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Resource Constraints

Any organization’s attempt to grow will inevitably be hindered by a lack of capital. Franchising can meet the need to conserve capital while continuing to achieve growth.[4] In a franchise context the capital influx from franchise fees reduces the need for the franchisor to raise money to grow,[5] conserves the franchisor’s capital,[6] and establishes a distribution network more quickly than does a chain of company-owned outlets.[7] Franchisee capital is specifically earmarked by the franchisor for implementation of a rapid growth strategy.[8] Entrepreneurs clearly perceive the opportunity for rapid growth and the acquisition of franchisee capital as important reasons to pursue franchising.[9] The FRPT tracks the general use of franchisee capital contributions to the growth of the system and the financial health of the franchisor. The franchisor’s health is due in part to the health of the stores and in part to good management of resources.

The FRPT is our guide to franchisor-specific due diligence. Industry-standard documentation in franchising contains much of the information for due diligence and reveals extensive financial data. The Uniform Franchise Offering Circular (UFOC) and the license agreement can answer many of the questions raised by the FRPT. The first is government-mandated franchise disclosure. The second document is the contract between the franchisee and the franchisor, which is typically standardized within a franchise system.

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