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
Part 1
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)
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:
o The Checklist for The Basic Franchise Agreement
o Test for Franchise Feasibility
Part 2
9.4 Assignment Complying with Federal Regulations for Franchises
You have operated one of your property sites as a prototype for the Franchise Operation. The properties are all in upscale locations that support the Restaurant’s thematic Desert profile.
This new site has test-marketed the Franchise concept with the patented dessert brand, “Brain Freeze,” that savory specialty formulated dessert treat created by Sally.
The desert has become so popular that many customers have requested extra take-home orders. A substantial number of patrons have even asked if the dessert would ever be sold separately in markets. The dessert menu has a strong sales position in overall restaurant sales and generated a cash flow that supported the entire overhead of the test model.
Your company is now ready to launch the Franchise Operation, but you must first complete this next assignment.
Your Assignment
This Assignment is a Blue Font exercise; make sure you complete the document using a readable Blue Font.
You have operated a company-owned property site as a prototype for your Franchise Operations. The other properties owned by your company are all in upscale locations that support the Restaurant’s thematic Desert franchise market profile.
The desert has become so popular that many customers have requested extra take-home orders. A substantial number of patrons have even asked if the dessert would ever be sold separately in food markets. The dessert menu demonstrated a strong sales position using the test market compared to overall restaurant sales. It generated a cash flow that supported the entire operation costs of the franchise business operations plans.
Your company is now ready to launch a National Franchise Operation, but you must first complete the statutory requirements and complete the draft agreement with your revisions.
Assignment: Assemble the documents required to establish a National Franchise operation. Review the Partial FDD Franchise Information (PDF) that outlines the partial Franchise requirements that legally permit your company to sell and enter into franchise agreements with franchisees. This document outlines your franchise profile. Compare the information in the Partial Franchise Disclosure Document (PFDD) using the statutory specifications found in the:
Electronic Code of Federal Regulations website (https://www.ecfr.gov/current/title-16/chapter-I/subchapter-D/part-436#_top) (ECFR). PART 436—DISCLOSURE REQUIREMENTS AND PROHIBITIONS CONCERNING FRANCHISING:
Subpart B—Franchisors’ Obligations and
Subpart C—Contents of a Disclosure Document
Ensure all statutory requirements are in the PFDD Document any missing sections highlighting any deficiencies or variations from the Statute, if any.
Next, complete and revise the following Agreement: FDD Franchise Agreement (DOCX) . Complete all blanks “___” or bracketed “[ ]” sections with the appropriate information (Use the Blue Font color) and provide any other missing terms required to solicit prospective Franchisees. Make sure the Agreement terms are consistent with the statutory requirements. Use your responses to questions in the Franchise Agreement Checklist completed in Assignment 9.3 to assist in completing 9.4.
This assignment requires you to demonstrate your understanding and ability to redraft an agreement and compliance with the legal provisions that meet your companies’ franchise requirements and comply with the statutory franchise legal requirements. The accuracy and completeness of your responses in 9.3 will determine your ability to redraft sections of the Franchise Agreement and complete paragraphs in the document with detailed information. You are permitted to create “best judgment” responses using the Case Study as support for information not directly provided.
Upload Document: Your Revised Franchise Agreement
