Franchiser & Franchisee

Question 1

What is a franchise?

Answer 1

A franchise is a business model that allows businesses to pay a sum of money to own a branch of a well-known, existing business.

Question 2

Who is a franchise….by?
- owned
- controlled
- financed

Answer 2

Owned: Franchiser/Franchisee
Controlled: Franchiser
Financed: Share equity

Question 3

What is the aim of a franchise?

Answer 3

Aim to grow and increase market share.
Also, aim to increase profit and market value.

Question 4

What is the advantages of a franchiser?

Answer 4

• A low-risk form of growth as the franchisee invests the majority of the capital.
• Receives a percentage of all franchisee’s profits each year (known as royalties)

Question 5

What is the disadvantages of a franchiser?

Answer 5

• The reputation of the whole franchise can be tarnished by one poor franchisee.
• Only a share of profits is received rather than all profits as it would be if they owned each branch.

Question 6

What is the advantages of a franchisee?

Answer 6

• The franchise is a well known business with an existing customer base.
• Industry knowledge and training is provided by the franchiser.
• The franchisee benefits from national advertisements carried out by the franchiser.

Question 7

What is the disadvantages of a franchisee

Answer 7

• There is very little autonomy over decisions as the franchiser decides on products, store layout, uniforms, etc.
• Royalties have to be paid each year.
• There are high initial start-up fees.