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Chapter 3 - Franchises and Co-Operatives

The document discusses franchises and cooperatives as business models. It covers the key elements and advantages and disadvantages for franchisers, franchisees, and cooperatives. Franchising allows a business to expand using its established brand name while cooperatives are businesses owned and run by their members.

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katy
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68 views2 pages

Chapter 3 - Franchises and Co-Operatives

The document discusses franchises and cooperatives as business models. It covers the key elements and advantages and disadvantages for franchisers, franchisees, and cooperatives. Franchising allows a business to expand using its established brand name while cooperatives are businesses owned and run by their members.

Uploaded by

katy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter 3 - Franchises and Co-operatives

Franchis

• Where a business with a well known brand name (the


franchiser) lets a person/group of people (the franchisee)
setup their own business using that brand
• This is in exchange for an initial fee and continuing payments
(percentage of turnover/pro t) for as long as the franchise
lasts
• Not a type of legal structure - franchisee can choose which
structure to adopt —> limited/unlimited liability

Advantages for the franchiser

- The rm need not spend large amounts of money (get into debt) in order to expand
- The products necessary for franchise still under the franchisers direct control
- Applicants are carefully selected for their suitability to become franchisees —> issuing
franchises should generate a continuous stream of revenue from franchisees who want to make
their business succeed

Disadvantages for the franchiser

- Control issues —> the control the franchiser has over the product is not as great as it would be if
the business sold the product itself
- Time needs to be spent ensuring the franchisees are following procedures properly, risk of bad
publicity from ‘a rogue franchisee’ could affect the brand image
- Cost of supporting franchisees; ongoing support, training, market research, product
development
- Possibility of con ict if there is a disagreement between the franchiser and franchisee. The
franchisee may claim lack of support which may lead to court action

Should a business franchise its brand?


• Time needed to setup
• Money prepared to invest in the business
• Desired rewards
• Attitude towards risk

Advantages for the franchisee

- Tried and tested brand name —> greater chance of success


- Specialist advice and training are available from the franchiser on an ongoing basis
- Franchiser carries out market research and proves marketing support
- Easier to obtain a loan from a bank

Disadvantages for the franchise

- Supplies need to be brought from the franchiser which may be higher prices than similar
products in the open markets —> lower pro t margins
- Continuing royalty payments
- Franchisee has less control over what is selling and how is sells it
- Business cannot be sold without the franchisers permission
- Franchise is for a xed period of time, not automatically renewed
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Co-operatives

• Business that exists for the bene t of its users rather than a distant and
uncaring owner
• Many different businesses —> retailing, wholesaling, travel, funerals,
insurance and banking
• Strict ethical principles upholding the ‘stakeholder approach’

Co-operative: business owned and run by its members (employees and


customers). Pro ts are shared between members rather than being distributed
to shareholders

Important to recognise that not all references to ‘co-operatives’ refers


to parts of the co-operative movement

Key elements of a co-operative business:


- Owned by its members; the people who use it
- Run by its members who elect those managing the business and so help shape the decisions
their co-operative makes
- Pro ts are shared among members; it is not a charity it is a business

Advantages of a co-operative

- Establishing a co-operative is legally straightforward —> legal


documentation is straightforward and inexpensive
- All involved working towards a common goal, employees expected
to be motivated and therefore productive. Customers are usually
loyal and supportive
- Liability for members usually limited
- High quality of service since customers are likely to members

Disadvantages of a co-operative

- Capital can be limited —> limited to what is contributed by members, banks may be reluctant to
lend, potential investors put off by the possibility of a limited return
- Weak management —> those elected may be ineffective and not suf cient to grasp business
principles
- Slower decision making since greater involvement by members
- No guarantee that operating this way will generate more bene ts for its stakeholders than an
‘ordinary business would’

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