Year of Award
Master of Business Administration (MBA)
College of Business & Professional Studies
financing, loan, FTC, lending, business, marketing, investing
In the past fifteen years franchising has grown at an incredible pace. Through the rapid growth comes certain obstacles which if handled incorrectly could send a franchisee investor into financial ruin.
Situations have arisen in which a franchisor will disguise the poor financial performance of his franchise with the hopes of selling additional units. The franchisee population wants legal protection. The Uniform Franchise Offering Circular was a legislative attempt to end fraudulent representation of franchises.
Once an investor purchases a franchise he enters a franchise/franchisor relationship. This relationship is a contractual relationship which often times will state clearly from where the franchisee will purchase the majority of his supplies. Among other items in the contract are territories, the area which, along with the franchise you received, come the exclusive operating rights. Usually franchisor's maintain defined territories. However some franchises have been known, in the name of fast expansion and growth, to violate the territories by allowing other franchisees into an already contractually private territory.
Actually purchasing the franchise creates a number of dilemmas. Should a person use his personal savings for a venture such as this, or should he seek outside funds to protect his own money in case the franchise fails? If the investor decides to obtain a loan, he has numerous sources. Banks are an option. The Small Business Administration is one of the most valuable sources in obtaining capital, they guarantee bank loans. And finally, the franchisor is an option for capital.
Often times a franchisor will provide financing, this is generally safe, because they are risking their own capital, creating a financial interest.
Thus, it is necessary that methods be devised to protect the franchisee, methods which will allow the franchisee and the franchisor to act as one functioning efficiently, making money for both.
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Bono, Jeffrey D., "A Study of Franchise Financing, Performance Projecting, and the Relationship Between the Franchisee and the Franchisor as the Major Obstacles to Successful Franchise Operations" (1993). Theses, Dissertations, and Capstone Projects. 313.
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