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CCGL Tutorial

A franchise is a licensing agreement that allows a franchisee to use a franchisor's business model, brand, and processes to operate a business. While franchises offer advantages such as established brand recognition and a ready-made business formula, they also come with significant start-up costs, ongoing fees, and limited control for the franchisee. Entrepreneurs may find franchising appealing for entering competitive industries, but success is not guaranteed.

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20 views2 pages

CCGL Tutorial

A franchise is a licensing agreement that allows a franchisee to use a franchisor's business model, brand, and processes to operate a business. While franchises offer advantages such as established brand recognition and a ready-made business formula, they also come with significant start-up costs, ongoing fees, and limited control for the franchisee. Entrepreneurs may find franchising appealing for entering competitive industries, but success is not guaranteed.

Uploaded by

sh5q4fs8mn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

A franchise is a type of license that grants a franchisee access to a franchiser’s proprietary business

knowledge, processes AND trademarks.

When a business wants to increase its market share or geographical reach at a LOW COST,
It may franchise its product and brand name.

A franchise is a joint venture between a franchisor and franchisee.

The franchisor is the original business. It sells the right to use its NAME and IDEA>
The franchisee buys this right to sell the franchiser’s goods or services under existing business model
and trademark.

Franchises are an effective way for entrepreneurs to start a business,


Especially when entering a highly competitive industry such as fast food, or an industry that is
established and requires time to develop its operating processes from scratch.

Have access to an Established company’s brand name,


Management knowledge, processes and procedures.

Advantages of a Franchise

- Ready-Made business formula to follow.


A Franchise comes with market-tested products and services with established brand
recognition.

- E.g. Decision about what products to sell, How to layout the store, have already been made.
Some franchises offer training and financial planning, with lists of approved suppliers.

(Although success is not guaranteed)

Disadvantages of a Franchise.

- Involve heavy start-up costs as well as royalty costs.

For example, the cost to start a McDonald’s franchise ranges from 1.3 Million to 2.3 Million, on
top of needing liquid capital of $500,000.

- ongoing fees that must be paid to the franchiser in the form of a % of sales or revenue.
The percentage can range between 4.6% and 12.5%, depending on the industry.

- For uprising brands, there are those who publicize inaccurate information and boast about
ratings, rankings, and award that are not required to be proven.
May Pay high dollar amounts for no or low franchise value.

- Franchisees also lack control over territory or creativity with their business.
Financing from franchiser may be difficult to come by.
Pros
Ready-made business formula
Market-tested products and services.
Established brand recognition
Large decisions already made.
List of approved suppliers
Training and financial planning provided

Cons
Success not guaranteed.
Large start-up costs.
Ongoing Fees,
Lack of territory choice
Lack of creative control

Pros :
Failure rate of startup is huge. The risk is huge.

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