What are natures the Franchises?

(Finance, Accounting, Taxes & creative knowledge)

The nature of franchising

A franchise is the right given by a business to someone who will sell the business‘s product using the business name. The franchisor (the business) grants a license to the franchisee (the person operating the outlet), allowing the franchisee to trade using the franchisor’s name. the franchisee sell the franchisor’s product (goods or services), and is supported by the franchisor’s business expertise, in return , the franchisor receives an initial payment from the franchisee and is then paid a regular fee usually based on a percentage of the turnover (sales) or profits that the franchisee makes.

The franchisee owns and controls the business outlet, and the franchisor keeps control over the way the way the products are marketed and marked and sold, and controls the quality and standards.

The benefits of franchising

 For the franchisee, Compared with setting up a new business ‘from scratch’…

*a new idea is not needed, whereas someone setting up a new business must have an idea for a new product.

*the product is already nationally known and is successful; with a new business, neither the product nor its change of success is known

*the franchisor has a good trading name and might pay for national advertising campaigns; with a new business the owner would have to advertise (locally rather than nationally)and dose not as yet have a recognised business name

*franchisors normally offer training programmes in business skills; new business owners need to arrange this for themselves.

Other advantage to the franchisor include……

*possible help from the franchisor to obtain the finance to set up the franchise

*benefits from being part of a large organisation, not only in advertising and training, but also in marketing, product development and management services.

There are drawbacks to the franchisee of running a franchisee of running a franchise rather than owning the business outright. The initial costs are high, and payments such as interest on money borrowed will eat into profits. The franchisee is never in full control because the franchisor decides aspects of the business, such as what products are to be sold and how and where much of the adverting takes place.

Key Words:

*People are increasingly moving into franchising over setting up businesses from scratch –safe in knowledge that they will be operating under a well-established and trusted brand.’

*Franchising decreases the risk of business failure because the franchisee is maintained by the successful business record of the franchisor.

*It is the right given by a business to someone who will sell the business‘s product.

* sell the business‘s product using the business name of franchisor.

* Franchisor has been (the business) grants a license.

* The franchisee has the person operating the outlet.

* Franchisee to trade using the franchisor’s name.

* Franchisor receives an initial payment from the franchisee.

* Franchisor payment will be regular fee usually based on a percentage of the turnover (sales) or profits that the franchisee makes.

* Franchisor keeps control over the way the way the products are marketed and marked and sold, and controls the quality and standards.

Franchise Relationship

The Franchisee outlet		The franchisor
works		employs
sells		supplies
Shares profits		Shares profits