Chapter 3 Franchises And Co Operatives Flashcards
Explain what is meant by a franchise
This is where a business with a well known brand name (FRANCHISER) lets a person (FRANCHISEE) or group of people set up their own business using that brand.
This is in exchange of an initial fee and continuing royalty payments for as long as the franchise lasts
Example of a franchiser is McDonald’s
Do franchisees have limited or unlimited liability
They have unlimited liability if there in a business as a sole trader or a partnership but they have limited liability if they set up the franchise as a company
Advantages for the franchiser
- the firm doesn’t have to spend large amounts of money to expand
- the products necessary for the franchise to operate are under the franchisers direct control
- applicants are carefully selected for suitability to become franchisees
Disadvantages for the franchiser
-control issues
- the cost of supporting franchisees
- the possibility of conflict
Should a business franchise its brand
There is an initial cost of setting up the whole network and there’s a risk that it may initially fail if the wrong locations/franchisees are chosen.
Factors to take in to consideration is how much time, money there prepared to invest in the business
Advantages for the franchisee
-its using a tried and tested brand name so there is a greater chance of success
- specialist advice and training are available
- franchiser carried out market research and provides support and franchisees can spend more time selling products and making a profit
Disadvantages for the franchisee
- supplies have to be bought from the franchiser which may charge higher prices therefore lowering profit margins
- there will be continuing royalty payments which is a certain percentage of profit or turnover for the franchiser
- the business cannot be sold without the franchiser’s permission
What is the co operative movement
This began where a group of workers who were fed up of poor quality products and high prices set up their own grocery business. It was a great success and went on to employ over 60,000 people and now operates in many different business areas
However in 2013 it was in serious trouble due to its merging with Britannia building society where it had to be bailed out of hedge fund companies whose aim was to make a short term profit.
Impact of cooperatives for stakeholders
Communities-continuing ongoing commitment to ethical values and sourcing
For you- better prices, better quality, right location, excellent customer service and emotional benefit
Key elements of a cooperative business
-it is owned by members the people who use it
- it is run by members who elect those managing the business and help shape the decisions their cooperative makes
- profit is shared among members this is vital,
Advantages of a cooperative
- establishing it is legally straightforward the legal documentation is straight forward and inexpensive
- all involved are working towards a commmon goal so employees can be expected to feel motivated and therefore productive.
- liability for customers is usually limited
- a high quality service should be provided since customers are likely to be members and also because profits are shared
Disadvantages of a cooperative
- capital can be limited so banks may be reluctant to lend
- there’s a weak management this will therefore mean lower benefits for members and other stakeholders
- slower decision making
- they operate all over the world but there’s no guarantee operating a business in this way is going to generate more benefits for its stakeholders than an ordinary business would.
Distinguish between franchisors and franchisees
A franchiser is someone who owns a business with a well-known brand-name which lets the franchisee set up their own business using this brand
