4 Reducing the risk by starting as a franchise

What do you know about Franchises?

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A franchise is a TYPE of business OWNERSHIP.  t is also a type of business ORGANISATION.

A FRANCHISE is when a business SELLS the right to use its TRADE MARKS, BRANDS, IMAGE & LOGO to another business.  In effect the buyer buys the right to TRADE using the SUCCESSFUL ideas of another business's.

How a FRANCHISE works click here to see a short video clip

It could if it was a RETAIL business open more branches or EXPAND into internet SALES.

A MANUFACTURING business could move into larger PREMISES.  Any business could expand by buying out its rivals.  Alternatively it could sell its successful business ideas.  A successful business that wants to expand in this way is called the FRANCHISER.  I sells the FRANCHISE to the FRANCHISEE for a certain sum of money called a FEE plus a percentage SHARE of the TURNOVER or PROFITS of the franchisee, called a ROYALTY.

Advantages to the FRANCHISER

• able to carefully select franchisees and only sell to those who add value to the BRAND
•  know that franchisees are risking their own money and will be keen and enthusiastic to make the business a success
• can expand more rapidly
• receives money from the franchisee who is paying for the expansion

Advantages to the FRANCHISEE

• has had some of the financial hard work done in advance
• receives support from the franchiser when setting up and ongoing support in terms of advice, marketing, advertising and training

Disadvantages of Franchising - to the FRANCHISEE

• may be restricted in terms of what they can do to the business and only use certain suppliers
• may feel that the royalties are too high and that they are not rewarded enough for their efforts
• are unable to sell the franchise on without the agreement of the franchiser

Disadvantages of Franchising - to the FRANCHISER

• is risking the business brand and reputation, and may end up with a FRANCHISEE that damages both

Questions you need to know when setting up as a franchise!

1. Define 'Franchise'
2. Explain the difference between the franchiser and the franchisee
3. What is a 'royalty'?
4. Name five fast food franchise operations
5. Name five other franchise operations
6. List five types of support that the franchiser might give to the franchisee
7. Give three advantages of franchising to the franchiser
8. Give three advantages of franchising to the franchisee
9. Name at least three disadvantages to the franchiser or franchisee
10. Give three things a franchise needs for it to be a success
11. Name at least three disadvantages of a franchise

Worksheets

Franchising

Homework Top Ten Key Words - use the link here to get the definitions

1. Franchise
2. Franshisor
3. Franchisee
4. Franchising
5. Royalty
6. Trade mark
7. Brand image
8. Logo
9. Business ownership
10. Reducing risk

9 mark questions