FranchisesFranchises 4 th Year Business Studies

Starter – recap types of businesses What are the types of businesses that exist. What does unlimited liability mean? What do shareholders get paid? What is a deed of partnership? What does AGM stand for? What is an entrepreneur, give an example?

Franchising –reasons for it! A business may have a good idea, that works well and wants to expand. However they may not have the money to risk, or the skills required to expand. It may even occur if some people want to run a business but cannot think of a good business idea themselves.

Franchises Many people will recognise some major franchises businesses like McDonald’s, Pizza Hut and Burger King. But franchises are not just found in the fast food business in the high street.

Other franchises include: Some franchises exist in transport. On the railway the tracks and signals are owned by Network Rail so companies have to bid to run services and stations on them. Train operating companies include GNER, Virgin, and South West Trains. Other examples include the Body Shop, Toni & Guy Hairdressers, Café Nero

Key Terms Franchise – is when a successful business sells the right to use its good ideas and products to other businesses. Franchisee – the people who buy the franchise. They gain from using trademarks, brands and ideas that have been already tested and work.

Key terms Franchisor – the business selling the franchise. The franchisor gains from selling the franchise and is able to expand at no cost. Royalty – a percentage share of the takings of a franchisee, paid to the franchiser as part of the deal

Franchises There are of course advantages and disadvantages of franchises.

Advantages for the franchiser (the business selling the franchise) The franchisee pays for the business to expand. Sales from selling licences to use the brand name bring in a lot of money. The franchiser does not operate the retail outlet- the management problems belong to the franchisee. The franchiser gains from economies of scale such as buying in bulk.

Advantages for franchisee Lower risks of business failing as will be using already established brand names Supplies come from franchiser There are fewer decisions to worry about as the franchiser makes decisions on price, décor of building etc. The franchisee is given support from the franchiser e.g. staff training.

Disadvantages for Franchisor The franchisor may suffer from bad reputation if franchisees are not doing well.

Disadvantages for franchisee They have to pay a set up fee at the beginning. They cannot decide on logo’s, layout of shop/restaurant all of this is decided by franchiser. The franchisee may have to stick to certain rules and may not have freedom to make their own decisions. The franchisee has to pay the franchiser a royalty (a percentage of their sales) If someone receives a bad service in one shop/restaurant they may not go to any other franchise outlets.

Advantages of franchises to being a sole trader It allows people to join an organisation which already possesses a successful track record and which is a well known name. FACT Over 50% of other small businesses fail within their first year. With franchises the figure is nearer 7%.

Remember A franchise can be owned in any of the ways in which a business can be owned. It is not a form of ownership, but a way for a business to grow.

TASK Design a leaflet for someone thinking of taking on a franchise. This should give them good and bad points of franchising. You could write the text of the leaflet using a word processing program and then transfer it to a DTP program to make it look better.