Franchising lets an entrepreneur operate a business using another company’s established brand and business system. This lesson introduces the parties, the franchise agreement, and the resources exchanged in a franchise relationship.
Franchising is a form of business organization in which one business gives another party the right to sell goods or services using an established business concept and brand.
All flashcards
Franchise agreement
A contract that sets the parties’ rights and responsibilities, including operating rules, support, and financial terms.
Franchising as an expansion strategy
It can help a franchisor enter new areas while franchisees finance and operate their own units.
Franchisee operating restrictions
The agreement may limit choices about suppliers, inventory, location, promotions, or service.
Franchise Disclosure Document (FDD)
A document required by the FTC that provides information about the franchisor and the franchise opportunity.
International franchise adaptation
Adjusting a franchise concept to local customer habits and operating conditions can support its fit in a new market.
Quiz questions
How can franchising help a franchisor expand into new geographic areas?Answer: Franchisees finance and operate units, reducing the franchisor’s direct investment in each location.
Why might a franchise have different positions on different ranking lists?Answer: The lists may use different measures, such as owner satisfaction, brand strength, or financial stability.
Which factor should a franchisor investigate when entering a foreign market?Answer: Local culture, language, market conditions, and currency changes.
What type of information may a prospective franchisee find in an FDD?Answer: Information about the franchisor, financial obligations, litigation, and restrictions on selling units.
Before committing to a franchise, why should a prospective buyer speak with current and former franchisees?Answer: To learn about their experiences with daily operations, costs, and franchisor support.
Based on Introduction to Business 2e by Lawrence J. Gitman, Carl McDaniel, Amit Shah, Monique Reece, Linda Koffel, Bethann Talsma, James C. Hyatt (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.