Franchising and Buyouts
- What makes franchising different from other forms of business?
Franchising is different from other forms of business in that it is way that is used by business firms to expand their market niche through retail outlets that are independently owned by third party operators. The independent third party operator conducts business through his retail branch in accordance with the set marketing protocol, trademarked goods and services using the goodwill name of the business firm. This is done after the payment of a fee and royalties to the initial investors of the franchise.
There are specific terminologies used. The franchiser is the original owner of the franchise that sells the rights for the distribution of its trademarks, products, or modes of business transaction to the independent third party retailer. The independent third party retailer who buys rights and pays royalties to the franchiser is called the franchisee. This he does in accordance with the set rules regulations and standards
- What is the difference between product and trade name franchising and business format franchising?
The franchising business format is different from product and trade name. In the business format model, the franchisee obtains the entire rights to structure their business in same design as the original business and the use of the company logos and trademarks in the conducting of their business. They also have the benefit of obtaining advice and assistance from the franchiser on the efficient business methods of starting up the business, running it and keeping it profitable in the present and the future. All this is done after the franchisee has paid up all the royalties and rights to the franchisee. This practice is very common with fast food shops and supermarkets.
Product and trade name franchising on the other hand does not involve the franchisee paying up the franchiser the necessary royalty fees. The business model is also much simpler as it involves the independent third party retailer trading in the products and services of the franchiser in the retail shop. This is done with the adoption of the franchisers trade name and logo. This practice is very common with soft drinks, motor oils and skincare products.
Which one accounts for the majority of franchising activity?
Of the various different kinds of franchising arrangements commonly practiced, the business format is the most commonly practiced. This is whereby the franchisee pays the franchiser an initial fee and an ongoing royalty for the exclusive rights of using the company’s logos, trademarks and business models.
- Should franchise information provided by a franchisor be discounted? Why or why not?
The franchise information provided by a franchisor should never be discounted. This is for the simple reason that it is proven the most logical source with the most profound information about the business entity
- Do you believe that the Franchise Disclosure Document is useful for franchise evaluation?
The Franchise Disclosure Document is useful for franchise evaluation is indeed useful for the evaluation of the viability of the franchise. The franchise disclosure document contains crucial information concerning the franchise. This includes the directors of the business, the decisions and their actions that they have made in the past. The document also shows how long the business has been in existence and the history of its profitability.
- What are possible reasons for buying an existing company versus starting a new business from scratch?
Buying an existing company has several advantages over starting from scratch. These include; the investor reduces uncertainties as these are proven by the history of the company. The investor can take advantage of the ongoing transactions to found better or new relationships. The investor is able to acquire the existing firm at a bargain price. Another advantage is that the process does not include the time wasted in starting up a business firm as it is already in operation.
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