9.1d - Franchising

Question 1

Franchising definition

Answer 1

When a business allows others to use its name, logo and methods of trading in return for payment

Question 2

Franchisee definition

Answer 2

The entrepreneur that buys into the business

Question 3

Franchisor definition

Answer 3

The original business

Question 4

What type of growth is franchising?

Answer 4

Organic

Question 5

How does franchising work?

Answer 5

• Franchisee pays an initial fee to buy the rights to run a franchise
• Franchisee is given an area with which to run the business, with a guarantee that another franchise will not open up in a particular radius
• Franchisor will provide materials to run the business with
• Franchisee will pay a percentage of revenue as well as contributions to marketing and training costs

Question 6

Advantages of being a franchisor:

Answer 6

• Franchisor will receive a lump sum then regular payments
• Can use other people to expand
• Risk is borne by the franchisee not the franchisor

Question 7

How does franchising support growth?

Answer 7

• Business can be in more geographic locations
• Increase market share
• Use inflow of money to grow in other ways
• Quicker expansion
• Economies of scale

Question 8

Disadvantages of being a franchisor:

Answer 8

• Reputation is in the hands of somebody else
• Confidential information may need to be disclosed to the franchisee (could use against business if agreement ends
• Clear infrastructure needs to be in place