The notes above provide an incredibly detailed summary of the franchising section of the Business Studies syllabus of the IEB curriculum. The notes above have been used to complete the grade 11 year with a 91% on the final exams.
Franchising
Starting a new business
An entrepreneur has to plan carefully and for this purpose a business plan is drafted.
Buying an existing business
Franchising
Is a system where the franchisor (mother company) makes an agreement with a
franchisee (distributor) to distribute the goods on certain agreed terms.
1. Characteristics of franchising:
The formal business agreement between the franchisee and franchisor is known
as the Franchise Agreement. Franchising is a marketing system not a form of
ownership. A franchise is a good opportunity for inexperienced entrepreneurs.
The franchisee buys a business package from the franchisor and then sells a
good or service. Business is owned by the franchisee and they pay a fee and/or
commission on sales to the franchisor.
The franchisor helps train the franchisee when the store is open and after. The
franchisee is responsible for the daily activities of the franchise.
2. Cost to the franchisee
The Franchise Fee is an initial lump sum payment to the franchisor to secure the
right to use the name and formula of the business for a period of 10 years. If the
franchisor assists with the set-up it is known as Turnkey operation and will
charge a management fee for service. Royalties are paid to the franchisor, small
franchises often charge a flat rate. A monthly advertising levy is paid by the
franchisee.
, 3. Advantages and disadvantages of franchising
Advantages (POV franchisee):
➔ Franchisee have a good chance of success due to the good
franchise name.
➔ Franchisee has access to advice from franchisor
➔ Franchise agreement offers legal protection.
➔ Easier to raise borrowed capital from the bank.
Disadvantages (POV franchisee):
➔ Starting costs are usually expensive and you have to pay monthly
royalties thereafter.
➔ May find it frustrating and limiting to stick to the prescriptions of
the franchisor.
➔ Franchisors may not continue promised support.
➔ May become bored with the franchise.
Advantages (POV franchisor):
➔ Can expand their business quickly without much capital.
➔ Franchisees will be more committed to making a successful
business.
Disadvantages (POV franchisor):
➔ Can be difficult to keep giving assistance to all franchisees.
➔ Does not have direct control over the businesses. (Success is
dependent on franchisees)
4. The relationship between the franchisee and franchisor
The Franchise Association Of Southern Africa (FASA) ensures the behaviour of
the franchisor and the franchisee is ethical and acts as an arbitrator should a
dispute arise between the two parties. The method of operation of a franchise
may impact the image of franchising as a concept.
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