Franchising Unit 1 Topic 1.1.6

Lesson Objectives Must learn: the principles of franchising Should learn: Advantages and disadvantages of using franchise as a mean of business Could learn: to evaluate franchising against other business start-up options

Starter Brain storm – What does franchise mean? Franchise

Franchise

Toni&Guy Toni&Guy hairdressers is a franchise Toni&Guy is a brand and is associated with high quality and service Entrepreneurs can pay a fee to Toni&Guy so they can use the brand name However they stay as independent businesses

How it Works? An entrepreneur would own a part of the business (franchise) they have set up, than they would pay royalties to the brand. It is how many businesses have expanded such as KFC and McDonald’s.

Why do it? You can run the business yourself and still have support from the brand. It is usually cheaper than starting a business from scratch by yourself.

Key Terms Franchisee – a business that agrees to manufacture, distribute the right to sell its product, under license by a franchisor. Franchisor – the business that gives franchisees the right to sell its product, in return for a fixed sum of money or a royalty payment

Benefits of a Franchise Training – franchisees usually receive training from the franchisor Equipment – most franchisors provide equipment to entrepreneurs as part of a total package, some may sell equipment. Materials - to use in the product good or service – Franchisors typically sell their franchisees some or all of the materials used in production.

Benefits of a Franchise (2) Finding Customers – you can find new customers through national advertising, publicity and the brand name which brings reputation. Back-Up Services – some will offer services such as loans, advice and insurance cover for example. A brand name – known nationally, regional managers, high standards, checks, consistency and expectations. Exclusive Area – Often a new franchise will be given an exclusive area in order to draw new customers eliminating competition.

Mini Plenary What is a Franchise? Who is the Franchisor? Who is the Franchisee?

The Costs to the Franchisee (You) It is costly to start up, the franchisor won’t give everything up for nothing The British Franchise Association reveal that on average it can cost £250,000 to start up a franchise It all depends on the franchise, the bigger it is the more expensive it is to start

The Costs to the Franchisee (You) The Franchisor will normally charge a fee to start off with to cover the starting costs of the business. Then they usually charge a fee, or royalty, measured as a proportion of the value of everything sold. For example it could be a 10% fee of sales.

Advantages for the Franchisee The Franchisor should select people from those who want to buy a franchise, this way they can select the right people. The Franchisor sets out at the start how much money the franchisee needs to put into the business. The formula (business model) has already been tried and tested Support – e.g. Quality control or tax problems

Disadvantages for the Franchisee Initial Investment is very high especially for large well-known brands and franchisors. When it comes to selling the business or closing it down you need permission from the franchisor. The Franchisor can end the agreement and shut you down whenever they want to.

Task - Franchise Which two of the following would be the most likely advantages to a new business becoming a McDonalds Franchise Working in an area where no other McDonalds is allowed to be set up Having to arrange your own insurance and loans Making a loss in the first year Starting from scratch to find your own customers Being part of a business that is a household name Training Staff in a new business

Mini Plenary Name 2 Costs/Drawbacks of setting up a Franchise? Name 2 Benefits of setting up a Franchise?

Location of Your Franchise The location of your Franchise is very important Locations usually have to be somewhere busy in the centre of town so that customers can easily get there McDonalds for example place there outlets in town centres or in places where people can park their car

Location of Your Franchise However...it depends on the brand. For example domestic cleaning service franchise or a sign making business can be located either at home on a industrial estate. Where would you locate a rent-a-car franchise?

Location of Your Franchise To summarise... If you make or sell a product it is important to locate your franchise near to your customer. If it is a service than usually you go to the customer and can operate from home or low- cost offices.

Where on the Map Would you put a McDonalds?

Which of the following is a correct statement about franchisees? Franchisees sell the right to make a product to franchisors Franchisees receive a royalty from franchisors Franchisees receive training and support from franchisors Franchisees sell materials for use in production to franchisors

Plenary - Which 2 of the following are advantages of taking on a franchise? The franchisor provides a tried and tested product to sell The franchisor pays the franchisee to set up in business The franchisee receives on-going help and support The franchisor is responsible for paying the taxes Franchisees do not need to have so many business skills as people who set up on their own.

Homework Write a report about the issues that people need to consider when they want to start and run a franchise.