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Chapter 8 Franchises

A franchise is a business arrangement where a franchisor allows a franchisee to use its brand and business methods for a fee. Key parties include the franchisor, who sells the rights, and the franchisee, who operates under the brand. Franchising offers advantages such as lower risk and brand recognition for franchisees, while franchisors benefit from rapid expansion and regular income, though both parties face certain disadvantages.

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10 views3 pages

Chapter 8 Franchises

A franchise is a business arrangement where a franchisor allows a franchisee to use its brand and business methods for a fee. Key parties include the franchisor, who sells the rights, and the franchisee, who operates under the brand. Franchising offers advantages such as lower risk and brand recognition for franchisees, while franchisors benefit from rapid expansion and regular income, though both parties face certain disadvantages.

Uploaded by

Shah Md. Alif
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 8: Franchises (4CM01)

1. Meaning of Franchise

A franchise is a form of business arrangement where a franchisor gives another business


(the franchisee) the right to use its name, brand, products and business methods in
return for a fee or royalty.

2. Parties Involved

• Franchisor
The original business owner who sells the franchise rights (e.g. McDonald’s).

• Franchisee
The person or business that buys the right to operate under the franchisor’s name.

3. Features of Franchising

• Use of a well-known brand name

• Franchisee pays:

o Initial franchise fee

o Royalty (percentage of sales)

• Standardised products and services

• Training and support provided by franchisor

• Franchisee follows strict rules set by franchisor

4. Types of Franchises

• Product franchise – Selling franchisor’s products (e.g. soft drinks)

• Service franchise – Providing services (e.g. fast food, cleaning)

• Business format franchise – Complete business system provided


5. Advantages of Franchising

Advantages to Franchisee

• Lower risk than starting a new business

• Well-known brand attracts customers

• Training and guidance provided

• Easier to obtain finance

• Proven business model

Advantages to Franchisor

• Rapid business expansion

• Less capital required

• Regular income from franchise fees

• Increased brand recognition

6. Disadvantages of Franchising

Disadvantages to Franchisee

• High initial cost and ongoing royalties

• Limited independence

• Must follow franchisor’s rules

• Profits shared with franchisor

Disadvantages to Franchisor

• Loss of some control over operations

• Poor performance by franchisee can harm brand image

• Legal disputes may arise

7. Examples of Franchises

• McDonald’s

• KFC

• Subway
• Pizza Hut

8. Suitability of Franchising

Franchising is suitable for:

• Entrepreneurs with limited experience

• Businesses wanting quick expansion

• Markets with strong brand awareness

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