9.1d Franchising Flashcards
1
Q
What does a franchise involve?
A
A business being paid to allow others to use its name, logo and methods of trading
2
Q
Franchisee definition
A
The entrepreneur who buys into the business
3
Q
Franchisor definition
A
The original business which provides supplies etc
4
Q
What type of growth is franchising?
A
Organic growth
5
Q
How does franchising work?
A
- 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
6
Q
Reasons to become a franchisor:
A
- 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
7
Q
Ways franchising supports growth:
A
- Be in more geographic locations
- Use inflow of money to grow in other ways
- Economies of scale
8
Q
Drawbacks of being a franchisor:
A
- 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.