Franchising

Question 1

What is franchising, and why is it popular?

Answer 1

Franchising is a business model where a franchisor licenses their brand and business model to franchisees. It’s popular for rapid business expansion, with nearly 910,000 franchises in the U.S., making up 1/3 of retail sales​

Question 2

Where does the term “franchise” originate

Answer 2

The word “franchise” comes from an old French dialect, meaning “privilege” or “freedom”

Question 3

Define franchising in a business context

Answer 3

Franchising is where a successful business (franchisor) licenses its brand and operations to another party (franchisee) for a fee and royalties​

Question 4

Who can be a franchisor?

Answer 4

Both established businesses and first-time entrepreneurs can be franchisors

Question 5

What are the two main types of franchise systems?

Answer 5

1) Product and Trademark Franchise: Franchisee buys products and uses the franchisor’s trade name (e.g., GM dealerships). 2) Business Format Franchise: Franchisor provides a full business model including training and advertising (e.g., fast-food chains)

Question 6

What types of franchise agreements exist?

Answer 6

​​​) Individual Franchise Agreement: Franchisee operates a single location. 2) Area Franchise Agreement: Franchisee can open multiple locations within an area. 3) Master Franchise Agreement: Franchisee can open multiple locations and sub-franchise

Question 7

What factors make franchising appropriate for a business?

Answer 7

A strong brand, a well-developed business model, and growth ambition are essential for successful franchising​

Question 8

Why should franchising be approached cautiously

Answer 8

Franchising is complex, requires adherence to regulations, and can involve significant financial risk if not carefully managed​

Question 9

What qualities are important in a franchisee?

Answer 9

Key qualities include a strong work ethic, ability to follow instructions, minimal need for supervision, financial resources, and industry experience

Question 10

List some advantages of franchising

Answer 10

Advantages include rapid market expansion, income from fees and royalties, franchisee motivation, cost savings, and increased buying power

Question 10

What are some disadvantages of franchising?

Answer 10

Disadvantages include profit-sharing, loss of control, potential friction with franchisees, and management challenges​

Question 10

What should potential franchisees consider before purchasing?

Answer 10

They should assess their willingness to follow a system, take orders, and the financial risks involved

Question 11

What costs should a franchisee expect?

Answer 11

​Costs include an initial fee, capital for setup, ongoing royalties, and advertising fees

Question 12

Name a common misconception about franchising

Answer 12

One misconception is that franchising is a guaranteed safe investment; however, it still carries significant financial and operational risks​

Question 12

What are some advantages of buying a franchise?

Answer 12

Established brand, training, technical support, marketing, and financing opportunities

Question 13

What are some disadvantages of buying a franchise?

Answer 13

High costs, restricted creativity, potential for fraud, and possible underperformance of other franchisees affecting reputation​

Question 14

What ethical concerns exist in franchising

Answer 14

Franchising can sometimes foster a “get rich quick” mentality, and conflicts may arise between franchisors and franchisees due to conflicting interests

Question 15

Why is international franchising growing, and what should one consider before expanding overseas?

Answer 15

Saturation in U.S. markets and globalization fuel growth. Consider brand reputation abroad, local legal support, and product suitability for the foreign market