Franchise

Franchise: Characteristics

• A franchise is a type of business arrangement where a franchisor grants the franchisee the rights to use their business concept and trademarks.
• The franchisor provides the business model, along with branding, products, and operational support.
• The franchisee pays an initial fee and ongoing royalties to the franchisor.
• Franchises are independently owned and operated but must follow the established guidelines and standards of the franchisor.
• Examples of franchises include McDonald’s, Subway, and Domino’s Pizza.

Franchise: Advantages

• Brand recognition is one of the major advantages of a franchise, reducing the need for extensive marketing.
• Franchisees benefit from the proven business model and operational systems provided by the franchisor.
• Often, franchisors provide training and support, helping new franchise owners to succeed.
• The franchisor may also offer assistance with site selection, layout design, staffing, and supply chain management.
• A franchisee can take advantage of the franchisor’s buying power and relationships with suppliers, usually leading to reduced costs.

Franchise: Disadvantages

• Franchisees have to pay ongoing royalties and possibly advertising fees, reducing their overall profits.
• The franchisee’s independence is limited by the need to adhere to the franchisor’s standards and guidelines.
• The franchisor has the power to terminate the franchise agreement if the franchisee does not meet specified standards.
• Poor performance or negative publicity of other franchises under the same brand may impact the reputation of the franchisee’s outlet.
• Franchisees may find it difficult to make changes to the business model to adapt to local tastes or market changes.

Franchise: Responsibilities

• The franchisee must maintain the brand’s quality standards and business operations as established by the franchisor.
• The franchisee is responsible for the day-to-day running of the business, including staffing, inventory management, and customer service.
• Regular payments of the agreed royalties and potentially advertising fees must be made to the franchisor.
• The franchisee must comply with all local, regional, and national business laws and regulations.
• The franchise agreement usually places the burden of financial risk on the franchisee, including losses and liabilities.