Franchise-assessment 1

Question 1

What is a franchise?

Answer 1

A franchise is an agreement between two partners, which gives one party (the franchisee) the rights to market a product or service using the trademark of another business (the franchisor)

Question 2

What are royalties?

Answer 2

They are fees you pay the organisation for using their brand name.

Question 3

Name 3 Advantages of operating a franchise-being the franchisee

Answer 3

• More customers as you are a well known brand.
• Defines territory- you have the sole right to sell this product within a defined location.
• Access to funds-Banks are more willing to lend money to a franchisee of a successful business as it is less of a risk

Question 4

Name 3 Advantages to the franchiser (McDonalds/ Subway etc)

Answer 4

• Increased opportunities for growth- their company will grow a lot faster than if it was to rely on organic growth
• Increased profits-the franchisor receives a royalty, which is a share of the profits from each franchise
• Less administration-it is up to the franchisee to actually do the day to day running of the business

Question 5

Name three Disadvantages for the franchisee

Answer 5

• Initial and ongoing fees-some franchises are very expensive, from hundreds of thousands to millions of pounds. The franchisor also takes a regular slice of your profits.
• Less of a say in how the business is run-you have little to no say.
• interdependency-your actions have an impact on the business as a whole and other franchises. All can suffer if you build up a bad reputation.

Question 6

Name two disadvantages for the franchisor

Answer 6

• loss of control- you have to trust the franchisee with your brand name and logo. All your hard work could be for nothing if the franchisee ruins your reputation
• The business could grow too quick-dis-economies of scale