Understanding business

Question 1

Advantages for the franchiser

Answer 1

• A low-risk form of growth as the franchisee invests the majority of the capital.
• Receives a percentage of all franchisee’s profits each year (known as royalties).

Question 2

Disadvantages for the franchiser

Answer 2

• The reputation of the whole franchise can be tarnished by one poor franchisee.
• Only a share of profits is received rather than all profit as it would be if they owned each brand.

Question 3

Advantages for the franchisee

Answer 3

• The franchise is a well-known business with an existing customer base.
• Industry knowledge and training is provided by the franchiser.
• The franchisee benefits from national advertisements carried out by the franchiser.

Question 4

Disadvantages for the franchisee

Answer 4

• There is very little autonomy over decisions as the franchiser decides on products, store layout, uniforms, etc.
• Royalties have to be paid each year
• There are high initial start up fees.