Franchises

Question 1

What is a franchise?

Answer 1

A franchise is the right given by one business (the franchisor) to another (the franchisee) to sell goods or services using its name.

Question 2

What are the advantages of being in a franchisee?

Answer 2

More customers due to using a successful brand name and products.
Support, training and advice from the franchisor.

Question 3

What are the disadvantages of being in a franchisee?

Answer 3

Additional costs – initial fee and regular royalties (based on revenue)
Less freedom in how you run the business
Your business can suffer if the brand name becomes less popular

Question 4

What are the advantages of being in a franchisor?

Answer 4

Risk-free income from initial fees and royalties
Can expand without paying to set up new branches
No liability at all if a franchisee’s business fails

Question 5

What are the disadvantages of being in a franchisor?

Answer 5

Only earns the royalties instead of all of the profits from new branches
The whole business could lose popularity if one branch gives it a bad name

Question 6

What is a royalty payment?

Answer 6

These are regular payments by the franchisee to the franchisor.
They may be a percentage of the franchisee’s sales revenue, or they may be a flat fee.