Unit 1 - FRANCHISES

A Franchise occurs where a well known business sells the use of its name to another business. The business selling its name is known as the Franchisor. The business buying the name is known as the Franchisee.

There are a number of reasons for a franchisor to sell its name.

They can get their name better known around the world
They can expand without having to set up all the different businesses themselves
They can earn money from selling the use of their name

There are a number of possible problems for them however:

They lose control of what is being done in their name; their reputation may suffer if such a business is badly run
They do not earn all of the profits generated.

There are a number of reasons for a franchisee to buy a name:

They have the benefit using a name that is well known already
They have the benefit of the advice and expertise of the franchisor.

Problems for them may include:

They may be tightly controlled by the franchisor who can take back use of their name at any time.
It is expensive to buy a franchise.