Franchise

Definition of Terms

• A Franchise involves any arrangement in which the owner of a trade name, trademark or copyright which has licensed others to use it in selling goods and services.
• The franchisee is legally independent but economically dependent on the integrated business system of the franchisor. He is the purchaser of the franchise.
• The franchisor is the seller of the franchise.

The franchise can be viewed as a large umbrella corporation with other branches working under it. 

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ADVANTAGES OF FRANCHISE

• Training and Guidance: The franchisee always has the opportunity of receiving assistance and guidance from the franchise.
• Brand-Name Appeal: Buying a well known franchise also gives the franchisee's business quick recognition and therefore better chance of success.
• A Proven Track Record: Buying a franchise which has also been successful over the years gives the franchisee the assurance of success.
• Financial Assistance: The franchise could also be a source of financial assistance to the franchisee when he/she has  less capital to effectively run the business.

DISADVANTAGES OF FRANCHISE

• Franchise Fees: Franchisees usually pay certain amounts to the franchisor from their sales (usually is 5%-20%).  
• Franchisor Control: Since franchisees depend economically on the franchisor's  business system, the franchisor usually exerts a fair level of control over their businesses.
• Unfulfilled Promises: The problem of unfulfilled promises is evident in some franchisor-franchisee relationships where the franchisee doesn't receive either the financial assistance, the training and guidance promised, or even goods and equipment.