A business idea for a start-up doesn’t have to be original. Many new businesses are formed with the intention of offering an existing business idea. The use of franchises is a great example of that.
The basic idea for a franchise is this.
A franchisor grants a license (the “franchise“) to another business (the “franchisee“) to allow it to trade using the brand or business format.
That might sound a bit complicated! The trick is to remember that the franchisor is in charge – the franchisor is the original owner of the business idea.
Franchises are a significant part of business life in the UK:
Examples of well-known businesses that use franchising to expand their operations include:
You might have noticed from the list above that nearly all those businesses provide services rather than produce goods. Franchising is particularly suitable for service businesses.
Advantages of running a franchise
For a start-up entrepreneur, there are several advantages to investing in a franchise:
Overall, investing in a franchise is a lower risk method of starting a business and there is a lower chance of business failure
Disadvantages of running a franchise
There are several disadvantages for the franchisee:
There are many good franchise opportunities available for a start-up, but some poor ones too. So there is still a need for the entrepreneur to do market research into the franchise
A franchise is a kind of “halfway house” for a budding entrepreneur. It is a lower risk method of market entry and it is often easier to raise finance. However, running a franchise does not offer the same kind of long-term financial rewards that owning a business outright can.
By: Jim Riley http://www.tutor2u.net