Not For Profit & Franchises
Business: Edexcel IGCSE, topic 1.2.5
Not-For-Profit Organisations
Any profit made by not-for-profit organisations is reinvested (put back) in the business. Any profit cannot be kept by the owners. There are lots of types of not-for-profit organisations and they can have different aims:
Charities
- Charities, like Oxfam or Save the Children, are a type of not-for-profit organisation.
- Getting charitable status lets a business get tax relief and lets it apply for certain grants. For a business to get charitable status, they must follow rules and regulations.
Social enterprise
- Social enterprises, like the Big Issue or TOMs are another form of not-for-profit organisation.
- They are more similar to for-profit businesses in that they make a surplus through selling goods or services. This profit is reinvested to support the social enterprise’s aim.
Unincorporated association
- Not-for-profit organisations can choose to be an ‘unincorporated association’ but, like sole traders and partnerships, the people who manage it have unlimited liability.
- This means that they get no profit and they are legally responsible for all of the organisation’s debt.
- Bigger organisations, like Oxfam, tend to be incorporated so that the people running it are protected from limited liability.
Franchising
Franchising is where a company gives someone the right to sell its products and use its trademarks. The ‘franchisee’ usually pays the business an upfront fee and a percentage of the profits.
KFC
- Kentucky Fried Chicken (KFC), which is part of the TacoBell Group is an example of this.
- Many KFC’s all over the world are not owned by KFC but instead owned by individuals who pay a fee and percentage of the profits to KFC. This lets them use the KFC brand name and the “original recipe”.
Advantages of franchising
- The business can expand without needing large amounts of investment. The firm does not incur the costs involved with opening new stores.
- The business also does not have to be concerned about some of the risks of becoming a larger corporation, for example, diseconomies of scale (which may be caused by the growth from opening and operating new stores themselves).
- Franchising increases brand awareness of the firm’s products or services.
Disadvantages of franchising
- A disadvantage of franchising is that the franchiser does not have complete control over how they operate.
- If a franchise is run badly, then a single franchise or store can negatively affect the brand image.
Test yourself on Not For Profit & Franchises
What are charities like Oxfam?
What do the people who run 'unincorporated associations' have?
What are some types of not-for-profit organisations?
Which of these businesses uses franchising?
Which of the following are true of franchising?