What are Franchises All About? A franchise is an agreement that allows you as a franchisee to buy the rights to operate your business in the style of an existing business. What do all of these famous brands all have in common? Ok they are all franchises but why should I buy a franchise and not set up in business on my own? Right well let me explain the main features of a franchise to you. THE ADVANTAGES & DISADVANTAGES OF A FRANCHISE If I want a pizza and I have a choice between these two restaurants which one am I likely to use and why? Oh goody I luv a quiz! What’s the answer? What’s the answer!? Ok well you would be more likely to visit Domino’s Pizza simply because it is a famous brand that you know and trust. This means that if you buy a franchise then you are going to find it much easier to attract customers and therefore you have a much lower risk of failure! Hmm is that the only benefit? I want to be my own boss. Well just because you are part of a franchise does not mean that you cannot be your own boss! You make all of the decisions in the business and you can employ your own staff. You are responsible for staffing, stock, quality, customer service and the day-to-day running of the franchise. Sounds cool....like me! But wait how much is this going to cost me? The cost of buying a franchise depends upon how famous the brand is that you are trading under. Dominos Pizza will cost you approx. £250,000. Oh you will need to pay a fee each year for using the brand called a ROYALTY. What about training and all of the equipment, advertising and products? The Franchisor will provide you with all of this so don’t panic. They will also tell you what prices to charge and layout some rules to operating their franchise. The advantage of a franchise for the franchisor is that this gives them a quick and cheap means of expansion. They will lay out rules though as to how to run the business to make sure that you are not damaging their brand’s reputation, so you do not have 100% control over decisions but you have less risk of failure! Will banks lend me the money to buy a franchise? Well they might not lend you the entire amount but they are more likely to lend to you as you are less risky than setting up a totally new business on your own. So is a franchise right for me then? Well it really all depends upon what you want to achieve in business. If you want to have total control over all business decisions then a franchise is wrong for you! Also remember that you will need a lot of money to set up as a franchise and this is no guarantee of success. The franchisor will expect a slice of your annual profits (royalty) and some franchises might not offer you all of the training and support that you need. Bob the Blob’s Question Time 1. What is meant by the term ‘royalty’? 2. Does a franchise owner have complete control? 3. Explain why a franchise is less likely to fail. 4. What are the main benefits of franchising?
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