Franchising

Franchising

1. Information

   • It's a business agreement that allows one business (the franchisee) to use another business's name and sell the good or service
   • 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
   • The franchisee and franchiser can set up in any type of business i.e. a sole trader, partnership, etc.

2. Franchirser

   • Advantages
     • Allows the franchiser to increase its market share without investing heavily
     • Provides a reliable revenue (the franchiser will receive a percentage of the turnover or set royalty payment each year
     • Risks and uncertainties are shared between the franchiser and the franchisee
   • Disadvantages
     • The franchiser only receives a share of the profits
     • Profits dependent on the ability of franchisees
     • Reputation of the whole franchise is dependent on individual franchisee's

3. Franchisee

   • Advantages
     • The franchiser may carry out training and administration
     • The franchiser may advertise nationally, therefore little advertising needs to be done by the franchisee
     • The risk of business failure is reduced as the business already has an established trading record and presence in the market
   • Disadvantages
     • Products, selling prices and store layout may be dictated, stifling franchisee initiative
     • A royalty payment or percentage of revenue has to be paid to franchiser
     • The franchiser might not renew the franchise after a certain time
     • Can be costly to purchase a successful franchise