What are the basic forms of business ownership?
What is franchising? How many types of franchising?
Why should we buy a franchise?
What should we look for from franchisers?
How to buy a franchise?
What are the advantages of franchising?
What are the disadvantages of franchising?

Sole Trader Proprietorship
FORM OF
OWNERSHIP
Partnership
Corporation
General partnership
Limited partnership
Private Limited company
Public limited company

• Franchising: semi-independent business owners pay fees and royalties to a parent company in exchange for the right to sell its products and services under the franchiser’s trade name and often to use its business format and system
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
Trade name

Product distribution

Pure (Business format)
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Figure 4.1 The Franchising Relationship
Element The Franchiser The Franchisee
Site selection Oversees and approves; may choose site
Chooses site with franchiser’s approval
Design Provides prototype design Pays for and implements design
Employees Makes general recommendations and training suggestions
Hires, manages, and fires employees
Modifies only with franchiser’s approval Products and services Determines product or service line
Prices Can only recommend prices Sets final prices
Purchasing Establishes quality standards; provides list of approved suppliers; may require franchisees to purchase from the franchisor
Must meet quality standards; must purchase only from approved suppliers; must purchase from supplier if required
Advertising Develops and coordinates national ad campaign; may require minimum level of spending on local advertising
Pays for national ad campaign; complies with local advertising requirements; gets franchisor approval on local ads
Quality control Sets quality standards and enforces them with inspections; trains franchisees
Maintains quality standards; trains employees to implement quality systems
Support Provides support through an established business system
Operates business on a day-to-day basis with franchiser’s support
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Source: Adapted from Economic Impact of Franchised Businesses: A Study for the International Franchise Association , National Economic Consulting Practice of
PriceWaterhouseCoopers, (IFA Educational Foundation, New York: 2004), pp. 3,5.

• Franchisees are buying the franchiser’s experience
• “Going into business for yourself but not
by yourself”
• Franchisees get a proven business system and avoid having to learn by trial-anderror
• Before buying, ask: “What can a franchise do for me that I cannot do for myself?”
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• A unique concept or marketing approach
• Profitability
• A registered trademark
• A business system that works
• A solid training program
• Affordability
• A positive relationship with franchisees
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• Evaluate yourself – What do you like and dislike?
• Research the market
• Consider your franchise options
• Talk to existing franchisees
• Ask the franchiser some tough questions
• Make your choice
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• Management and marketing assistance
• Personal ownership
• Nationally recognized name
• Financial advice and assistance
• Lower failure rate
• Standardized quality of goods and services
• Site selection and territorial protection
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WHAT ARE THE DISADVANTAGES OF
FRANCHISING?
• Large start-up costs
• Shared profit
• Management regulations
• Coattail effects
• Restrictions on selling
• Fraudulent franchisers
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