franchises

Question 1

definition of franchise

Answer 1

is a business that sells a licence to others to allow them to open a new branch under their name.

Mcdonalds, subway and dominos have all grown using the franchise model.

Question 2

main points 1.

Answer 2

the business selling the licence is known as the franchiser - like employer.

the business / person buying the licence is known as the franchise - like employees

Question 3

main points 2.

Answer 3

the franchise will have to pay a large amount of money to the franchiser to buy the licence. They will also then have to pay a % of their sales/profits (known as royalties) to the franchiser.

Question 4

main points 3.

Answer 4

in return they get help from the franchiser to set up the new branch and will hit the ground running as customers will already know and trust the business.

Question 5

main objectives

Answer 5

1. is to grow and increase market share.
2. maximise profit.
3. increase their market value too.

Question 6

main sources of finance

Answer 6

1. licence fees
2. royalties
3. retained profits
4. bank loans

Question 7

advantages to the franchiser

Answer 7

1. a low risk form of growth as the franchise invests the majority of the capital.
2. receives a percentage of all the franchisee’s profit each year (known as royalties).

Question 8

disadvantages to the franchiser

Answer 8

1. the reputation of the whole franchise can be tarnished by one poor franchise.
2. only a share of profits is received rather than all profits as it would be if they owned each branch

Question 9

advantages of the franchisee

Answer 9

1. the franchise is a well known business with an existing customer base.
2. industry knowledge and training is provided by the franchiser.
3. the franchisee benefits from national advertisements carried out by the franchiser.

Question 10

disadvantages to the franchisee

Answer 10

1. there is very little autonomy over decisions as the franchiser decided have on products score layout, uniform etc.
2. royalties have to be paid each year.
3. there are high initial start up fees.

Question 11

franchiser

Answer 11

The parent company in a franchise agreement - the one who sells the licence

Question 12

franchise

Answer 12

A business model that allows for a sum to be paid to own a branch of a well known existing business

Question 13

royalties

Answer 13

A percentage of the profits to be paid to the franchiser