Franchise

The word is used in a variety of ways

The right to vote in an election – volební právo

Franchises are granted to various companies that agree to provide a television service in return for the right to sell advertising space on channel.A franchise implies a right that is purchased – licence

A franchise is a business in which exclusive rights are purchased for selling goods or services under a specified trade name and within a specified geographical area. The franchisor offers a business model which is designed to enable an inexperienced franchisee to set up a business format in return for a fixed sum and/or a percentage royalty. The franchisee who is likely to locally based, buys a format that has been tried and tested in other areas. The format includes a licence to trade under the franchisor’s name, to use its trademark or logo. This right is limited to a specific area and for a specific time period.

Advantages and disadvantages of franchises

Franchising is becoming very popular.

Advantages and disadvantages from the perspective of the franchisor:

• Rapid expansion without the high capital cost
• He saves on running costs ( pay, material and administration)
• He benefits from the efforts of franchisees, who have a greater incentives (stimuly, pobídky) to expand the business
• Franchisee has local knowledge
• If a new franchise outlet is in a “marginal” locality – there is benefit to the f-or ( he would have to pay a manager)
• If franchisees are self-employed there may be problem that they will not adhere (držet se, řídit se) to the operational methods
• Failure by an individual franchisee will reflect badly on the whole franchise operation

Advantages and disadvantages from the perspective of the franchisee:

• The franchise involves the purchase of a tried and tested business format
• This is an excellent introduction to running their own business
• There are many benefits:
• A ready-made product or format
• A recognized name known to both potential customers and suppliers
• Public awareness
• Advice, assistance, training
• Lower start-up costs
• Access to the franchisor§s legal and financial advisors
• Loan facilities
  • Franchisor will control the business of franchisee ( he loses freedom of action in terms of product, price, terms of sales, place)
  • Franchisee will suffer loss of trade if the performance of fellow franchisees causes dissatisfaction to the public
• Fees and payments to the franchisor:
  • Initial fee (front end fee) – annual royalty
  • Payments for inputs and services

(there is an obligation to buy inputs from the franchisor places)

Franchisee

• Pay a franchise fee (front end fee)
• Pay a royalty (management services fee) : a % of annual turnover
• Pay advertising fee
• Find necessary capital to open the business
• Get advice how to deal with problems
• Respect certain rules (what they can sell, uniforms, behaviour, preferred supplies)
• Buy supplies from particular sources
• Sell only certain products
• Seek approval before selling the business
• Provide regular reports on the level of sales
• Have a reduced risk
• Pay for staff training courses

Franchisor

• Provide an operating manual
• Appoint a master franchisee
• Provide advice on how to deal with problems
• Borrow money to expand
• Invest his/her capital to expand
• Be responsible for national advertising
• No problems of recruiting when they can develop their business
• Look at the business at national and international level
• Promote business through national level advertising
• Run training courses