FRANCHISES

LEARNING OUTCOMES:
Define the term Franchise. Define the term Franchisor. Define the term Franchisee. Analyse the advantages and disadvantages of a franchise for both Franchisor and Franchisee. Evaluate the use of franchising as a growth strategy.

COMMAND TERMS:

Define, analyse and evaluate

Introduction

Franchise is a form of business ownership where by a person Growth is a continual aim of established businesses. Growth of business or business buys a license to refers to the expansion in size of its operations and this can be measured in trade using another firms logo, brand, trade mark, etc. several ways, including: The person or business who Sales turnover. buys the license is called Market share. franchisee and the person or Capital employed. business who sells the license Number of employees. is called franchisor. Amount of profit. Franchisor is a business Number of branches. granting a franchise. Franchisee a business taking Product line and mix. out a franchise. Market Share measures the The benefits of franchising as a method of growth for the value of a firms sales revenue franchisor: as a percentage of the industry sales revenue. For example, a Rapid expansion without incurring high capital cost. business with 40% market share means for every $ 100 A nationwide presence. sales revenue in the industry, Saving on running cost. the firm earns $ 40 of the sales Benefits from the efforts of committed franchisee revenue. Local knowledge of franchisee brings good profit. global-mentor.org - A Path to Purpose Franchises |Page |2

GLOSSARY

Can get a one-off initial payment, a yearly fee and a share of the profits from the franchisees. This will ensure vital extra sources of income

GLOSSARY Capital Employed is the value of all long term sources of finance for a business, Uniformity in service and quality might not be achieved due to different such as bank loans, share operational methods of some franchisees. capital and any reserves that The brand image might be eroded. business holds. This Franchisor is likely to incur policing costs as well as training and represents the total amount consultancy costs. of capital available to Failure by an individual franchise will reflect badly on the whole franchise business. operation. Profit is the difference In the long run franchisee may begin to resent the control exercised by the between the total sales franchisor. revenue and total costs. Although franchising is faster than organic growth, it is not quick as Product Line is the term mergers or acquisitions. used to describe the varieties of a particular Franchising has the following advantages for the franchisee: product that serves the same purpose in the same market. Readymade product or format. Product Mix describes the Public awareness. variety of the different product lines that a business Global/National advertisement. produces. Advice, assistance, training. The disadvantages of franchising as a method of growth for the franchisor: A set of procedures. The benefit of the R&D undertaken by the franchisor. Help with site selection and layout. Loan facilities by the franchisor. Access to the franchisors legal and financial advisors. Lower start up costs.

The disadvantages to franchisee: The franchisor will exert considerable control over the franchisee. (No flexibility) Annual fees/ royalty to the franchisor irrespective of profit. Rights may be taken off. Franchise will suffer loss if the performance of fellow franchisee causes dissatisfaction to the public.

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Sign Up For FASTSIGNS FASTSIGNS opened its first sign center in 1985. Devoted to providing the highest levels of quality and commitment to its franchisees and its customers, FASTSIGNS has a reputation that continues to grow. Today FASTSIGNS is considered a leader in one of the most sought after and dynamic franchised industries available. Given the success that so many franchisees have had, it is no wonder that there are already more than 475 locations in the United States. One of the things that people love most about being a part of the FASTSIGNS family is the amount of support that the company offers its franchisees. When you become a FASTSIGNS franchise owner, you will be working with the highly trained professionals who have extensive experience in the industry. Not only does FASTSIGNS give you the tools and knowledge to run your business, they give you the encouragement and support needed to be successful. Mr Fan who is looking for some business opportunity read that FASTSIGNS brings a wide range of products including signs and graphics development. Not only does FASTSIGNS offer a variety of services, theyre also known and widely respected for the focus they place on their customers with strong ethical practices. This quality customer service and superior product make FASTSIGNS an excellent franchise to consider.
(Source: Adapted from http://www.franchisesolutions.com/franchisenews/2011/07/Sign-Up-For-FASTSIGNS.cfm)

a) Explain what is meant by a franchise. b) i. Identify four stakeholders of FASTSIGNS. ii. Explain how the introduction of ethical policies at FASTSIGNS can cause conflicts between two stakeholder groups identified in b (i). c) Discuss the two advantages and two disadvantages to Mr Fan of taking FASTSIGNS franchise. d) Evaluate the use of franchising as a growth strategy for FASTSIGNS.

[ 2 marks] [ 2 marks] [ 4 marks] [ 5 marks] [ 7 marks]

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Source Acknowledgements: http://coolspotters.com/food/mcdonalds-fries http://seeker401.wordpress.com/2010/11/20/mcdonalds-and-pepsico-to-help-write-uk-health-policy/ Hoang, Paul. Business and Management. 1st ed. Victoria: IBID, 2007. Diploma Programme Business and Management Guide. Cardiff, UK: International Baccalaureate Organization, 2007. ----------------------------------------------------------------------------------------------------------------------

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