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Business ownership

Franchises

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Franchises

Article: “A fresh opportunity to ring the changes at work”, Daily Telegraph, 3/10/05

Suggested questions: What do you thing a franchise is? What, according to the article, are the advantages

of being a small business? What are the risks to Mike Jones of owning his

own business rather than working for BT?

*Due to copyright restrictions we are unable to provide the article as a PDF file however there is a print option on the webpage.

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FranchiseFranchiser

Franchisee

grants rights to use a product/name/services

pays a fee/royalties for this privilege

Franchise: An agreement where a business (the franchiser) sells rights to other businesses (franchisees) allowing them to sell products or use the company name

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Franchise

The franchise agreement

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The franchise contract

Both parties will sign a contract agreeing: How long the arrangement will last Conditions under which the contract may

be terminated by either side The territory covered by the agreement What both parties agree to do within the

relationship…

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The franchiser will typically agree to…Uphold the brand image

Quality checking of franchisees Marketing

Provide signs, fixtures and fittingsProvide training and advice

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The franchisee will typically agree to…Pay an initial fee plus royalties on

turnover (not profit!) Purchase stock etc. from franchiser

E.g. MacDonald's: The franchiser supplies training, marketing,

packaging, food, etc. to the franchisees… …who must purchase stock etc. from the

franchiser

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Franchise

Advantages and disadvantages

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Advantages to the franchisee

Buys an established and successful brand name/product

Take advantage of bulk-buyingReceives training and back-up supportSpecialist help available for

market research etc.Lower failure rate than

independent firms

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Disadvantages to the franchisee

May have too little freedom in areas such as pricing, offers and promotions

The franchisee takes the risksFranchisees may suffer if fellow

franchisees are of poor qualityAn obligation to buy

inputs/services from thefranchiser

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Advantages to the franchiser

Enables a business to expand rapidlyFranchisees have a ‘stake’ (motivation)Local knowledgeLess complex structure to manageLess risk to the franchiser

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Disadvantages to the franchiser

Franchise failure will reflect badly on the brand name

The franchisee may under-declare sales to reduce royalties

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Franchises

Tasks

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Task

“A franchise allows the franchisee and the franchiser to do what they do best.”

Explain this statement

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Task

Investigate a current UK franchise opportunity on the internet (whichfranchise.com > Latest franchises)

Tasks: What does the business do? Why is it different to other similar businesses Try to find out how much it would cost to become

a franchisee What investment is required from you? What will the franchiser do for you?

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Ownership and control of businessCo-operatives