Franchises

Nb. A franchise is defined as "authorization granted to an individual or group by a company to sell its goods or services in a particular way.3 A Franchisee is the buyer of a franchise. The franchisee owns the company. A Franchsor is the seller of a Franchise. Often the franchisor will force the franchisee to buy all supplies from them.

There are two types of franchise – dealer franchises and branded franchises.

Dealer Franchises

Most car manufacturers sell their cars through dealer franchises. These deal under their own name but advertise that they sell a particular firm’s products.

Branded Franchises

Most fast-food companies sell their products through branded franchises. The franchisee buys the right to trade under the name of the franchisor. To the customer, it appears that they are buying directly from the franchisor.

Capital is raised from the proprietor’s savings, or from a bank loan, or both. Often a franchisor will not accept the franchise being set up using soley money from a loan - they would want at least some personal investment. The business has unlimited liability for the franchisee. If the enterprise fails he/she is responsible for all debts.

Advantages

• The franchisor offers marketing and staff training.
• The company name usually comes with a good reputation.
• From the franchisor’s point of view, their company is being expanded at no cost to them. In fact, they are making money out of it.
• The franchisor gets a steady income from their royalties.

Disadvantages

• A franchise costs the franchisee a huge amount of money.
• The franchisee has to pay the franchisor royalties.
• If the business fails, the franchisor loses out. Their reputation is blemished.

Examples of Franchisors

• McDonalds
• Ikea
• Doorstep milk delivery