Franchising, Advantages and Disadvantages

360 Words2 Pages
Franchising FRANCHISING An entrepreneur can opt to set up a new independent business and try to win customers. An alternative is to buy into an existing business and acquire the right to use an existing business idea. This is called franchising. A franchise is a joint venture between: A franchisee, who buys the right from a franchisor to copy a business format. And a franchisor, who sells the right to use a business idea in a particular location. Many well-known high street opticians and burger bars are franchises. Opening a franchise is usually less risky than setting up as an independent retailer. The franchisee is adopting a proven business model and selling a well-known product in a new local branch. • A franchisor is a business with a product/ service idea that does not want to sell customers directly • The franchisee is the people who buys the idea from the franchisor and sells it to the public. • The franchisee pays the franchisor an initial fee, then monthly fees to cover advertising etc. • The franchisee pays the franchisor a percentage of their profits. Franchising: Advantages to Franchisor • Expansion is paid for by franchisee. • Expansion is fast and effective. • Franchisor can make large profits via franchisees. • Franchisor does not problems of individual the individual retail stores. Franchising Advantages for the Franchisee • Reduce chance of failure. The business has been successful elsewhere. • Advertising is paid for by franchisor. • All supplies come from a single source- the franchisor • Many decisions have already been made for them • Franchisor provides training for staff. • Banks more willing to loan money to franchises dues to their track record. Franchising: Disadvantages of owning a Franchise • Costs may be higher than you expect As well as the initial costs of buying the franchise, you pay continuing
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