franchises

Question 1

give the definition of a franchise

Answer 1

a franchise is a method of expansion, not a type of business ownership

Question 2

what is the role of the franchisor and franchisee

Answer 2

franchisor- owners of the established The franchisor grants the franchisee the right to operate the business
franchisee- pays start up fees and royalty payments to the franchisor, must uphold the franchisors standards

Question 3

what benefits to franchises offer to other business looking to expand

Answer 3

• low costs compared to other expansion methods
• minimises risk
• motivation of franchises

Question 4

give 5 advantages for the franchisor

Answer 4

• expand quickly without the need for large amounts of capital
• does not lose control of the business
• invested their own money, motivated
• receives fees and royalties from the franchisee
• does not have a large work force to manage

Question 5

give 3 disadvantages for the franchisor

Answer 5

• business trade name and reputation can be ruined if franchisees do not maintain standards
• initial costs of setting up franchise can be expensive
• on going costs of advertising and support of franchisees can be expensive

Question 6

give 4 advantages for the franchisee

Answer 6

• good chance of success and less risk
• benefits from a readymade reputation
• franchisor provides financial advice and support
• not responsible for costly activities

Question 7

give 6 disadvantages for the franchisee

Answer 7

• never feel that the business is theirs
• cannot make many decisions
• could be withdraw at any time
• fees, royalties and expensive stock make franchising a costly way to run a business
• royalties must be paid even if the business makes a loss
• face unlimited liability both sole trader or partnership