Advantages of Franchising

Why is franchising so popular? According to the president of the International Franchise Association, franchising has triple benefits: “The franchiser wins because he builds a strong foundation for his company. The franchisee wins because he can take advantage of the franchiser’s proven business system. And the general public benefits from the consistency of the product or service."

The biggest winners are generally the franchisers, who are able to expand their businesses through franchised outlets without depleting their own capital. Franchisers not only expand their business using other people’s money, they also receive regular income from franchisees, who pass on a percentage of their gross revenues and help pay for advertising and promotional costs.

Investing in a franchise can also be good for the franchisee, because the risk is reasonably low. Ninety-two percent of all franchise outlets make it through their fifth year. When you invest in a franchise, you know that you are getting a viable business, one that has “worked” many times before. You also have the advantage of instant name recognition and mass advertising. An independent hamburger stand can't afford a national TV advertising campaign, but McDonald’s, Burger King, and Wendy’s can. Few franchisees are able to write a check for the amount of the total investment. Most obtain a loan to cover at least part of the cost. According to the Department of Commerce, 16 percent of all franchisers provide some form of financial assistance such as low-rate loans. Another 34 percent assist the franchisees in preparing loan applications for banks, private investors, or the Small Business Administration.

Besides financial aid and advice, the franchiser gives a new franchisee training in how to run a business.

Although franchising offers many advantages, it is not the ideal vehicle for everyone. For one thing, owning a franchise is no guarantee of wealth. It may be the safest way to get into business, but it is not necessarily the cheapest. According to some analysts, it costs 10 to 30 percent more to buy a franchise than to open a business independently. And not all franchises are extremely profitable operations.

One of the most significant financial variables is the monthly payment or royalty that must be turned over to the franchiser. The fees vary widely, from nothing at all to 20 percent of sales.

Another drawback of franchises is that they allow individual operators very little independence. Franchiser can prescribe virtually every aspect of the business, down to the details of employees’ uniforms and the color of the walls. Franchisees may be required to buy the products they sell directly from the franchiser at whatever price the franchiser feels like charging. Franchisers may also make important decisions without consulting franchisees.

2. Match the terms with their definitions:

1. franchise 2. franchising 3. franchisee 4. franchiser	a. a corporation that grants a franchise to an individual or group
b. a person or group to whom a corporation grants an exclusive right to the use of its name in a certain territory, usually in exchange for an initial fee plus monthly royalty payments
c. a formal agreement for someone to sell a company's products or services in a particular place, in exchange for a payment or part of the profits
d. a business arrangement whereby an individual obtains right from a larger company to sell a well-known product or service

3. Find in the text the English equivalents for the following Russian terms:

Франчайзинг; франшиза; франчайзер (франшизодатель); франчайзи (франшизополучатель); франчайзинг товара; производственный франчайзинг; франчайзинг организации бизнеса (формата бизнеса); диверсификация; агенство, представительство (фирмы); финансовая переменная; торговая точка, работающая на основе франчайзинга.

5. Read the text again picking out the advantages and disadvantages of franchising for a franchiser and a franchisee, list them in the following chart.

Advantages	Disadvantages
for a franchiser	for a franchisee	for a franchiser	for a franchisee

6. Answer the following questions on the contents of the text.

1. Why is franchising said to help avoid some problems associated with starting a business?

2. What are the two parties in franchising?

3. How many types of franchises are defined in the text?

4. What type of franchise is used when a franchisee makes and distributes the products licensed by the parent company?

5. Is franchising a new phenomenon? Since when has it been known?

6. What have been the recent trends in franchising?

7. Why does the franchiser win by selling a franchise?

8. Is buying a franchise a guarantee of success and profit for a franchisee?

9. What is often more costly – buying a franchise or opening a business independently?

10. Who has more freedom in business – franchisees or independent business operators?

7. Give a gist of the contents of the text.

Text 3

Complete the questionnaire below and analyze the results using the directions given after it. The language of the questionnaire is rather informal and abounds in phrasal verbs; to cope with this difficulty you may first do Activities11-12 from the Language section.

Have You Got What It Takes to Be a Small-Business Owner?

This checklist will help you determine your potential for owning a small business.

A. Are you a self-starter?

1. I do things on my own. Nobody has to tell me to get going.

2. If someone gets me started, I keep going all right.

3. Easy does it¹. I don't put myself out² until I have to.

B. How do you feel about other people?

1. I like people. I can get along with just about anybody.

2. I have plenty of friends, I don't need anyone else.

3. Most people irritate me.

C. Can you lead others?

1. I can get most people to go along when I start something.

2. I can give the orders, if someone tells me what we should do.

3. I let someone else get things moving.

D. Can you take responsibility?

1. I like to take charge of things and see them through.

2. I'll take over if I have to, but I'd rather let someone else be responsible.

3. There's always some eager person who wants to look smart. I'm glad to let that person do the work.

E. How good an organizer are you?

1. I like to have a plan before I start. I'm usually the one to get things lined up when the group wants to do something.

2. I do all tight unless things get too confused. Then I quit.

3. When I get all set something comes along and presents too many problems. So I just take things as they come.

F. How good a worker are you?

1. I can keep going as long as I need to. I don't mind working hard for something I want.

2. I'll work hard for a while. But when I've had enough, that's it.

3. I can't see that hard work gets you anywhere.

G. Can you make decisions?

1. I can make up my mind in a hurry if I have to. It usually turns out okay, too.

2. I can if I have plenty of time. If I have to make up my mind fast, later I think that I should have decided the other way.

3. I don't like to be the one who has to decide things.

H. Can people trust what you say?

1. You bet they can³. I don't say things I don't mean.

2. I try to be on the level most of the time, but sometimes I just say what is easiest.

3. Why bother if the other person doesn't know the difference?

I. Can you stick with it?

1. If I make up my mind to do something, I don't let anything stop me.

2. I usually finish what I start – if it goes well.

3. If it doesn't go well right away, I quit. Why beat your brains out⁴?

J. How good is your health?

1. I never run down.

2. I have energy for most things I want to do.

3. I run out of energy sooner than most of my friends seem to.

Directions: If most of your checks were beside the first answer you probably have what it takes to operate a business successfully. If not, you are likely to have difficulty and should consider getting a partner to compensate for your weaknesses. If most of your checks were beside the third answer, not even a good partner will enable you to overcome the deficiencies indicated.

Notes

1. Easy does it – Тише едешь, дальше будешь

2. put oneself out – стараться изо всех сил, выложиться

3. You bet (they can) – Можете не сомневаться.

3. beat one's brains out - ломать голову, прикладывать максимум усилий

Text 4

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