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

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2
Q

Franchisee definition

A

The entrepreneur who buys into the business

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3
Q

Franchisor definition

A

The original business which provides supplies etc

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4
Q

What type of growth is franchising?

A

Organic growth

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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
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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
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7
Q

Ways franchising supports growth:

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