Overview
The Scenario
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- As a part of the restaurant's long-range marketing plan, your company purchased property nationwide from the now-bankrupted "Sahara Dessert Dish" franchise properties. Based on your discussion and strategic plan, 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 Dessert Dish property purchased in anticipation of this day. The properties are all in upscale locations that easily support the restaurant's thematic dessert menu.
"Sally, it's now or never," you state. "We need to implement our franchise division." Sally seems a little concerned about the plan interfering with entering the third gold Michelin star competition. You reassure her, "If Wolfgang Puck can open up gourmet pizza shops, we can create a dessert franchise operation."
Sally replies, "Start working on the documents, and I'll get started on creating the franchise operations menu and food handling processes."
You reviewed all of the eventualities a company may face in expansion periods. Your company's 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, research the federal regulations required to establish a legally recognized franchise operation. Part 436 - Disclosure Requirements and Prohibitions Concerning Franchising (Electronic Code of Federal Regulations). (Links to an external site.)
Please proceed to the Assignment section.
To fully understand the nature of a franchise operation, review the SBA information.
SBA Introduction to Franchising (PDF)Download SBA Introduction to Franchising (PDF)
Issues and limits for consideration in creating a franchise agreement include:
Nature and extent of the rights granted to the franchisees
Duration of the franchise period
Exclusiveness of franchise
Authorized use of a trademark