Franchising Basics

Front

What is a franchise?

Back

A franchise is a joint venture between a franchisor and a franchisee, where the franchisor sells the right to the franchisee to copy the business format, using the same name and brand.

Front

Who are the franchisor and franchisee?

Back

The franchisor is the original business that has established the brand and learned how to scale up. The franchisee is the one who buys the right to replicate the business format in a different location.

Front

What are some examples of franchise-operated businesses?

Back

Examples include Domino’s, Subway, Clarks Shoes, Thorntons, O2, Water Babies, Marston’s, Toni & Guy, and McDonald’s.

Front

What are the advantages of a franchise?

Back

Advantages include faster growth, lower risk, lower capital outlay, lower operating costs, better performance, and strength in numbers.

Front

Why is franchising considered lower risk?

Back

Opening a franchise is less risky because the franchisee adopts a proven business model and sells a well-known product.

Front

How does franchising lead to faster growth?

Back

Franchising allows small business owners to expand more quickly and cost-effectively than opening further company outlets.

Front

What are the disadvantages of a franchise?

Back

Disadvantages include less control over quality, potential for poor performance by franchisees, higher costs for franchisees, shared profits, and restrictions on business operations.

Front

How can franchising affect brand reputation?

Back

Poor performance by some franchisees could give the brand a bad reputation.

Front

What financial obligations do franchisees have?

Back

Franchisees must pay initial costs to buy the franchise and continuing management service fees to the franchisor.

Front

What restrictions might a franchisee face?

Back

The franchise agreement may include restrictions on how the franchisee can run the business, limiting their ability to make changes to suit their local market.