South-Western - Management  
Entrepreneurs Must Be Wary of Franchising Pitfalls, Counselor Says
Topic Entrepreneurism - Franchising
Key Words Franchising
InfoTrac Reference CJ105625899
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News Story

It is important that potential franchisees pick the right franchise for them. The nonprofit SCORE offers workshops and counseling services at a nominal fee for people looking at going into business. They recommend the following:

  • Have a business plan.
  • Engage a practicing attorney in your state to review the franchise agreement.
  • Be skeptical, and don't rush into anything.
  • Talk to at least three other established franchisees outside of the immediate area, and determine how successful they are and why.

Some potential problems are well-hidden. National marketing programs of some franchisors, like McDonalds or 7-Eleven, are of great value to franchisees. It's crucial that franchisees clearly understand their contractual rights and obligations, including the cost of getting out of the franchise.

Questions
1.

According to this article, what 4 things should an entrepreneur do before committing to a franchise opportunity?

2.

Choose one franchise that you frequent and research the following:
a. What is the franchising fee for this product/company?
b. What investment costs are expected?
c. Does the franchisor receive a percentage of the sales from your business?
d. Would the franchisee be required to contribute to advertising costs?
Compare your findings to those of your classmates who chose different franchises.

Source "Entrepreneurs Must Be Wary of Franchising Pitfalls, Counselor Says," Knight Ridder/Tribune Business News July 20, 2003.
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