Growing The Business And Franchising The Scenario As a part of the Restaurant’s long-range marketing plan, your company purchased property nationwide from

Growing The Business And Franchising The Scenario
As a part of the Restaurant’s long-range marketing plan, your company purchased property nationwide from

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Growing The Business And Franchising The Scenario
As a part of the Restaurant’s long-range marketing plan, your company purchased property nationwide from the now-bankrupted “Sahara Desert Dish” franchise properties. Based on your Discussion and Strategic Plan results, your company agreed that it was time to launch its nationwide strategy rolling out the company’s patented dessert brand, “Brain Freeze.” Your company’s financial information indicates the company now has a healthy portfolio of investments, product revenue, and cash on hand.
The Restaurant’s dessert menu has produced an exceptional revenue stream. These products can easily be marketed as a standalone venture. The company portfolio includes the Sahara Desert Dish property purchased in anticipation of this day. The properties are all in upscale locations that easily support the Restaurant’s thematic Desert menu.
“Sally, ‘It’s now or, never’ you state, we need to start the implementation of our Franchise Division.” Sally was taken aback by your use of her previous statement. Seeming a little concerned about the plan interfering with her entering the competition for the third Gold Star, you reassure her. “If Wolfgang Puck can open up gourmet pizza shops, that’s the only incentive we need to startup our Desert franchise operation.” Sally fires back, “You’re the one studying business law! Why did it take you so long to bring it up?” Sally continues, “Start working on the documents, and I’ll get started on creating the franchise operations menu and food handling processes.”
In your Discussion, you covered all of the eventualities companies face in expansion periods. Your companies initial investment in the purchase of bankrupt properties has placed the company in a growth position. The commercial paper securing the properties is almost paid off. Converting the properties into a new enterprise will reduce the carrying cost and increase the current revenue streams by a minimum of 20%. Franchise Licensing Fees and property leasing rentals will initially bump revenue by approximately 35%.
To start your review, first, research the requirements required to establish a legally recognized Franchise operation. Using the Strategic Business Plan and the other resources you now have, complete the Franchise feasibility information and determine what steps are needed to enter this highly competitive area. Review the resources and respond to the Assignment.
Your Assignment
Assignment: Feasibility of Franchise Expansion:
This is a Blue Font exercise: Complete the document using a readable Blue Font.
In Assignment 9.3, you will collect data from your past assignments to develop your outline of franchise business information that you will need to complete the final project in Assignment 9.4. To fully understand the nature of a Franchise operation, review the SBA information, Forms 505, 506, and then complete the Questions in the Basic Franchise Document and the Chart in the Test for Feasibility Documents below.

The Checklist for The Basic Franchise Agreement (DOCX)
SBA Introduction to Franchising (PDF)
Test for Franchise Feasibility (DOCX)
Form 505 (DOCX)
Form 506 (DOCX)

Review Form 505 Drafting Guide, follow the research outlining the required steps and issues you would potentially encounter developing the required document between the Franchisor and Franchisee, the Franchise Agreement. Document 505 establishes various litigation, state, and federal statutory requirements. Review each category listed using the link and review material. You must review this material to comprehend the statutory and legal guidance required to edit and complete the Franchise Agreement in Assignment 9.4.
Review Form 506 list of issues and limits available for consideration in completing the Checklist questions/answers to revise and draft the agreement. The questions in 506 are stated, for example, as the question below.

— Nature and extent of the rights granted to the Franchisees.
— Duration of franchise period.
— Exclusiveness of franchise.
— Authorized use of a trademark.

This question seeks the limits on three grants to the Franchisee, (1) Duration, (2) Exclusiveness, and (3) Authority. The question asks the Nature (Type) and the Extent (Range or scope) of the rights granted to your Franchisees. The Duration issue asks “what period” (how long) will Franchisee be granted to exercise authority over rights in the agreement, such as the number of years the Franchise will last, are the rights exclusive or non-exclusive (This could be a state or local geographic designation (i.e., State of Ohio, or two city block in the southwest of downtown), use of IP and extent of the right(s) granted.
This Assignment does not call for simply checking boxes on the form. The questions require research and business decisions for your company to establish franchise rights and limitations offered to Franchisees during their operation and ownership of a Franchise. Do not approach this assignment as a lawyer but as the owner of a Franchise. Determine your companies business interest, the profit you wish to achieve, and the rights you want to protect in your Franchise business. Your company’s business strategy will determine the right you grant to Franchisees. Franchises become an extension of your Franchise organization and must meet your company goals.
In the next step, answer the questions listed in the BASIC FRANCHISE AGREEMENT TERMS – CHECKLIST. Franchise agreements vary from state to state and sometimes franchise to franchise, so it’s impossible to identify every term and issue for consistency in all situations. Some terms require negotiating between the parties. Redraft the Franchise Agreement using the information you collected in Assignment 9.3 and the 9.4 Checklist. The Franchise Agreement lists the terms and conditions governing your franchise’s ownership and the Franchisee’s rights. This Assignment does not call for simply checking boxes. Provide thoughtful responses to the issues outlining how to operate the Franchise business. Clarify the Franchiees’ operation rights; redrafting the Rights and Limitations Clauses.
The “Test for Franchise Feasibility” Document must be completed using the parameters established in your review of the Franchise operation. Your ratings of the business readiness position required to establish a Franchise Operation will be based on the answers you develop for the Checklist Questions.

Assignments required to be uploaded:

The Checklist for The Basic Franchise Agreement
Test for Franchise Feasibility

All rights are reserved. The material contained herein is the copyright property of Embry-Riddle Aeronautical University, Daytona Beach, Florida, 32114. No part of this material may be reproduced, stored in a retrieval system or transmitted in any form, electronic, mechanical, photocopying, recording or otherwise without the prior written consent of the University.



One of the most popular way to start your own company is through a franchise; a business organization in which a well-known firm with a successful product or service – the franchisor – enters into a contractual relationship with another business – the franchisee – that operates under the franchisor’s name in exchange for a fee. Franchise agreements vary from franchise to franchise so it would be impossible to identify every term and issue that should be considered in all situations. The checklist should be used in conjunction with the franchise agreement – the document that will set out all the terms and conditions that will govern your ownership of the franchise – which will be drafted by the franchisor. In any event, you shouldn’t sign it until you’ve discussed your options with your attorney.

Issues relating to the franchise cost terms

· What is the initial franchise fee? Is any part or the entire initial fee refundable?

· Does it include an ‘’opening” inventory of products and supplies?

· What are the payment terms: amount, time of payment, lump sum or installment, financing arrangements, etc.?

· Does the franchisor offer any financing, or offer help in finding financing?

· Are there any deferred balances? If so, who finances and at what interest rate?

· Does the contract clearly distinguish between “total cost” and “initial fee,” “initial cash required,” or “initial costs,” etc.?

· Are there periodic royalties? If so, how much are they and how are they determined?

· How and when are sales and royalties reported, and how are royalties paid?

· If royalty payments are in whole or part payment for services by the franchisor, what services will be provided?

· Are accounting/bookkeeping services included or available?

· How are advertising and promotion costs divided?

· Is a specified amount of working capital required of the franchisee to cover operating costs until profits can be made?

· Must premises be purchased or rented, and are there further conditions on either of these (from franchisor, selected site, etc.)?

· How and by whom will the building be financed, if purchased?

· Does the franchisee have to make a down payment for construction and/or equipment?
Issues relating to the franchise location terms

· Does the franchise apply to a specific geographical area? If so, are the boundaries clearly defined?

· Who has the right to select the site?

· Will other franchisees be permitted to compete in the same area, now or later?

· Is the territory an exclusive one, and is it permanent or subject to reduction or modification under certain conditions?

· Does the franchisee have a first refusal option as to any additional franchises in the original territory if it is not exclusive?

· Does the franchisee have a contractual right to the franchisor’s latest products or innovations? If so, at what cost?

· Will the franchisee have the right to use his own property and/or buildings? If not, will the franchisor sell or lease his property to the franchisee?

· Who is responsible for obtaining zoning variances, if required?

Issues relating to the buildings, equipment and supplies terms

· Are plans and specifications of the building determined by the franchisor? If so, does this control extend to selection of contractor and supervision of construction?

· Are there any restrictions on remodeling or redecorating?

· Must equipment or supplies be purchased from the franchisor or approved supplier, or is the franchisee free to make his own purchases?

· When the franchisee must buy from the franchisor, are sales considered on consignment? Or will they be financed and, if so, under what terms?

· Does the agreement provide for continuing supply and payment of inventory (by whom, under what terms, etc.)?

· Does the franchise agreement bind the franchisee to a minimum purchase quota?

· What controls are spelled out concerning facility appearance, equipment, fixture and furnishings, and maintenance or replacement of the same? Is there any limitation on expenditures involved in any of these?

· Does the franchisor have a group insurance plan? If not, what coverage will be required, at what limits and costs? Does the franchisor require that it be named as an insured party in the franchisee liability coverage?

Issues relating to the operating practices terms

· Must the franchisee participate personally in conducting the business? If so, to what extent and under what specific conditions?

· What degree of control does the franchisor have over franchise operations, particularly in maintaining franchise identity and product quality?

· What continuing management aid, training and assistance will be provided by the franchisor, and are these covered by the service or royalty fee?

· Will advertising be local or national and what will be the cost-sharing arrangement, if any, in either case?

· If local advertising is left to the franchisee, does the franchisor exercise any control over such campaigns or share any costs?

· Does the franchisor provide various promotional materials point-of-purchase, mail programs, etc. and at what cost?

· What are bookkeeping, accounting and reporting requirements, and who pays for what?

· Are sales or service quotas established? If so, what are the penalties for not meeting them?

· Are operating hours and days set forth in the franchise contract?

· Are there any limits as to what is or can be sold?

· Does the franchisor arrange for mass purchasing and is it mandatory for the franchisee to be a participant buyer?

· Who establishes hiring procedures initially and through the franchise term?

Issues relating to termination and renewal terms

· Does the franchisor have absolute privilege of terminating the franchise agreement if certain conditions have not been met, either during the term or at the end?

· Does the franchise agreement spell out the terms under which the franchisor may repurchase the business?

· Does the franchisor have an option or duty to buy any or all of the franchisee’s equipment, furnishings, inventory, or other assets in the event the franchise is terminated for good cause, by either party?

· If the preceding situation occurs, how are purchase terms determined?

· Is there provision for independent appraisal? Is any weight given to good will or franchisee equity in the business?

· Does the original agreement include a clause that the repurchase price paid by the franchisor should not exceed the original franchise fee? If so, this eliminates any compensation for good will or equity.

· Under what conditions (illness, etc.) can the franchisee terminate the franchise? In such cases, do termination obligations differ?

· Is the franchisee restricted from engaging in a similar business after termination? If so, for how many years?

· If there is a lease, does it coincide with the franchise term?

· Does the contract provide sufficient time for amortization of capital payments?

· Has the franchisor, as required, provided for return of trademarks, trade names, and other identification symbols and for the removal of all signs bearing the franchisor’s name and trademarks?

Other points to consider

· Can the franchisee sell the franchised business and assign the franchise agreement to the buyer?

· Is the franchise assignable to heirs, or may it be sold by the franchisee’s estate on death or disability?

· Does the lease permit assignment to any permitted assignee of the franchisee?

· How long has the franchisor conducted business in its industry, and how long has it granted franchises?

· How many franchises and company-owned outlets are claimed, and can they be verified?

· If there is a trade name of a well-known person involved in the franchise, is he active, does he have any financial interest; does he receive compensation for work or solely for use of his name, etc.?

· Are all trademarks, trade names, or other marks fully identifiable and distinct, and are they clear of any possible interference or cancellation owing to any pending litigation?

· What is the duration of any patent or copyright material to the franchise? If time is limited, does the franchisor intend to renew, and is this spelled out in the franchise agreement?

· Has the franchisor met all law requirements (registration, escrow or bonding requirements, etc.), if applicable?

· Are there laws governing franchisor/franchisee relationships, including contract provisions, financing arrangements and terminations? If so, does the contract meet all requirements?

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