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Franchising Essay

1416 words - 6 pages

Franchising - an arrangement whereby the manufacturer or sole distributor of a trademarked product or services gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures.Franchisor- the person offering the franchise.Franchisee- the person who purchases the franchise and is given the opportunity to enter a new business with a better chance to succeed than if he or she were to start a new business from scratch.Advantages of Franchising - to the FranchiseeProduct AcceptanceThe franchisee usually enters into a business that has an accepted name, product or service.In case of Subway, any person buying a franchise will be using the Subway name, which is well known and established throughout United States.The franchise does not have to spend resources trying to establish the credibility of the business.Management ExpertiseEach is often is often require to take a training program on all aspects of operating the franchising.In addition, some franchisors require their new franchise owner or at a company-owned store or facility to get on-the-job training.The training and education offered is actually an important criterion that the entrepreneur should consider in evaluating any franchise opportunity.Capital RequirementThe franchise offers an opportunity to start a new venture with up-front support that could save the entrepreneur significant time and possibly capital.In some cases, franchisor will also finance the initial investment to start the franchise operation.The initial capital required to purchase a franchise generally reflects a fee for the franchise, construction costs, and the purchase of equipment.Knowledge of the MarketThis knowledge is usually reflected in a plan offered to the franchisee that details the profile of the target customer and the strategist that should be implemented once the operation has begun.This is particularly important because of regional and local markets.Most franchisors will be constantly evaluating market conditions and determining the most effective strategies to be communicated to the franchisees.Operating and Structural Controls2 problems that many entrepreneurs have in starting a new venture are maintaining quality control of products and services and establishing effective managerial controls.In some instances, the supplies are actually provided by the franchisor. Standardized in the supplies, products, and services. Standardized also supports a consistent image on which the franchise business depends for expansion.Administrative controls usually involve financial decisions relating to cost, inventory and cash flow, and personnel issues.Advantages of Franchising- to the FranchisorExpansion RiskThe most obvious advantage of franchising for an entrepreneur is that it allows the venture to expand quickly using little capital.The value of the franchise depends on the to-date track record of the franchisor and on...

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