The document outlines the concept of franchising, detailing the roles and responsibilities of franchisors and franchisees, along with the merits and demerits of this business model. It discusses the historical development of franchising, with a focus on examples such as McDonald's, and highlights the financial considerations involved in entering a franchise. Additionally, it touches on the franchising landscape in Nepal and includes resources for further exploration of the topic.

1. Franchise

2. Contents
•Introduction
•History
•Responsibilities of franchisor and franchisee
•Merits
•Demerits
•McDonald Franchising
•Franchising in Nepal

4. Franchising
• Arrangement where one party (the franchiser) grants another party (the
franchisee) the right to use its trademark or trade-name as well as certain
business systems and processes,
to produce and market a good or service according to certain specifications
• “My dad started his new business and immediately began franchising with other
companies, which would give us more exposure and it made me excited.”

5. Some important Terms
• Franchisor:A franchisor is a person or company
that grants a license to a third party for the
conducting of a business under
the franchisor's marks.
The franchisor owns the overall rights and
trademarks of the company and allows its
franchisees to use these rights and trademarks to
do business.
• Franchisee: A franchisee is a small-business
owner who operates a franchise.
The franchisee pays a fee to the franchisor for
the right to use the business's already-established
success, trademarks, and proprietary knowledge.
The franchisee operates a business under the
franchise's brand.

6. • The right to the franchise is sold by the franchisor to the franchisee for an
initial sum of money, often called the up-front entry fee, or franchise fee.
• The contract (franchise agreement) details the responsibilities of both the
franchisor and the franchisee, and is usually for a specific length of time
• This initial franchise fee includes only the rights to use the name and system,
and sometimes training, procedures, manuals, and other assistance like site
selection.
• franchisee must pay the franchisor royalty fees, or other on-going payments.
These payments are usually taken as a percentage of sales, but can also be set
up as a fixed amount or on a sliding scale.(as per franchise agreement)
• Advertising funds are also paid periodically. These funds are usually put into
a general account and used for national and regional promotion for the entire
chain.

7. History
• Franchising is not limited to fast food, video
rentals, or automotive services – it finds its roots
in ancient China, and was used primarily by
governments throughout the Middle Ages.
• It first appeared on the U.S. scene after the Civil
War and became a force to be reckoned with in
the post-war 1950s. It boomed in the '60s, policed
itself in the '70s, and matured in the '80s. Since
the 1990s, it has continued to outstrip the
achievements of the rest of the economy.
• 1891: Martha Matilda Harper Licenses Her First
Franchisee
• we now see promising growth in international
franchising - overseas franchisors using the
franchising model to gain a foothold in the U.S.
market.

8. Responsibility of Franchisor
• Developing a business concept, brand, plan and
processes.
• Creating logos, trademarks, and other
proprietary graphics and content.
• Conducting initial and ongoing training
programs for franchisees and their employees.
• Providing marketing, advertising and public
relations support. Coordinating cooperative
advertising and promotional opportunities.
• Researching and developing new products and
services that can be sold through franchisees.
• Developing relationships with vendors and
suppliers.

9. Responsibility of Franchisee
• Hiring and firing staff.
• Training new staff.
• Managing finances and accounts,
which includes meeting payroll and
paying bills.
• Selling products and services.
• Ensuring quality control.
• Engaging in marketing and
promotional activities.
• Leasing and maintaining a physical
structure for the business.

10. WHY?
• the costs of opening a franchise are low compared to starting
a company from the ground up
• franchisees get a lot of help, as franchisors supervise their
new franchisees closely.
• The often-instant recognition from customers is also a big
plus
• the franchisor takes responsibility for product research and
development, vendor negotiations and developing marketing
and advertising campaigns.
• Some franchisors offer assistance with financing, so the
franchisee does not have to find capital from external
sources. And many more…

11. Demerits
• High initial investment: Some of them require affordable
investment and are easily adjusted in any budget whereas
some are big names and requires a hefty sum
• Limited creativity : There is no scope for any changes
• Lack of privacy: A new franchise is totally dependent on
its parent company for the directions as well as the
operating system. It has to provide all the financial
information to the franchisor who collects it to improve
audit-royalty payments.

12. • Decreased profits : you have to pay initial fees
and royalty fees and later you have to share a
part of your profit with the parent company.
• Shared information :The parent company
starts this process by sharing relevant
information with other franchise and commands
other outlets to do so with it. There is a risk of
leak and that your competitors will somehow
gain access and come to know about it.
• Less control:
franchisor :delegates his responsibility to others
and loses control over the new operation.
Franchisee: Should operate under guidelines set
up by parent company
• Damaged reputation: A damaged reputation is
always a concern of the parent company and is
considered a disadvantage if it occurs because of
the action of a new franchise.

13. • Tied to suppliers: Every entrepreneur likes to deal with
suppliers and vendors as per his own suitability but in a
franchise model, a new franchise has to deal with those who
have a contract with the parent company.
• Difficult to exit business: The franchise owner cannot sell
the business without the approval of the franchisor or the
parent company. the parent company and the franchise had
earlier negotiated because the initial agreement stands.
• Rapid growth: When the parent company is popular, and
many franchisee open at same location

15. McDonald
• McDonald's Has 34,410 Franchisees
• 15% owned by company, remaining 85% are operated by
franchises
• If you're purchasing an existing restaurant, you must have 25%
of the down payment towards the total cost must be paid up
front. For a new restaurant, you must be able to pay 40% up
front.
• you have to have $500,000 personal fund. source:thebalancemb
,total costs may vary: $685,750 to$1,504,000,
• initial franchise fee of $45,000

16. • The other costs go to suppliers
• rigorous nine-month training:
things like their standards for quality, service, value, formulas and
specifications for menu items, their method of operation, and inventory
control techniques.
• agree to operate the restaurant from a single location(usually 20 years)
• McDonald's Field Consultant, who can advise you on details and will visit
regularly.
• pay McDonald's a monthly fee of 4 percent of your sales and monthly
fees(rent charges)

17. Franchise in Nepal
78.9
7.1
4.5
3.5
2.4 3.6
Percentage
Daily Consumption Repaying loans education capital formation other
Nepal Living Standards Survey (2011)
Smerger.com

18. Resources
• http://www.businessdictionary.com/definition/franchising.html
• https://www.thebalancesmb.com
• https://smallbusiness.chron.com/difference-franchisee-franchisor-24303.html
• https://www.wikihow.com/Open-a-McDonald%27s-Franchise
• http://nepalfranchise.org.np/
• https://en.wikipedia.org/wiki/Franchising
• https://www.slideshare.net/guide2entrepreneurs/how-does-franchising-work
• https://money.howstuffworks.com/franchising.htm