Franchising

Franchising

Information
1. It's a business agreement that allows one business (the franchisee) to use another business's name and sell the good or service
2. The franchisee pays the franchiser (the business whose name is used) a percentage of annual turnover or a set royalty each year to use its products/services
3. The franchisee and franchiser can set up in any type of business i.e. a sole trader, partnership, etc.
Franchirser
1. Advantages
  1. Allows the franchiser to increase its market share without investing heavily
  2. Provides a reliable revenue (the franchiser will receive a percentage of the turnover or set royalty payment each year
  3. Risks and uncertainties are shared between the franchiser and the franchisee
2. Disadvantages
  1. The franchiser only receives a share of the profits
  2. Profits dependent on the ability of franchisees
  3. Reputation of the whole franchise is dependent on individual franchisee's
Franchisee
1. Advantages
  1. The franchiser may carry out training and administration
  2. The franchiser may advertise nationally, therefore little advertising needs to be done by the franchisee
  3. The risk of business failure is reduced as the business already has an established trading record and presence in the market
2. Disadvantages
  1. Products, selling prices and store layout may be dictated, stifling franchisee initiative
  2. A royalty payment or percentage of revenue has to be paid to franchiser
  3. The franchiser might not renew the franchise after a certain time
  4. Can be costly to purchase a successful franchise

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