Franchising is one of the most effective forms of organizing a small business at present.

It provides for the possibility of leasing a trademark, using the skills and experience of a larger, already successful company.

Franchise concept

Business franchise

According to statistics, a small business started as a franchise is many times more successful and has opportunities for development than a small business started from scratch.

In cases where novice entrepreneurs are afraid to invest start-up capital in ideas that have not yet been promoted and strive to establish a business based on already proven schemes, they resort to franchising.

Product and brand franchise

Such a franchise implies the possibility of manufacturing products under an already well-known brand.

Some of the most striking examples of global companies that at one time gained fame through the provision of product franchises and trademark- This McDonald's, Soca-Cola, PepsiCo and many others.

Famous franchise brands

Franchise operating principle

Franchising combines forms of small and larger businesses. More precisely, larger and already experienced companies (hereinafter, franchisors, the so-called “parent companies”) enter into contracts with newly minted entrepreneurs (hereinafter, franchisees — subsidiaries) for a long period of time.

These agreements provide franchisees the right to implement and promote your entrepreneurial activity on an already established basis(on behalf of the franchisor). At the same time, as a rule, the concluded agreements quite clearly define the duration of the contract, the form in which small enterprises conduct their activities and the specific location for the implementation of these activities.

To successfully establish a subsidiary, franchisors provide recommendations regarding the best organization its activities: what equipment to use (under what conditions: purchase at better prices, rental, etc.), what qualities and professional skills should the staff (employees) have, can facilitate the supply of customer-supplied raw materials, semi-finished products, blanks, provide information support, take on partial material support, monitor the implementation of business plans.

Therefore, as a rule, the concept of “franchise” in business refers to a company created and regulated on a franchising basis (when the company operates under the rights of a larger company or on behalf of this parent company).

When concluding a franchise cooperation agreement, both parties to the agreement have their own benefits. For aspiring entrepreneurs, the benefit is the ability to build on the experience already gained from a larger company. In turn, a larger organization (franchisor) has the opportunity to expand the sales market for its products, increase production capacity and turnover by opening new companies (branches) - franchises.

Currently, almost all areas of small business can be organized as a franchise: service sector(restaurants, hotels, hairdressers, studios, shops), small production(tailoring, food production, production of any spare parts), etc.

Pros and cons of such a business

When concluding franchise agreements, it can be determined as advantages for subsidiaries, and some disadvantages.

As previously mentioned, the advantages include:

• support from a larger company in the information and raw materials sectors;
• the possibility of using its technological, design developments, experience in organizing a business and the opportunity to receive additional financial investments in a developing company;
• For this kind of for entrepreneurship, many banks provide the possibility of preferential lending;
• In addition, in the case of using the trademark of a large brand, a novice entrepreneur has the opportunity to save a significant amount by eliminating the need for marketing expenses.

The disadvantages include:

• the impossibility of refusing to fulfill previously concluded agreements on any production stages, rules for the sale of goods or services of the franchisor;
• Some of the agreements may individually include additional costs for franchisees for the use of a trademark, equipment, or mandatory consultations and monitoring of compliance with the terms of the agreements by the franchisor’s specialists.

How can a beginner choose and start a franchise business?

In order for a novice entrepreneur to decide on his franchise business idea, he needs to consider the following:

1. Rule 1. When choosing the field of activity of a future company, it is advisable to rely directly on your personal preferences for a particular field. As a rule, if your occupation is close to your spirit, then it will be much easier to navigate the company’s emerging difficulties and methods for eliminating them.
2. Rule 2. Before opening a franchise business, you need to decide on the territory that will be covered by the range of your services. This is a rather important stage, since it makes no sense and practically minimizes profits for two or more franchise companies with contractual obligations of the same franchisor to be in the same territory.
   When negotiating the terms of the agreement with the parent company, it is best to include clauses that exclude the possibility of it providing franchising to companies planning to develop in the region of your choice (such agreements are also called master franchises).
3. Rule 3. If possible, try to familiarize yourself with the financial statements of the parent company's partner companies. This information, as a rule, is not publicly available, but if both parties are interested, approximate figures for the profitability of the enterprise can be announced. This will help you navigate the correct choice of the franchisor company and the real risks of unprofitability of your company.
4. Rule 4. If you have already finally decided on the choice of franchisor company and are ready to enter into an agreement, you must Special attention pay attention to the documentary basis of agreements.

It is necessary to take into account that franchising is a complex partnership relationship, regulated by the terms of the agreements, which must certainly be spelled out (in full, in the most detailed and unambiguous form) in the clauses of the agreement you sign.

Compliance with this recommendation will help you defend your case in the event of controversial situations with the franchisor. Please note that if you do not agree with any of the clauses of the contract, you have the right to ask for it to be changed, or try to find a compromise option for implementing this clause (all these changes must be made to the contract before it is signed. )

If your future partner refuses to make the changes you propose, and the terms of the agreement are not regarded by you as feasible, then it is better to refrain from signing these documents.

From the following video you can learn useful information about choosing a franchise:

What investments are needed to open such a business?

If you have already decided on the field of activity and the franchisor directly, you must take into account that in addition to the costs of business franchise (and offers without starting investments are very rare), a number of expenses will fall on your shoulders to ensure the functioning of your company.

Such expenses should include:

• the need to pay rent for the premises in which your company will be located (including payment utilities: electricity, gas, water, housekeeping services);
• the cost of processing documents granting the right to conduct activities (licenses, certificates of conformity, permits, patents);
• equipping the enterprise with the necessary inventory and equipment (furniture, organizing a kitchen area for staff, office equipment, fire extinguishing equipment: fire extinguishers, etc.);
• monthly provision of the enterprise with applied products (hygiene products, paper, light bulbs, Consumables and cleaning products, etc.);
• logistics (rent or purchase of transport, gasoline, etc.);
• expenses for marketing materials (television advertising, brochures, business cards);
• expenses for wages employees, service personnel(including mandatory contributions for each employee in Pension Fund, social insurance);
• taxes on company profits or payment of a single tax;
• payment for services of state regulatory organizations;
• insurance payment;
• payment for cleaning company services;
• payment of possible penalties in connection with failure to fulfill any obligations to the franchise company;
• payment for the services of legal and notary organizations when concluding contracts;
• payment of fees, interest and possible penalties under loan agreements (if bank funds taken on credit were used to organize the company).

All these expenses amount to a fairly significant amount, which must be taken into account and included in the expenses of the enterprise when drawing up a business plan. Only after weighing all the pros and cons, as well as calculating as accurately as possible the size of the company’s expected turnover, its actual income and expenses, can you finally decide on the advisability of registering a franchise business.

The franchise business appeared as a response to the need to develop the market that arises for any successful company. To achieve maximum profit, you need to be able to promote the product and make the brand popular. This can be achieved using effective tools stimulating numerous entrepreneurs who are ready to dive into the world of business, but do not know where to start. A franchise business involves partnerships, for which the head office initially sets the conditions, and others are forced to obey them. Franchising is currently a fairly broad concept that involves several types of cooperation mechanisms. They are united by the fact that they meet modern requirements of market relations and are aimed at mutually beneficial interaction.

Partnership for mutual benefit

As can be seen from standard contract franchises, such interaction allows a novice entrepreneur to master the intricacies and intricacies of the chosen field of business, as well as a specific product, without investing too much money and effort into it. The head office, by providing a franchise, at the same time provides all the tools and access to extensive information on the basis of which the enterprise can function effectively from the very beginning. Many contracts also stipulate that it is the franchisor who selects personnel for the initial stage of operation of the new branch.

An enterprise operating under a production franchise can assess with minimal risks how productive, promising and profitable the area of ​​interest is. Usually you need to pay entrance fee and spend a certain amount on primary workspace equipment, but these expenses are much less than if you start a business from scratch. Nowadays it is a simple and effective way entering business.

Product franchise

As can be seen from the reviews of the franchise, this option (according to many entrepreneurs) is one of the most profitable. An alternative name is distribution franchising. The work process involves relationships through the product.

The conditions for working under a franchise in this case presuppose the presence of a manufacturer who provides a specific entrepreneur with the opportunity to work with its products. In this case, the enterprise must use the original brand and comply with the rules of the game established by it. As can be seen from reviews of franchises, this logic is quite simple to work with, which is largely due to the large amount of accumulated information about successful strategies.

Historical background

Franchises have been known since the nineteenth century. American entrepreneurs were pioneers in this area. At that time, the production of Singer sewing machines had just begun, and the manufacturer granted several companies the right to sell their goods in a strictly agreed upon territory. In this case, a mandatory condition to comply with was the preservation of the manufacturer’s name. In addition, this type of franchise implied service maintenance goods provided by sellers. For Singer, this approach to business allowed it to expand its sales geography and achieve worldwide fame.

With time profitable franchises began to appear on the business market more and more often. For example, the experience of the Despar grocery union is indicative. It brought together suppliers and sellers of agricultural goods in Germany in the first half of the twentieth century. As practice has shown, profitable franchises require a careful approach to developing a store concept, access to which can then be sold. Using the concept was beneficial for both parties: both the authors and those who joined the franchise.

Everything flows, everything changes...

Modern types of franchises are quite different from those transactions that were concluded two centuries ago, but at the same time the essence of cooperation remains the same. There is a manufacturer who has the rights to the product, and there is an entrepreneur who wants to work with this product. Product franchising involves working under the guise of a manufacturer, using its reputation and starting your own business with minimal investment.

What is a franchise in simple words? This is a transaction in which the entrepreneur receives from the supplier an assortment matrix, a store concept, a product, and often also personnel for the first time of work. The entrepreneur is obliged to work under the trademark that provided the franchise. What is (in simple words) doing business according to this scheme? Most often - the sale of clothing, food, shoes.

Terms and Conditions

Franchises for small businesses provide an opportunity to become part of a large holding company with minimal investment. At the same time, the manufacturer increases its name recognition, as well as the volume of transactions concluded, which leads to financial prosperity. Many companies require their partners to maintain transaction volumes at a minimum level, and if this amount is exceeded, they give bonuses and make profitable offer. As a rule, franchises for small and medium-sized businesses assume that the entrepreneur adheres to the standards, rules of service, and the level established by the head office. In case of non-compliance corporate ethics, with a low level of service, you can easily lose the privilege to work under a well-known name.

Thanks quite tough, but favorable conditions cooperation, franchises for small towns without investments become a way of access to the entrepreneurial sphere for those who have the desire, but do not have large financial reserves and special education. The product offered through franchising is well recognized by customers, which means that an influx of customers is ensured only due to the advertised brand, without any effort on the part of the franchise buyer himself. At the same time, the owner of a pharmacy, clothing, and food franchise receives high-quality goods within a strictly specified time frame and at a favorable price. The supplier and the seller are all interested in the profitability of the enterprise, which encourages them to work together, efficiently, and productively.

Alternative option

In many cities in Lately Bakeries and confectionery shops literally spring up like mushrooms after the rain. Many of them are also franchised. The manufacturer allows the company to operate under its recognizable name, provides baking products, production capacity and a streamlined, well-thought-out implementation scheme to attract clients. The entrepreneur, paying the amount due under the contract, must simply maintain the point in working condition.

As can be seen from the described scheme, the company daily sends semi-finished products to the bakery, from which the staff makes buns and cakes so desired by customers. Since the place operates under a well-known name, potential client does not doubt the quality of the product and boldly goes to spend money, even if the price of (for example) bread is higher than in the supermarket.

Goods and services

Using the scheme described above, you can buy a franchise of a pharmacy, clothing store, confectionery or even a restaurant. But not everyone wants to work with a product, so franchising provides the opportunity to provide services according to a similar scheme. Service franchise also sometimes called business franchising. The partners enter into a deal regarding the intellectual property of the head office. In this case, it is assumed that the supplier has some licenses that allow him to work in the selected category, and the right to use these licenses is transferred under a franchise agreement.

Service franchises are presented in abundance on the Internet - these are a variety of sites. Beauty salons and fitness rooms work according to a similar logic. Some concepts assume that the franchise buyer is only looking for a client, and the services are provided almost entirely by the head office. This scheme is common among medical enterprises, especially laboratories. The entrepreneur opens a service point where he receives biological material from the client, sends it to the research area of ​​the head office, and then transfers the received data to the client.

Terminology and differences

It is not always possible to immediately figure out whether a franchise belongs to the product or service category. Much depends on the specifics of a particular zone and on the rules that the head office introduces for cooperation. Many build franchising using a mixed interaction model. A classic example is McDonald's fast food restaurants. By purchasing a franchise, an entrepreneur gets not only access to the brand, but also to the processes taking place within the company. Semi-finished products are supplied for dishes, the head office trains staff, provides unique technologies on the manufacture of the product and offers a number of other specific advantages. The partner who has acquired the franchise must be involved in maintaining the image, attracting buyers, selling goods, and servicing the client directly sitting at the table. In fact, we are talking about both product and service cooperation.

However, the concept in question is much broader than it seems at first glance. There is also a conditional and unconditional franchise. This terminology is not even used in building your own business, but in the insurance field. A certain scheme for paying compensation in the event of an insured event is assumed. The gratuitous payment is paid under the contract in a set amount, and the conditional one depends on the specifics of the situation that occurred.

Classification: why is it needed?

The described division of the franchise system into several groups makes it easier for a potential businessman to master this area mutually beneficial relationships between companies. Assumptions of franchising in the modern market great amount, and the pitfalls and features of a particular transaction are not always visible at first glance. On the other hand, only right choice may be collateral successful management business. This means that you need to carefully study both the franchise classification system and determine which option is optimal in a particular case.

It is important to remember that business concepts for different franchise classes are quite different in nature. At the same time, the idea is the same for everything - there is a certain head office whose brand should be promoted, and there is a novice entrepreneur who is not ready to create a business from scratch. In exchange for financial benefits, he is given all the opportunities to create a business under an already well-known name, that is, one that exactly matches the wishes and requirements of clients. When accessing intellectual property through a franchise, it is important to evaluate how valuable the information is and whether it is worth working with. Often, franchising offers look very attractive, but in practice they are much less profitable than advertised. The quality of the initial concept determines the success of a businessman.

On Russian market There is also the following division of relations in the field of franchising:

• sales;
• service;
• production

Service and franchise

Having decided to enter such a business, the entrepreneur receives from the franchise seller the entire necessary information for the selected area. This is often how real estate agencies are opened, with the head office running common base, one for several regions, and individual offices receive unlimited access to it for an agreed amount. The main task is to find a client and keep the information in the database up to date.

Franchising is quite widespread in the field of car rental and the provision of cleaning, loading, unloading, and moving services. The ability to use the head office is combined with access to a well-promoted brand, which makes getting into the business simple and straightforward.

Production and franchise

For a certain amount specified in the contract, the entrepreneur receives from the head office all the equipment, personnel and capabilities for setting up his own production process. Instructions for using the machines and training personnel are included. The head office conducts trainings, thanks to which a novice entrepreneur can immediately create high-quality products that meet current standards and customer expectations.

For the head office, this type of franchise is one of the most convenient. The company is only engaged in providing information and machines, but the work itself falls entirely on the one who purchases the franchise. At minimum costs and investments there is an opportunity to maximize profits.

Sales and franchise

In this type of cooperation, the head office takes on numerous functions - it provides the entrepreneur joining the network with the necessary equipment, often personnel and retail space, and also produces all the necessary goods himself. The task of an entrepreneur who has acquired a franchise is to find a client and sell the product, serving the buyer at the highest level. This option is more difficult for the franchisee, but easier for those who are just starting their first business.

Where to start?

When choosing optimal franchise It is important for yourself to analyze several factors. First of all, you need to understand how much money a novice entrepreneur is willing to invest in the business, and also figure out which of the work schemes described above is most suitable. Currently, on the virtual web there are many directories of enterprises from which you can buy a franchise. Knowing the area in which a potential franchise buyer is best oriented, and also imagining under what conditions it will be more convenient to work, you can choose the best option for myself.

Most often, franchising opens stores selling clothing, shoes, as well as ice cream shops, grocery stores and pastry shops. And yet, it’s worth trying yourself in what you’re passionate about, even if it’s a non-classical area for franchising. It is important to assess the level of competition, as well as the availability of suitable space in your city. If a business is started in a small town where there are already representatives, for example, of fast food restaurants, a similar outlet is unlikely to lead to success. Please note: some enterprises set restrictions (for example, no more than one point of sale, store, restaurant per locality).

Opening your own business with the help of a franchise is much easier than doing it yourself. We’ll figure out how to do everything right and what you need to do in our article.

Nowadays, the concept of a franchise is quickly and reasonably gaining popularity. Starting your own business by purchasing a franchise gives a significant breakthrough, with the help of which business can go up very quickly. But for many beginning entrepreneurs this word is still completely incomprehensible, so let’s take a closer look at its meaning, advantages and disadvantages.

What is a franchise in business?

A franchise is the right to open your own business under the auspices of a well-known trading company, subject to the preservation of technology and order. Of course, such a right is paid, and you need to purchase it before using it.

This method of promotion is the most effective, and according to statistics, it can reduce the promotion process by as much as 5 years! At the same time, the owner receives additional advertising, and as a result, additional attraction of customers with the help of famous brand.

Unfortunately, according to experts, half of the companies that have just appeared cannot withstand competition with business sharks and are liquidated on their own within the first 2 years. Using a franchise significantly reduces this percentage because you don't have to start all over again. You already have a well-known name with a positive reputation, which in itself will attract a certain client base.

In essence, a franchise in business is an existing working scheme that is guaranteed to bring profit. By purchasing it, you will undoubtedly begin to receive your first profit at the initial stage.

There are the following main types of franchises that generate maximum income:

In fact, this list is much wider; we have listed only the most profitable options in our opinion, subject to a minimum starting capital. If you do not have enough money to purchase a franchise at once, there is the possibility of lending and paying its cost in installments.

How is the franchise paid?

There are two main ways in which you can pay for the purchase of a franchise to open your own business: lump sum and royalty.

A lump sum payment is a one-time transfer of money to the account of the franchise owner, which occurs at the time of signing the contract. This method is most often used by small companies and corporations that have no desire to control your income and the development of your business. When signing the contract, the company must transfer to you the rights to use the company name, its operating methods and technology.

Royalty is a periodic payment for services for the use of a franchise. This payment method is often used by large corporations or companies.

The positive aspects of working under a franchise

Like any other type of activity, a franchise has its weaknesses and strengths. Only by studying them will you be able to make a truly thoughtful and informed decision.

Franchise benefits:

• Using a famous name. You don't need to waste time promoting your own name. Under the contract, you get a name that everyone already knows and has proven itself well.
• Quick material profit. You will receive excellent income on the first day of operation of the establishment.
• New knowledge and support in doing business. You don't have to lose a large number of time to learn all the basics and details of the matter. Often the franchisor himself is interested in the speedy development of your business. Therefore, courses and training programs are often created in order to quickly introduce you to the essence of the matter and make your business as profitable as possible. In addition, in any difficult situation, you can seek the help of lawyers or consultants.
• Promotion and advertising costs are minimal. You will likely be provided with recommendations for promotions.
• The risk that the business will fail is minimal. Of course, it exists, but when using a franchise, all conditions are created for a young businessman so that he can start earning money from the first day of work.

Disadvantages of working under a franchise

Despite such an extensive list positive aspects, the franchise also has negative ones. These include:

• Clear coordination of actions. After signing the documents, your actions must fully comply with the rules of activity and corporate ethics of the company with which the contract is concluded. There is practically no room for maneuver and manifestation of one’s own ambitions or character.
• According to the terms of the agreement, you can purchase equipment and consumables that you need for your work only from your business partner, without having the right to choose.
• Psychological pressure from the franchisor. Most often, documents are drawn up in such a way that the brand owner receives maximum profit, and you worked all day long. But this is only necessary for the business to develop as quickly as possible and begin to generate maximum profit.
• The high cost of some franchises. But here you are free to choose what you can afford.

As you can see for yourself, there are many more positive aspects than negative ones. And if you think about it, some disadvantages can also be translated into the category of advantages.

To, study our material with the calculations for the business plan given in it.

How can a beginner choose and start a franchise business?

In our country there are many young people with great ambitions, desires and opportunities to open their own business based on a franchise. But there are also a large number of pitfalls that you will encounter along the way. To avoid unpleasant situations, we recommend listening to the following advice:

• Read the contract carefully from beginning to end several times. Remember, the most interesting moments are written in small print. Do not hesitate to ask questions on any points that you do not understand.
• Before concluding an agreement, try to find as much information as possible about the franchisor.
• Remember, if a partner is really interested in working with you, he will not hide his level of earnings, plans, connections and subsidiaries who are already working under his leadership.
• The contract may describe things that are absolutely strange at first glance. For example, the cashier must make a certain gesture before serving the client, or tables must be wiped in a strictly defined order.
• Be prepared that all terms of the contract will be regularly checked, and non-compliance will be punished with a fine.

The number of franchise companies in our country has doubled over the past few years alone, this clearly indicates that there is still a significant benefit from this process.

After signing the documents, you will be provided with a clear sequence of actions, which you must strictly adhere to.

As for choosing a business direction, there are several aspects to consider:

• The amount of finance that you can invest in your own business at the initial stage.
• Relevance of the destination in your city. You must sensibly assess the profitability of the business. For example, if a small town already has more than 5 fast food establishments, then most likely opening a sixth one will not bring the expected profit.
• Take into account own desires. You will most likely devote a lot of time to this business for many years, and perhaps for the rest of your life, so choose a business that you like.

What investments are needed to open such a business?

It is very important at the initial stage, when the idea of ​​opening your own franchise business has just arisen, to calculate its approximate cost until you begin to receive your first profit.

Remember, investments are needed not only to purchase a franchise, but also for:

• Equipment that will be used in the production of a product or in serving people.
• Preparation of regulatory documentation.
• Purchasing or renting premises. Repairs may need to be made.
• First purchase of products or materials.
• Salary to employees.
• Promotion and implementation of various advertising campaigns.

Often, after making such calculations, people realize that they cannot run such a business themselves, then they begin to look for partners.

And don’t forget that you must have a reserve of money or additional income that will allow you and your family to live until the moment when the business starts making money.

Drawing a conclusion from everything written above, we can confidently say that opening your own franchise business is not at all difficult. At the same time, this will give you a great impetus to start working and get your first income. There are certain risks of going broke, but their percentage is significantly lower than for those who open their own business on their own, without outside help.

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What is a franchise in business: definitions of the concept + description of the objects of the franchising package + what is included in its cost + 7 types of franchises + pros and cons of franchising.

The process of building your own business, which will become successful and famous, is similar to conquering Everest. Concept creation, search for premises and personnel, marketing activities, financial calculations and forecasting - and this is only a small part of what remains to be done.

You can go the other way - buy ready business. But in this case, you need to have good knowledge in the field of entrepreneurship and economics. Otherwise, there is a high risk of becoming the owner of an unprofitable business, which, at best, can be kept afloat.

And there is a third option - to work according to a franchising scheme. In this article we will similarly discuss the question of what a franchise in business is, what it includes, and what advantages and disadvantages it carries.

Basic concepts of what a franchise is in business

1. Franchising and franchising: is there a difference?

Those who even understand how a franchise works in business have probably heard of franchising. And this is not surprising, because these two terms are closely interrelated, or rather, one is part of the second.

Franchising is a form of entrepreneurial activity / model or scheme of doing business in which one corporation (company) transfers on a paid basis the right to another to use a trademark (brand) along with developed technologies and principles of production, trade or provision of services.

The franchising parties have their own names:

• the company that owns the trademark franchisor (franchisor);
• an entrepreneur who joins a trademark on paid terms - franchisee (franchisee).

Let's look at the concept using an example, from which we will find out in business.

There is a company called “N”, which owns a chain of popular coffee shops and operates under a franchising system, and there is also an entrepreneur:

• who wants to start his own business,
• having start-up capital;
• little knowledgeable about business issues, but willing to work hard.

And both sides are interested in each other. Franchisor:

• expands and scales its business and market influence;
• receives cash after the sale of the franchise;

Franchisee:

• on a paid basis receives “instructions” for action and the opportunity to work under the auspices of an already well-known chain of coffee shops;
• saves your time on studying and building a case.

After concluding an agreement, the franchisee becomes a full-fledged owner of the franchise, opens his cherished coffee shop and operates under the name of an already promoted and well-known chain of establishments.

2. Definition of what a franchise is in business.

And from the example described above, it becomes clear what a franchise is in business:

• it is an acquired right to operate under the name of a particular brand;
• a franchise agreement under which the franchisee has the right to operate under the name of a well-known brand, following a certain business pattern;
• a complex of benefits, resources, technologies and privileges that the franchisee receives.

Each cooperation agreement is individual, and the owners large companies put forward their requirements not only for franchise buyers, but also for how they will conduct business. For example, this is a uniform design and style of the premises, uniforms for employees, work regulations, a clear list of services or goods.

3. Franchise properties.

By purchasing a franchise, the franchisee, within the framework of the agreement, can receive:

Brand book

This is a complete guide to doing business, which includes: the use of a trademark (logo, slogan), rules for choosing and designing a premises, as well as its compliance with company standards, requirements for employee uniforms, packaging of goods or regulations for the provision of services.

Note: a brand book is the embodiment of the ideology of a business and its strategy. Location, room design, range or list of services, strictly regulated manufacturing process- all this determines the uniqueness and recognition of the brand.

Adapted business plan


The locality, the purchasing power of the population, the number of competitors, demand - all this determines the components of the business plan, and also affects the forecast of profitability and profitability indicators.

• Support at the stage of starting a business

  This includes assistance in finding and assessing premises, recruiting and training staff, and registering a business.

  Technologies

  Here we are talking about developed know-how, production equipment standards, ready-made instructions work.

  Often, a franchise network already has its own official website and an established PR strategy.

  This may include a dedicated web page, support of an advertising campaign, and provision of all necessary information resources.

Regular visits, consultations, assistance in preparing financial and financial statements, legal support, exchange of experience and provision of improved technologies, replenishment of the product range - all this can also be included in the franchising package. But again, its fullness will directly depend on the company that sells the franchise in the business.

4. Related concepts or how much does it cost to buy a franchise?

Since it is often new entrepreneurs who are interested in the question of what it is, they certainly become interested in what is required of them.

The diagram below clearly demonstrates the relationship between the parties - the franchisor and the franchisee.

And in addition to compliance with the requirements for the business being opened, and sometimes for the entrepreneur himself, financial conditions are also put forward on which partnership relations will be built.

So, in due time, the franchisor will invest a lot of resources and time in building not only a working, but also successful model business, then he will not share it just like that.

Basic financial receipts, which the franchise seller receives:

• Lump sum payment- This is a one-time payment for purchasing a franchise. That is, the franchisee pays for the right to use the trademark and all its components strictly according to the contract. If the contract provides for an extension, the payment will be collected again.

  There is no single formula for calculating this payment, since its size is influenced by many factors. But the franchisor himself includes in it the cost of resources that he will spend on support in opening and maintaining a franchise business.

• Royalties are regular payments that are transferred to the franchisor during the entire term of the agreement (monthly, quarterly). This could be a percentage of the sale or a fixed amount.

  It is this contribution that “feeds” the franchisor. The funds received are spent on developing the network, improving technology, and generating profits.

• Marketing fee- payments that cover the franchisor’s expenses for conducting an active advertising campaign and promotions. These fees are not present for all companies, and most often they do not apply to those franchisees who independently engage in their own promotion.

An important point that many people overlook is the availability of start-up capital to open a business. That is, in addition to paying the lump sum contribution, he must invest in the business.

Again, everything here depends on the specifics and scale of the case. Some companies require franchisees to cover 100% of the cost of opening a business, which means they have to pay for it themselves rent, make repairs, purchase equipment, and so on. Others are ready to reimburse part of the costs.

Types of franchise

It’s not enough to know what a franchise is in business; you also need to understand what types it comes in:

Pros and cons of a franchise in business for both parties

Anyone who is interested in what a franchise is in business probably wants to know:

• Why would a franchisor sell the rights to a business?
• Why would a franchisor work with people who know little about business and finance?
• What benefits does the franchisee receive?
• What pitfalls await the franchise buyer?

1) Advantages and disadvantages of a franchise in business for the franchisor.

After business indicators show positive dynamics, an ambitious entrepreneur thinks about expanding his “brainchild.” This can be done by investing in network development or creating a franchise.

But is there any point in sharing your knowledge and technologies, which took a lot of time and money to collect? Yes, and this is beneficial for several reasons:

Network development and entry into new markets

This requires a lot of money and time, especially if there is a desire to conquer not only the regional, but also the national market.

And this can be done with a relatively small participation of personal capital by selling a franchise.

Getting additional income

The developed instructions and personal secrets of doing business are not distributed to everyone, they are sold for money. The same goes for the regular costs associated with supporting franchisees, because they pay for that too.

Great returns from franchised outlets


The franchisee is more interested in obtaining a positive result and maintaining the image of the business than the hired manager of a branch, since the first one invests his funds and wants to learn, and the second one works for a salary.

High speed of increasing brand awareness

It is quite difficult and expensive to quickly open several production or retail outlets. And this is one of the factors that affects the popularity of the brand and its recognition in several regions.

And in this matter, franchisees are very helpful, as they open businesses in their cities, thereby informing consumers about the product.

But there are also disadvantages and risks that the franchisor may face:

Lack of privacy

When selling a franchise, the franchisor transfers to the buyer not only the rights to use the brand, but also all developments, technologies and know-how. This will increase the risk of information leakage.

Loss of income

The franchisor receives only a certain percentage of gross income franchisee business. This figure is significantly less than if the company personally opened a branch or representative office.

The need to unify accounting and reporting programs


The franchisor must develop unified system accounting and reporting, which entails certain difficulties and additional costs. In addition, there is a high probability that franchisees may distort the data in their favor.

Difficulty in controlling franchisees

This is especially true for representative offices that are located far from the main office or abroad.

Traveling long distances to carry out inspections or hiring authorized persons who will be responsible for a certain network area entails additional costs.

Preparing Potential Competitors

The practice of purchasing a franchise for training and gaining experience is quite common. So, many, having studied the kitchen from the inside and saved up money, go on a free voyage, thereby making good competition.

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2) Benefits and pitfalls of franchising in business for franchisees.

What does a future entrepreneur get if he decides to invest personal savings in business:

What disadvantages may a franchise buyer encounter:

Additional costs for opening and operating a business

Here we are talking about a lump sum contribution and monthly deductions. When deciding to run a business on your own, you do not need to “share” your profits and savings with anyone.

Work strictly within the franchise network

Expanding the range, developing a new design, carrying out promotions - all this either requires approval from the head office or is completely impossible.

P.S. This does not apply to those companies that provide freedom of action.

Conclusion of a contract for a certain period

The option of “trying” the business and leaving if something happens will not work. The franchisee must work until the end of the contract term or pay a huge fine.

Those who know what a franchise is in business have a certain advantage, because if they wish, they can work under the auspices of a famous brand. In addition to support, training and gaining invaluable experience, there is an opportunity to do what you love and gain financial independence even with a minimum of knowledge in the field of entrepreneurship.

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