Franchises

Question 1

What is franchising?

Answer 1

This is a form of cooperation between two businesses. A company which has a well-know product or service allows an individual to buy the right to use their products or services and trade under their name.

Question 2

What is a franchiser?

Answer 2

The company which allows another person or persons to use their tried and tested product or service and to trade under their name for a fee.

Question 3

What is a franchisee?

Answer 3

The person or persons who pay an initial fee and regular royalty payments for the privilege of trading under the franchiser’s name.

Question 4

Who is the franchise owned by?

Answer 4

The franchisee.

Question 5

Who is the franchise controlled by?

Answer 5

The franchiser.

Question 6

Who is the franchise managed by?

Answer 6

The franchisee.

Question 7

Who raises finance for the franchise?

Answer 7

It is raised by savings or borrowings from banks.

Question 8

Who does the profit go to?

Answer 8

The profits are kept by the franchisee but the franchiser takes a percentage in the form of royalty payments.

Question 9

What are the advantages of the franchisee?

Answer 9

• They have a great chance of success as the product has been tried and tested.
• The product is advertised nationally.
• They can receive help and support from the franchiser.
• The franchisee can decide the legal structure of the business.
• It is easier to obtain loans from banks as they are seen as less of a risk.

Question 10

What are the disadvantages of the franchisee?

Answer 10

• They are not completely independent as they have to follow rules and regulations set by the franchiser.
• They can’t sell the franchise without the franchiser’s agreement.
• They have to give the franchiser a share of the profits (royalty payments).
• The franchiser is not automatically renewed.
• They have to use materials supplied by the franchiser.

Question 11

What are examples of franchises?

Answer 11

Mcdonalds, KFC, Body Shop and Pronto Print.