A franchise is an agreement in which a party (franchisor) shares business knowledge, trademarks, techniques and other unique selling points with another party (franchisee). The franchisee then may operate under the franchisor’s name and carry on a separate business but within the perimeters set by the franchisor.
Essentially now the franchisee signs a contract with the franchisor. The franchisee agrees to pay a franchising fee for using the franchisors name and other than that the franchisee may also have to pay a certain proportion of the profit that it makes to the franchisor. These stipulations are often decided over an argument and eventually jotted down into an agreement. The agreement is between the franchisor and the franchisee.
To be a franchisee is not free from benefits. As franchisee is starting a business, if he starts one under his own name he needs to pass through a very difficult initial phase in order to come to a point where he has a firm standing in the market. The advantage of getting a franchisee at that point is that anyone with ill business knowledge may prosper because of the franchise. All basic buying, selling and transactions methods and techniques are given by the franchisor. The franchisor has already even devised a code of conduct to be followed. So essentially the franchisee only has to make a big investment and then just follow orders and go with the flow of the franchisor. As much as franchisor would succeed the franchisee would too.
Becoming a franchisee is not free from limitations thou. At any point of time the franchisor holds the right to cancel the franchisee’s license if the franchisee is not following strictly the rules laid down by the franchisor. Other than that the franchisee is also limited by the franchisor, he may not make any modifications to the business’s policy or even appearance. He shall work in a strict limited environment.Popular franchisee examples can be franchisee’s taking over Mc Donalds, Kfc, Pizza Hut franchises, etc.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
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- IFRS Interpretations (EU)
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Most WantedFinancial Terms
- Most Important Financial Ratios
- Debt-to-Equity Ratio
- Financial Leverage
- Current Ratio
- Interest Coverage Ratio (ICR)
- Solvency Ratio
- Receivable Turnover Ratio
- Return On Capital Employed (ROCE)
- Debt Service Coverage Ratio
- Accounts Payable Turnover Ratio
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