors. For each member of the BOD
to meet their duties of care, loyalty, and fairness to the corporation, the
following general guidelines should be followed: 
● The directors should be given all the necessary documents before the
board meeting. Example: agenda, time and place of the meeting, date
and the like. 
● Remember that a valid meeting of the board of directors may not be
held unless a quorum is present. The articles or by-laws may fix the
number of directors needed to constitute a quorum but is generally a
majority of board members. 

107
● Consult with your attorney to make a set of Work with your attorney for
each and every member of the board.
● Many of these guidelines, though in a weakened format in some cases,
can be adopted to administer the selection and operation of the
company's Advisory Boards. 
● Work closely with your corporate attorney. If the board or an individual
director doubts whether a proposed action is genuinely in the
corporation's best interests, consult your attorney immediately—not
after the transaction is consummated.
● Keep careful minutes of all meetings and comprehensive records of the
data upon which the decision of the board decisions are based. Be
prepared to show the following documents; financial data, business
value, market research, and related documentation if the action is later
challenged as being "uninformed" by a disgruntled shareholder. A well-
prepared minutes of the meeting will also serve a multiple purpose such
as written proof of the director's analysis and appraisal of a given
situation.
● Be selective in choosing possible candidates for the board of directors.
Avoid considering or nominating someone who may offer credibility but
is unlikely to attend any meetings or have any real input to the
company's management and direction. Avoid choosing a board
candidate who is already serving on several boards more than five to
seven into different companies depending on their other affirmations. 
● In susceptible situations or friendly offers to purchase the company, be
careful to make choices that will be within the best interests of all
shareholders, not just the board and the officers. Any steps taken to
defend against a takeover by protecting the officers and directors must
be reasonable concerning the threat. 
● Any board member who supplies goods and services to the corporation
should not take part in the board meeting or vote on any resolution
relating to his or her dealings with the corporation to avoid self-dealing
or conflict-of-interest claims. A ''disinterested" board must ratify
proposed actions after the documents of the transaction are disclosed,
and the nature and extent of the board member's involvement are
known. 

108
 ● Questionnaires should be issued annually to officers and directors
regarding possible self-dealing or conflicts of interest with the
corporation. New or incoming board members and newly appointed
officers should be provided with a more detailed initial questionnaire.
These questionnaires should also be circulated among the board
before any securities issuances (such as private placement or public
offering). 
● Don't be afraid to remove an incapable or troublesome board member.
Do not let the board member's ego or notoriety get in the way of a need
to replace them with somebody who is more committed or can be more
viable. It is so that difficulties in decision making won't be affected.
Maintain the quality of the committee and measure it against the growth
and maturity of the company. Try to find and maintain board members
who bring "strategic" benefits to the company, but who are not "too
close for comfort" because their fiduciary duties prevent them from
being effective because of the potential conflict of interests. 
● Board members who object to a suggested action or resolution should
either vote in the negative and ask that such a vote be recorded in the
minutes, abstain from voting, and promptly file a written dissent with the
corporation's secretary. Following these rules can help ensure that your
BOD meets its legal and fiduciary objectives to its shareholders and
provides well-founded and strong guidance to the company's executive
team to ensure that growth objectives are met.

ADDITIONAL READINGS:

Franchising and Licensing, 3rd Edition, Andrew Sherman 2004

https://na.eventscloud.com/ehome/82030/170296/
https://minutemanpressfranchise.com/news/2018/08/20/11-franchising-tips-for-
managing-your-franchise-business/
http://www.nwlink.com/~donclark/leader/leadcon.html
https://www.entrepreneur.com/article/271694

SELF ASSESSMENT:

109
Match your answer from the choices below and write the letters of your answer on
the blank provided. No erasures. (10pts)
_____ 1. BOD stands for?
_____ 2. The franchising element where the business owner will need to have their
best foot forward when dealing with franchisees. 
_____ 3. The last duty being a director.
_____ 4. Work with your employees to develop a set of written guidelines on the
basic principles of corporate law. (True or False) 
_____ 5. A franchisor has to find what the franchisees need regularly, and then
research what resources to assist with those needs. 
_____ 6. They have a specific purpose and is not required by state corporate laws
and does not owe the same levels of fiduciary duties to the shareholders
_____ 7. Be careful to make decisions that will be in the best interests of all
shareholders, not just the board and the officers. (True or False)
_____ 8. They are the highest executive in the company.
_____ 9. Board members can vote, propose action, and represents the shareholders.
(Yes or No) 
_____ 10. A franchisee must embrace the tools and systems available to them from
technology. 

YOUR CHOICES:

a. Fairness

b. Communication

c. False

d. Advisory Board

e. Yes

f. CEO

g. No

h. Professionalism

i. True

j. Board of Directors

110
Key to correction:
1. J
2. H
3. A
4. C
5. B
6. D
7. E
8. F
9. I
10. G

TASK TO DO:
           Fill in the Organizational Structure with specific positions. Assume that this is
your organizational chart for your newly opened franchise business. Kindly include
your company name on the space provided below. No erasures (15pts)

111