Advice about what is a franchise and is it a good idea

Question: You have graduated from Holmes Institute with your Master of Professional Accounting degree. You are working for an accounting firm, and a client has made an appointment to see you about setting up a business.

The client tells you that he is thinking about opening his own computer support business and running his business on his own from his house so that the customers can bring their laptop or PC's to his premises and then repair it.

He also tells you that he is thinking about buying into a franchise called IT Support, and he asks you for advice about what is a franchise and is it a good idea?

Your task is to give the client advice on what types of business structures, including franchises, would be best suitable for him. In your answer, you must provide advantages and disadvantages for each of the business structures you have suggested to him.

ANSWER:
A franchisee can be described as a method of providing business services under an established brand name. Here, the franchisee pays royalty to the franchisor for performing business services under his name and the brand‘s trademark. This is a valid contract that is enforceable under the law and is binding on both the parties.In the given case scenario,The client wishes to franchise brand for IT support services to its customers. Some of the advantages and disadvantages related to this type of business can be described as under-

Advantages-
This form is accompanied with the immense benefits of an already established brand
Franchising can be proceeded with minimum business experience and training
The success rate of this business is comparatively higher than a newly start up organisation
It is easier For franchisees to obtain their finance requirements in order to initiate the business

Disadvantages-
It is a form of dictating the business rather than owning it for development with creativity
It is often affected negatively by poor performances of other franchises
The profits are shared with the franchisor and hence, the residual income to the franchisee decreases

Other forms of business structure include the following-
Sole proprietorship - it is one of the most popular forms of business structure where an individual owns the business along with all his assets and liabilities. Some of the major advantages and disadvantages associated with this form of business is provided as under-

Advantages-
It is very easy to establish and operate with minimum requirements
The entire profits of the business is received by the owner himself
There is existence of complete privacy and hence, fraudulent activities are minimised

Disadvantages-
It is very difficult to obtain finance requirements as banks and other financial institutions would resist in providing them with increased sums of money
They have an unlimited liability. Hence, in case of any business loss, the proprietor for it and the court can sue his personal properties as well

Partnership - A partnership business can be described as a business structure where two or more parties come together to initiate a business. Some of the advantages and disadvantages of the same are given as under-
it is very straightforward business with terms of formation and flexibility
The risk sharing capacity is enhanced and distributed amongst all
There is clear division of work and hence provide scope for business expansion

Disadvantages -
A partnership firm has unlimited liability and hence they are responsible for all debts entered by the firm
This business may suffer from instability and uncertainty in the long run
The business experiences difficulty in progressing with effective decision making techniques

Recommendation- As per the analysis provided as under, the client would be suggested to undergo a franchisee business idea and reap maximum benefits in the long run with minimum risk exposure

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