Case On RELE

Topics: Franchising, Cash flow, Revenue Pages: 6 (2314 words) Published: January 18, 2015
Case Study on RELE-Rouen: Language Immersion in Normandy

Executive Summary

Maxime is the co-founder of RELE-Rouen, a franchise language school under RELE at Rouen, France. The business took a downturn during the economic crisis from 2009 to 2011 and it has been losing money for three consecutive years. The franchise contract with RELE is due for renewal in two month. At this time, Maxime is presented with three options:

1. Renew franchise contract with RELE
2. Switch to OILT programs
3. Sell the building to EFEL

This report first explored the constrains that Maxime faces in this decision making process. And then the three options are analyzed and compared in details by using a set of criteria, including financial return, franchise models comparison, and other business strategy related considerations, i.e. customers, company, distribution channels and market outlook. The people perspective in this decision making process is also being examined.

Based on the findings, RELE-Roune will face another year of loss if RELE does not allow Maxime and Beatrice to run their weekend programs anymore in 2012. OILT is only more profitable if they can sell at a much higher quantity than they do now. And the 1.5m offer from EFEL is much below the valuation of the building and their business.

Therefore, it is vitally important that Maxime first determine RELE’s willingness to grant Roune more freedom in program offering in the future. If RELE refuses to, Maxime and Beatrice has to choose between OILT and selling at a loss to EFEL. Maxime and Beatrice should also look for an OILT franchisee that is in a similar geographical location, i.e. a rural area in close proximity to a metropolitan city, to understand their marketing strategy and the new company identity in order to estimate their required initial investment and future business potential if they are to switch to OILT.

Constraint
RELE’s centrally controlled sales activities and program offerings are largely the reason why Maxime and Beatrice can do very little to revive their business in times of crisis. It will continue to be a constrain in their future with RELE. Maxime and Beatrice’s financial situation can also restrict their decision-making. The current asset RELE-Rouen held as of 31 December 2011 is just enough to cover its current liability. Any new investment can create a considerably cash flow problem for the company. Maxime has already guaranteed a loan of €800,000 personally. It can be difficult for them to source for new loan or cash investment given the uncertainty of their business future. The building, which Maxime and Beatrice used to run RELE-Rouen, is jointly owned by the five siblings. It is a family heritage. Any decision made related to the use of this building will have to be in all siblings’ best interest. Criteria

The three options are being evaluated based on the following criteria: Economics, Business Strategy and People. Economics
This section details the financial analysis of the three options1. For RELE, three business scenarios are constructed and evaluated. An estimate of financial returns from OILT, assuming the same level of sales, is also calculated and compared with RELE’s. Lastly, an estimate for the valuation of the building and business provides an insight to EFEL’s offer. Option 1 – Renew franchise contract with RELE

Scenario 1: RELE-Rouen offers only weekday programs. It is deduced from the case that Fabienne, the CEO, chose not to object to RELE-Rouen’s new weekend program because of the understanding that time was difficult. When the economy starts to recover, Fabienne may not allow this program to be offered anymore. It is estimated that RELE-Rouen will face a loss of close to €82,000. Scenario 2: RELE-Rouen continues its current offerings. Based on their own estimation, RELE-Rouen will have a profit of close to €30,000. Scenario 3: RELE-Rouen is allowed to offer both four-weekend and English program. This is...
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