Franchises.

Franchises

Another type of business is a FRANCHISE.

Gordon Chester could also consider changing his ownership to a Franchise- making him a FRANCHISOR. If Gordon Chester wishes to change his ownership to a franchise he will be controlling other businesses that want to trade under Fit - for - Life. A franchise ownership is one where a business gives other businesses the right to sell goods and services under its name, in return for total control over the business. A franchisee seeks independence that goes hand in hand with the business ownership. Unlike a PLC franchises do not have different owners. The FRANCHISEE is prepared to pay good money for this set up.

To be ethical a franchise system must be transparent. There can be no part of the system that is hidden from the franchisee. The principle applies to everything in the system: the pricing structure, how the marketing money is to be spent, what the franchisee’s obligation to the franchisor are, the franchisee’s and the franchisor’s responsibilities in the business, the precise nature of the legal arrangement between the franchisee and the franchisor – nothing may be kept from the person who has invested in a franchise or is considering to do so.

Franchising is not a solve- all business opportunity. Franchising is an excellent opportunity to expand through the use of other individuals, their investment and their desire and drive. Whilst envisioning a franchising program it is important to look at both the advantages and the disadvantages.

The advantages of becoming a franchisor are:

The business can expand quickly, this is due to the fact that other businesses will come to the franchisor (who has a well known business) and they would have already established their own work place. The franchisee will pay money to the franchisor allowing ...

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The advantages of becoming a franchisor are:

The business can expand quickly, this is due to the fact that other businesses will come to the franchisor (who has a well known business) and they would have already established their own work place. The franchisee will pay money to the franchisor allowing him to expand the business.
Little Capital has to be raised. The franchisee gives the franchisor money and therefore the franchisor does not have to raise much money in order to expand his business.
The franchisor has control over all of the businesses trading under its name; he supplies the franchisee with brand name goods, training to start up the business, equipment and shop fittings, organise advertisements- including a launch of the new business, advice and loans when needed and supplying stock and material.
The franchisee will be motivated to make the business a success, as they will want to get the maximum amount of profit and be successful.
The franchisor receives fees and royalties from the franchisee. (Royalties are given from a percentage of every sale made). The capital is raised from here.
The Franchisor does not have to manage a large workforce, as each separate branch owner will have to do this.

The disadvantages of becoming a franchisor are:

A franchisor always has to be aware of the ideas and plans they make as a bad business idea can mislead the franchisee and as a result the business could be ruined.
The image that the franchisee may give to the business can be a bad one and it may not be of good standard. This means that the customers are not completely satisfied and will take their business elsewhere.
The franchisee may decide to not co-operate with the franchisor leading to problems within the management and with the running of the franchisee’s business. There could be arguments within the franchise, the franchisee may choose to give the business a bad name or not pay the franchisor.
Fees and royalties may not be paid on time or at all leaving the franchisor without profits. Time will be wasted whilst waiting for the money.
The franchise has a ready-made reputation, which can be ruined when a new franchisee becomes involved in the franchise.
The franchisor is responsible for costly activities such as market research and product development so if a bad and expensive decision is made the business could become bankrupt.

An important factor for Gordon Chester to remember is that there are NO disadvantages in setting up the business but only in recruiting franchisees.

To set up a franchise a FRANCHISE AGREEMENT has to be drawn up, including the general information about the business. This includes; the name of the business, the description of the business, number of franchise outlets planned, royalties/fees, financial assistant available and support services among other details.

The Capital is easily raised compared to a public limited company and there aren’t as many shareholders (if not any).