Franchises and Finances - Essay Example

Harris Kamran Business Case Study 28 August Franchises and finances: Domino’s Pizza Different international and multi national companies have different franchise packages, depending upon their mode of operation and their requirements. A study of these franchise packages reveals the scope, coverage, risks, financial standing, and customer ratings related to these companies. This paper is a case study of the franchise package of Domino’s Pizza, an multi national corporation dealing in pizzas and other fast foods across the globe (Domino’s Pizza, 2008).

The franchise details available on Domino’s Pizza gives superficial information regarding the setting up and operating of a franchise in the United States only (Domino’s Pizza, 2008). This franchise package does not give detailed information about the financing issues and methods related to the opening of a new franchise (Domino’s Pizza, 2008). However. The company does lay out certain rules and prerequisites concerning franchises that need to be followed, many of them related to financing of the project (Domino’s Pizza, 2008).

The mode of franchising that the majority of the owners follow for the Domino’s Pizza corporation is termed as the ‘Operator to Owner’ (Domino’s Pizza, 2008) method of franchising by the company. This is essentiality a one person operation, that is, there is one owner either operating one store in the United States (Domino’s Pizza, 2008), or supervising a chain of franchises of the company (Domino’s Pizza, 2008). According to the statistics provided, this is the preferred mode of franchising for 90% of the owners in the U.

S (Domino’s Pizza, 2008). The foremost financial prerequisite levied by the company is the availability of a sum of $50,000 in liquid capital with the owner before he can apply for the franchising (Domino’s Pizza, 2008). Moreover, the applicant should have a strong credit for the successful approval of the application and running of the franchise (Domino’s Pizza, 2008). Other requirements include his agreement to manage the store for a period of at least one year successfully before he can leave the franchise (Domino’s Pizza, 2008), and his proof of being a U.S. national or permanent resident (Domino’s Pizza, 2008).

The two most important sources for financing of this franchise would be the availability of liquid capital and assets with the owner, and the backing up of the financing by strong credit, as already mentioned (Domino’s Pizza, 2008). A strong financial statement would tilt the balance in the favor of the applicant, and would make it easier for the owner to operate. According to Bond (Davis & Farrell, 2011), companies such as Domino’s also provide value to their franchisee (Davis & Farrell, 2011), and do not levy heavy franchise fees and royalties on them (Davis & Farrell, 2011), therefore making it much easier for the franchisee to operate.

These characteristics also make these companies low-risk franchises (Davis & Farrell, 2011), and in the case of Domino’s, it is ranked at number one in Forbes in the list of companies that provide the best value and the lowest risk on the investment of the franchisee (Davis & Farrell, 2011). According to the IRS, the franchisee would have to file the tax form ‘Form 1120’ in order to be eligible for operation (2011). This form is required for the C corporations, being applicable to Domino’s (IRS, 2011).

References Davis, L. & Farrell, M. (2011). The top franchises for the money. Retrieved from http://www.forbes.com/2011/01/18/best-franchises-for-the-buck-entrepreneurs-finance-franchise.html Domino’s Pizza. (2008). Franchise with Domino’s Pizza. Retrieved from http://www.dominosbiz.com/Biz-Public-EN/Site+Content/Secondary/Franchise/Operate+to+Own/ IRs. (2011). Forms and publications. Retrieved from http://www.irs.gov/formspubs/index.html