Advantages and disadvantages – franchise arrangements Essay

Advantages and disadvantages – franchise arrangementsA Franchisee is defined as a person who pays the initial fee and royalty for the right to do business under a franchisors name and system. (Franchise : Advantages and Disadvantages. 2006). A franchisor provides the trade mark and name.

A contract binding the two parties is created as a franchise. A franchise thus brings together the owner of a branded product or idea with another who seeks to avail the goodwill of its brand name. The advantages and disadvantages for a franchisee are as given in succeeding paragraphs.Advantages.·         The business is based on a concept or idea which has already proved successful and as a franchisee you are making a commitment based on a proven winner.

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(Franchise, 2006).·         The recognized brand name and trade mark can be used to benefit.·         Advertising and promotion is consolidated by the franchisor.·         Training, assistance in setting up and business rules are provided by the franchisor, leading to ease of functioning.

·         Exclusive rights for the product in a geographic area enable monopoly.·         Financing of a franchisee is easier as banks are more willing to lend to a known entity.·         Risk is shared jointly by the franchise and franchisor.·         The existing customer base can be exploited.·         The existing supplier arrangement can be exploited.Disadvantages·         Costs may exceed the initial expectations as continuing royalty in addition to initial costs are expected to be paid. (Franchise, 2006).

·         The agreement at times restricts the way a business is run and alterations to suit local markets may not be permitted.·         If the franchisor leaves the business or loses his focus, the overall impact will be felt by the franchisee as well.·         The reputation is based on a number of franchisees, the quality of who is uncertain. Thus the business will get a bad name because of causes unrelated to the franchise’s own reputation.·         Disposal of business cannot be carried out independently and has to be to a person approved by the franchisor as a result the best value may not be obtained.

·         Reduced risk also implies a reduction in profits.ReferencesFranchise. 2006. http://www.businesslink.gov.

uk/bdotg/action/detail?type=RESOURCES&itemId=1073791408Buy. (08 July 2006).Franchise : Advantages and Disadvantages. 2006. http://www.

residual-rewards.com/franchise.html.

(8 July 2006). 

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