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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!
- Define 'Franchise'
- Explain the difference between the franchiser and the franchisee
- What is a 'royalty'?
- Name five fast food franchise operations
- Name five other franchise operations
- List five types of support that the franchiser might give to the franchisee
- Give three advantages of franchising to the franchiser
- Give three advantages of franchising to the franchisee
- Name at least three disadvantages to the franchiser or franchisee
- Give three things a franchise needs for it to be a success
- Name at least three disadvantages of a franchise
Homework Top Ten Key Words - use the link here to get the definitions
- Trade mark
- Brand image
- Business ownership
- Reducing risk
9 mark questions