Franchise Franchise is an arrangement between a person who wishes to operate a business u nder the name of the franchise and

d the company itself. This is when the owner of a business (franchisor) grants a license to another pe rson or business [the franchisee) to use their business idea often in a certain g eographical area The franchisee sells the franchisors products or services, trades under the fran chisors trademark or trade name and benefits from the franchisors help and support In return the franchisee usually pays an initial fee to the franchisor and then a percentage royalty on sales The franchisee owns the outlet he or she runs, but the franchisor maintains cont rol over how products and services are marketed and services are marketed and s old and how their business idea is used. Advantages Franchise business usually have established brand names, which means the franchi see is investing in a business with a proven track record of success Financing the business may be easier because banks are often more willing to len d money to someone wishing to buy a franchise with a proven reputation than to a n unkown, new business The franchise is likely to incur lower advertising and promotional costs,as the business is likely to benefit from national advertising or promotion by the fran chisor. The franchee usually has exclusive rights in his or her area,as the franchisor w ill not sell any other franchises in the same area Relationships with the suppliers are likely to have been eastablished by the fra nchisor. The franchisor offers support and training,usually funded by an ongoing manageme nt service fee paid by the franchisee The franchisor helps in setting up the business, including putting together the business plan,assisting the franchisee gaining suitable funding for the busines s. Disadvantages Costs may be higher than expected. As well as the the initial costs of buying th e franchise, a franchisee must pay ongoing royalties to the franchisor in the fo rm of a percentage of turnover, and may have to agree to buy all its supplies fr om the franchisor.This will limit a franchisees bility to earn high profits Other franchisees could give the brand a bad reputation and this may have and ad verse impact on all franchisees The franchise agreement usually includes restrictions on how the business should be run. Therefore , a franchisee may not be able to make changes to suit the lo cal market or in general use its initiative in making decisions as much as an in dependent business could Franchisees are required to sign non-competition clauses, agreeing not to set up competing business in the franchisors industry for a significant period after th e end of the franchise agreement Franchisees must be approved by the franchisor, so an existing franchisee may fi nd it difficult to sell the franchise. If the franchisor goes out of business or changes the way it does things, this w ill have a direct impact on the franchisees business.