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franchises (DOC)

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									                                    5. BUYING A FRANCHISE
Case Study: Katy Knights had been made redundant from her job as marketing manager at HP Hankey,
a clothing company. She received a £25,000 redundancy payment. She had often thought of running
her own business, but was worried about the fact that 6 out of 10 new businesses fail. With this in mind,
she decided to use the money to buy a franchise. She was considering two franchises, and had given
specific important considerations marks out of 10. In each case, while she was in theory her own boss,
the franchise would make all the important marketing decisions concerning marketing.

Franchise 1 – Coffee Krazee: a mobile coffee            Franchise 2 – Sweep Home Cleaning: a home
and cakes service aimed at music festivals              cleaning service, which also cleans carpets
Cost - £55,000                                          Cost - £85,000
How interested Katy is in the business – 9/10           How interested Katy is in the business – 4/10
Amount of help and support she will get – 4/10          Amount of help and support she will get – 6/10
Can she make her own decisions – 4/10                   Can she make her own decisions – 7/10
Chance of surviving for at least 1 year – 6/10          Chance of surviving for at least 1 year – 9/10
Long-term profitability – 6/10                          Long-term profitability – 8/10
Public knowledge of franchise name – 6/10               Public knowledge of franchise name – 3/10

1.   Explain the term ‘franchise’ to someone who knows nothing about business. Give examples.




2.   Looking at Coffee Krazee and Sweep Home Cleaning, what are the advantages for Katy of buying a
     franchise rather than starting her own business from scratch?




3.   Looking at the two options, what are the disadvantages for Katy of buying a franchise rather than
     starting her own business from scratch?




4.   Based on the limited information that you have, which of the two franchises would you advise her to
     buy? You must explain your answer in as much detail as you can.




5.   Why are potential franchisees advised to buy a franchise which sells many small items for a low
     price (such as cookies) rather than one that sells high price items such as conservatories? Think of
     risk, cashflow, time spent working without a sale and interest payments in your answer

								
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