Chapter 3 - Franchises and Co-operatives PDF

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Chapter 3 - Franchises and Co-operatives Franchise • 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/profit) 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 firm 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 conflict 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

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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 franchisee

- Supplies need to be brought from the franchiser which may be higher prices than similar -

products in the open markets —> lower profit 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 fixed period of time, not automatically renewed

Co-operatives • Business that exists for the benefit 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). Profits 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 - Profits 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 sufficient to grasp business principles

- Slower decision making since greater involvement by members - No guarantee that operating this way will generate more benefits for its stakeholders than an ‘ordinary business would’...