9.1d Franchising

Question 1

What does a franchise involve?

Answer 1

A business being paid to allow others to use its name, logo and methods of trading

Question 2

Franchisee definition

Answer 2

The entrepreneur who buys into the business

Question 3

Franchisor definition

Answer 3

The original business which provides supplies etc

Question 4

What type of growth is franchising?

Answer 4

Organic growth

Question 5

How does franchising work?

Answer 5

• The franchisee pays an initial fee to buy the rights to run a franchise.
• The franchisee is then given a particular area with which to run the business, with a guarantee that another franchise will not open up in a particular radius.
• The franchisor will provide specific materials to run the business with
• The franchisee will pay a percentage of their revenue or profits as well as supplies from designated business - they may also have to make contributions to marketing, training costs, and administration

Question 6

Reasons to become a franchisor:

Answer 6

• The franchisor will receive a lump sum for the rights and then regular payments
• They can use other people to expand
• The risk is borne by the franchisee not the franchisor

Question 7

Ways franchising supports growth:

Answer 7

• Be in more geographic locations
• Use inflow of money to grow in other ways
• Economies of scale

Question 8

Drawbacks of being a franchisor:

Answer 8

• Reputation is in the hands of somebody else
• Confidential information may need to be disclosed to the franchisee which they could potentially use against you if agreement ends
• Clear infrastructure needs to be in place e.g. distribution networks.