A Franchise is an organisation utilising a business idea belonging
to another person or business. The Franchise owner will pay the owner (of the business
idea) money to use their business idea.
The person selling the idea is known as the Franchisor (Franchiser) and the
person purchasing the right to use the business idea (and/or trade under
the name of another organisation) is known as the Franchisee.
A good Franchise example is McDonalds; a business that will allow others
to use their trading name for a fee/share of the profit. The contract
stipulates that the business owner must use McDonald’s shop fittings,
equipment and food products. As McDonalds is an international brand,
familiar to many throughout the world, McDonalds is a business that others feel confident about using for their franchise business.
Franchisees do not
have to build their reputation, unlike a non franchise new business. It can take a very long time to establish a new business. Whereas a franchise is usually a successful business (or business idea) that the public know. A franchisee can use the established businesses reputation and popularity to build their business.
However a Franchisee will not have the decision making power of a non
franchise business. The Franchisor will want to protect their reputation
and will therefore stipulate terms and conditions within which the Franchisee
must operate. Furthermore just as the Franchisee will benefit from the
Franchisor’s (business idea’s) good reputation, any decline
in the Franchisor’s reputation will be detrimental to the Franchisee
and the Franchisee’s business.