Franchises

Question 1

What is a franchise

Answer 1

A franchise is where you pay a royalty fee to trade under another businesses name and you give the franchee a percentage of revenue

Question 2

Why is buying a franchise a good way for an individual to set up a business

Answer 2

1. Don’t have to establish themselves in the same way that a sole trader might have to
2. Have the support of a tried and tested business model, often with a national marketing campaign behind them

Question 3

State 2 benefits of franchises to the franchisor

Answer 3

1. A classic growth strategy for easy geographical growth with a relatively low investment
2. Capital investment is an important source of growth finance

Question 4

State 2 benefits to the franchisee

Answer 4

1. Franchisee is given support by the franchisor. Eg - marketing and staff training
2. Great publicity as consumers know the brand/product
3. Less initial investment as the business idea has already been developed
4. Allows individuals to start their own business with much less risk

Question 5

State 2 drawbacks of franchises to the franchisee

Answer 5

1. Cost to buy franchise can be very expensive
2. Have to pay a percentage of revenue made to the business you trade under
3. Less flexible as have to follow the franchise model (prices, advertising and employees to use)