Franchises And Cooperatives

Question 1

What’s a franchise

Answer 1

• Where a business with a well know brand name let’s a person/group of people set up their own business using that brand
• Have to pay an initial fee
• Have to continue royalty payments for as long as the franchise lasts (certain turnover/profit percentage%)

-Not a type of legal structure in itself
=franchises can choose which legal structure to use
=franchiser help them in choosing which one to adopt

-Can be found in most sectors of the economy
=fast food (McDonald’s)
=cosmetics (the body shop)

Question 2

Being the franchiser advantages

Answer 2

• The firm doesn’t have to spend a lot of money to expand their business
• Franchiser has direct control over the products that a franchise needs to operate with
• Applicants are carefully selected for their suitability to be a franchisee so that profit and success can continue to happen

Question 3

Being the franchiser disadvantages

Answer 3

• Issues over control as it doesn’t sell the product itself
• Bad publicity for the company if there is one bad franchisee affecting the brand image
• Time consuming to endure franchisees are following the procedures properly
• Expensive to support franchisees - ongoing support, training, market research + product development

-Conflict potential with if something fails to sell them blaming each other
=franchisee = not good enough support or training
=court action

Question 4

Is franchising your brand the right idea?

Answer 4

-Initial set up cost
=risk of failure if the wrong location/franchisee is chosen

• a long term thing
• no immediate success
• Loss of control
• will disrupt decision making (highly centralised or decentralised)

Question 5

Being a Franchisee advantages

Answer 5

• Expert advice and training is available at all times
• Easier to gain a loan from the bank with the recognised name & franchiser support

-They’re using a tried-and-tested brand name
= greater chance of success than starting out with their own brand doing the exact same thing

Question 6

Being a franchisee disadvantages

Answer 6

• Always having to pay continuing royalty payments to the franchiser (certain % turnover/profit)
• Less control over what’s being sold + how it’s being sold compared to having your own business
• The business can’t be sold without the franchiser’s permission
• Franchise is for a fixed period of time and not automatically renewed
• Lower profit margins buying supplies from the franchiser who will charge higher prices than what’s available on the open market for all to buy from

Question 7

What’s a cooperative

Answer 7

• A business that is owned and run by its members (employees and customers)
• Profits are shared between the members rather than to the shareholders
• They’re very diverse (retail, credit unions, housing cooperatives)
• Can be set up in different ways
• The legal structures are variant from one to the other
• Not a separate legal structure (like a franchise)
• It’s a business not a charity

Question 8

Advantages of being a cooperative

Answer 8

• Very straightforward to establish
• Inexpensive to create
• Easy to legally create
• Limited liability

All working towards a common goal : motivated and productive

-Stakeholders benefit because of their approach
(customers as members,
get more shares from the profits that are made and shared,
customer loyalty,
high quality service)

Question 9

Disadvantages of being a cooperative

Answer 9

• Limited capital as it’s what is contributed by members
• Banks reluctant to lend to them as they don’t operate like a normal business
• Investors may be put off by the lack of return they’ll receive
• Large member involvement means slow decision making
• Just as many benefits to stakeholders operating as a normal business as there is to a cooperative = it’s nothing special