Franchises

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

What is the franchiser?

Answer 2

The initial business.

Question 3

What is the franchisee?

Answer 3

A branch of the existing business.

Question 4

Advantages for the 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

Disadvantages for the Franchiser

Answer 5

The reputation of the whole franchise can be tarnished by one poor franchisee.

Only a share of the profits is received rather than all profits as it would be if they owned each branch.

Question 6

Advantages for the 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

Disadvantages for the 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.