Flashcards in Franchises Deck (11):
What is franchising?
This is a form of cooperation between two businesses. A company which has a well-know product or service allows an individual to buy the right to use their products or services and trade under their name.
What is a franchiser?
The company which allows another person or persons to use their tried and tested product or service and to trade under their name for a fee.
What is a franchisee?
The person or persons who pay an initial fee and regular royalty payments for the privilege of trading under the franchiser's name.
Who is the franchise owned by?
Who is the franchise controlled by?
Who is the franchise managed by?
Who raises finance for the franchise?
It is raised by savings or borrowings from banks.
Who does the profit go to?
The profits are kept by the franchisee but the franchiser takes a percentage in the form of royalty payments.
What are the advantages of the franchisee?
- They have a great chance of success as the product has been tried and tested.
- The product is advertised nationally.
- They can receive help and support from the franchiser.
- The franchisee can decide the legal structure of the business.
- It is easier to obtain loans from banks as they are seen as less of a risk.
What are the disadvantages of the franchisee?
- They are not completely independent as they have to follow rules and regulations set by the franchiser.
- They can't sell the franchise without the franchiser's agreement.
- They have to give the franchiser a share of the profits (royalty payments).
- The franchiser is not automatically renewed.
- They have to use materials supplied by the franchiser.