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Business Studies- Franchise
Some entrepreneurs start a business by buying a franchise. This is when the owner of a business
idea (the franchisor) sells the right to use his idea to another person (the franchisee), usually in
return for a small fee and a share of the profits.
Benefits to the franchisor Drawbacks to the franchisor
Can expand quickly Potential loss of control
Franchisor earns revenue from franchisee Difficult to control quality as franchise network
Risk is shared, much of the cost is met by the Co-ordination and communication problems
franchisee may increase as franchise grows
Franchisee may have good entrepreneurial skills Some franchisees become powerful as they
which will earn the franchisor more revenue. acquire a number of franchises.
Benefits to Franchisee Drawbacks to franchisee
Able to sell already recognised and successful Proportion of revenue paid to the franchisor
product of service.
Take advantage of central service such as Franchisee may not feel that the business is
marketing, purchasing, training, stock control his/her own and may not benefit from the
and accounting systems and administration personal rewards of entrepreneurship.
provided by franchisor.
Franchisor might have experience in the market Right to operate the franchise could be
that the franchisee can benefit from withdrawn.