Franchising

• Franchising: The owners of the established business (the franchisor) sell the rights to their business logo, name and model to another business (the franchisee).
• Adv for franchisor: The franchisor can expand quickly; The franchisor does not lose control of the business; the franchisor receives start-up fees and royalties from the franchisee; the franchisee has invested their own money and will therefore be motivated to make the business succeed; the franchisor does not have a large workforce to manage as this is in the hands of the franchisee 
• Dis for a franchisor:

  • The businesses trade name and reputation can be ruined if franchisees do not maintain standards.
  • The initial costs of setting up the franchise system such as training, legal advice, documentation and marketing can be very expensive.
  • Ongoing costs of national advertising and continual support of franchisees can be expensive.
• Adv for franchisee:

  • There is a good chance of success and less risk for the franchisee because of the well-known name, format and product.
  • The franchisee benefits from a ready-made reputation because the franchisor controls the quality of all franchises.
  • The franchisor provides sound financial advice and support so that cash flow and management problems can be avoided.
  • The franchisor is responsible for costly activities such as market research and product development.
• Dis for franchisee:

  • The franchisee will never feel that the business is theirs – for example, the business cannot be sold without permission from the franchisor.
  • The franchisee cannot make many decisions as all franchises must be run according to the rules of the franchisor.
  • The franchise could be withdrawn at any time without any explanation or compensation.
  • Fees, royalties and expensive stock make franchising a costly way to run a business.
  • Royalties must be paid by the franchisee, even if the business makes a loss.