Franchising

Question 1

What is franchising

Answer 1

Franchising is paying a franchise owner to open an established business

It is a method of growth for the established business, who sells the person buying the franchise the right to use the name and methods of their established business.

Question 2

What is a franchisor

Answer 2

A franchisor sells the franchise to the franchisee

Question 3

What is a franchisee

Answer 3

A franchisee buys the franchise from the franchisor

Question 4

Name the advantages of a franchisor

6

Answer 4

Received royalty payments from the franchisee, for the right to use the business name and methods

The business grows without the franchiser doing much of the work required

The franchisor sells stock to the franchisee. This ensures all products sold across the franchise are the same

A new franchisee may have more enthusiasm than a long-term manager to help the franchise to succeed

The franchise finds the location, organises planning permission and pays the rent and for the fittings. This lowers the costs for the franchisor

The franchisee recruits the workforce, pays the wages and complied with employment law

Question 5

Name the disadvantages of a franchisor

3 points

Answer 5

The franchisor pays some of the franchise costs:

• Training costs, to ensure the franchisee and workers are up to the franchisor’s standard
• national advertising costs
• costs related to the organisation and design of the outlet

The franchisor has less control over outlets, as day to day running is carried out by the franchisees

The franchisor may suffer if an outlet is badly run by a franchisee

Question 6

Name the benefits of a franchisee

7

Answer 6

The well-known name of the franchisor will mean more customers for the franchisee

Receives advice and training from the franchisor

National advertising, paid by the franchisor, will make the franchise better known

Furniture and fittings may be provided by the franchisor to provide a corporate image for and a standard quality across the franchise

Loans and finance may be provided by the franchisor at favorable rates of interest

Each franchisee is given exclusive rights within an area, so reducing the competition

The franchisor provides goods to sell, so there is no need to find suppliers

Question 7

Name the problems with a franchisee

Answer 7

A set up cost is paid to the franchisor to join the franchise

Royalties are paid by the franchisee. These are an additional cost to the business

Goods, which must be bought by the franchisor, may be more expensive than from other suppliers

The franchisee has little influence over:

• Design of outlet
• Goods sold
• Area in which they are sold

The franchisee may suffer from the bad reputation of other franchisees

Question 8

Exam question

Which type of business allows others to use its name in return for some royalty payments?

Answer 8

A franchisor

Question 9

Exam question

Describe one advantage and one disadvantage of a business offering franchises

Answer 9

One advantage is that there will be faster growth. This means how stores can be opened faster than if the original store was opening them. This can attract a wide range of customers who are willing to buy products which can lead to profits. However, a disadvantage would be is that there can be a risk of one franchise ruining the reputation of the whole brand. This can cause brand to lose customers, make it more unlikely for customers to be loyal to the brand and also cause a decline in sales which will lead the business to go into a loss

Question 10

Explain 2 advantages a sole trader might gain from joining a franchise.

Answer 10

One advantage could be that the sole trader can gain advice and training and learn about how people work. This can cause the sole trader to gain more experience and if he leaves the franchise later, he may know some effective methods he can use for himself. Another advantage is that if a sole trader joins a franchise, he/she may be given exclusive rights which can decrease competition in the area

Question 11

Outline 2 ways in which belonging to a franchise might add to the costs of a franchisee

Answer 11

A set up-cost is paid to the franchisor to join the franchise which can cost a lot of money and also, goods, which must be bought from the franchisor may be more expensive than other suppliers which can be extremely expensive