The proposed answer for Bill and Ann is to refuse the offer. Taking the aspect of profitability of the venture, it can be said that, comparing the numbers for the stores in Adelaide and the possible revenues for the store in a shopping centre, with much worse characteristics, the comparison put doubt on the reasonability of such investment. Accordingly, looking to the provided statistics it can be said that there is no correlation between the variables representing the characteristics of the shopping centre, which in turn does not provide any confirmation on the profitability of the new shopping centre.
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It should be stated that assessing the efficiency of the competitiveness of the business, the franchise is delusional when presenting the numbers in the operating reports provided to Bill and Ann. The numbers given, i.e. 45, 44,8 48 reflect the percentage of the selling price that is profit. In that regard, these large numbers, which are close to a half can be indicative of the efficiency among the average gross-profit margin of competitors.
On the other hand, the numbers provided for the Adelaide, are different, presenting the operating margin, which does not exceed 0.18. Thus, that number is indicative that only 0.18 of a dollar is received as a profit after all the payments are paid (2009). It might be assumed that there are hidden costs, which are not apparent through the reports and the pamphlet, where for example, it is not outlined regarding the marketing costs, whether they are included in the franchise or not. Additionally, the percentage of revenue paid to the franchisor or and the state Master Franchisor is also absent. Thus, it might be said that there are not enough arguments supporting the decisions of taking the franchise deal.
One of the limitations can be seen through the absence of information on operating expenses, bank loan interests and capital return. Additionally, considering that the franchiser claims that he has over 100 franchisees, it can be stated that he has reached maturity (Mendelsohn, 2004), and all the relevant information with which to assess the franchise should be readily available.
The franchiser should be able to provide extensive information regarding the franchise system as well as the quality of the franchisor, and accordingly the relation between them. In that regard, the data available should cover longer period, in which comparisons can be made regarding different periods and different locations.
It can be recommended that, the franchisor, in addition to providing complete financial statements, outline a plan, based on which Bill and Ann will be able to obtain information regarding the way they will be assisted in doing business (Mendelsohn, 2004). Considering the fact that they both lack information and expertise, and taking as an example such factor as marketing, which is stated as a factor influencing gross sales and profitability, such aspect should be analyzed in details.
The information might include the responsibility of the franchisor on marketing, cost percentage and the correlation of marketing costs and profitability. Additionally, Bill and Ann should receive a comprehensive marketing plan, or at least acknowledge the terms on which this plan will be implemented (Daszkowski, 2009). Considering the level of the franchisor, such information should be already available at this stage of their development.
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- (2009) Operating Margin. Street Authority.
- DASZKOWSKI, D. (2009) What Support Can You Expect from the Franchisor? , About.com. Web.
- MENDELSOHN, M. (2004) The guide to franchising, Cengage Learning.