Buying A Franchise

Question 1

What are the 3 types of franchising?

Answer 1

1. Business format
2. Service franchise
3. Dealership or product distribution

Question 2

Explain a business format and give an example.

Answer 2

Business format is when a franchisee uses a franchisor’s trademark, and is able to access the whole system for running the business and promoting the goods and services.
An example of business format is Macdonalds.

Question 3

Explain service franchise and give an example.

Answer 3

Service franchise is a franchise that offers services. An example of a service franchise is an electrician.

Question 4

Explain a dealership or product distribution and give an example.

Answer 4

Dealership or product distribution is based on supplier-dealer’s agreement, whereby the products of a franchisor are distributed by the franchisee.
An example of this is a car dealership.

Question 5

1.Advantages of franchising in a franchisees viewpoint.

Answer 5

1. Proven system - meaning that when a franchisee franchises a successful franchise, the possibility of having profit is high due to the proven system of the franchise.

Question 6

2. Advantages of franchising in a franchisees viewpoint.

Answer 6

2. Setup assistance - meaning that the franchisee has the advantage of not starting a business from scratch and also can be assisted by the franchisor on how to run a successful franchise.

Question 7

3. Advantages of franchising in a franchisees viewpoint.

Answer 7

3. Advertising and purchasing - it becomes easier to purchase and advertise to customers due to the loyal customer base.

Question 8

Disadvantages of franchising in a franchisees viewpoint.

Answer 8

1. Rigid operation procedures
2. Increased setup costs
3. Bad decisions from the franchisor

Question 9

Advantages of franchising from a franchisor’s viewpoint.

Answer 9

1. Rapid expansion possible.
2. Dedicated owner-operators

Question 10

Disadvantages of franchising from a franchisor’s viewpoint.

Answer 10

1. Reduced income per unit
   2.High operating costs especially in head office structures
2. Restriction on freedom to act