Franchising

• what is franchising

  the process by which a business gives another business permission to trade using its name and by selling its products
• what is a franchisee?

  an individual or business that is granted the right by a franchisor to operate a business using the franchisee established brand, trade marks, and business model
• what is a franchisor

  a business or individual that grants the right to another party to operate a business using its established brand trademarks and business model
• what is a franchise agreement

  a legal contract between the franchisor and franchisee that outlines the terms and conditions of the franchising relationship, including fees obligations and rights
• what is a franchise fee?

  a payment made by the franchisee which grants them the right to use the franchisors brand and business model
• what are royalties?

  ongoing payments made from the franchisee to the franchisor usually a percentage of revenue
• what is territory?

  the geographical area of location where the franchise is authorised to operate their business as specified in the franchise agreement
• advantages for a franchisor?

  • rapid expansion
  • build branding
  • reduced financial risk
  • local expertise
  • motivated entrepreneurs
• disadvantages for franchisors?

  • loss of control
  • lower reward
  • investment in support infrastructure needed
  • cannibalisation
  • adapting to local markets
• advantages for a franchisee?

  • less risky
  • established brand and reputation
  • proven business model
  • easier access to financing
  • training and support
  • marketing assistance
  • group purchasing power
  • exclusive territory
  • faster return on investment
• disadvantages for a franchisee?

  • high initial costs
  • ongoing royalties
  • limited independence
  • restrictions on suppliers and products
  • risk of franchisor issues
  • limited exit options