Franchising is a form of cooperation when a well-known brand offers a novice entrepreneur to acquire the right to use his name. The subject of the sale is not only the name (trademark), but also technology, equipment, a package of documents, a marketing strategy. Together, they make up a full-fledged business model, which the entrepreneur has the right to use immediately after the purchase.

Important! The franchisor (selling side) transfers to the franchisee (buying side) technologies that allow putting the business on the rails as quickly as possible. The proposed business model is called a franchise.

Franchising Principles

Experienced businessmen know that starting a business from scratch is extremely difficult. Even with an idea, budget, and advertising, selling a “no story” thing is much harder than a Gucci scarf and Versace glasses. It takes years to promote a business; the first months have to make financial injections without the hope of getting a return. But you have to live on something and feed your family. And then franchising comes to the aid of a novice businessman.

It is interesting! The word Franchise appeared originally in French, but it was the inhabitants of English-speaking countries who invested in it the economic meaning that it has today. Therefore, the English pronunciation of the word was fixed.

Visiting the Burger club restaurant, putting on Sali shoes, buying a can of Coca-cola, a person does not suspect that he is the subject of franchising. The first franchisor is considered the famous Isaac Singer. Transferring the rights to sell and repair his sewing machines to other businessmen, he distributed the prototype of modern franchising throughout the United States.

What are the differences between franchise and franchising

Pros and Cons of Franchising

The secret to the popularity of this type of entrepreneurship is simple: it is beneficial for both parties. The franchisor benefits from acquiring reliable business partners, controlling his own brand and earning additional income. The benefit of the franchisee is based on obtaining clear and understandable instructions on starting a business and guarantees that the goods will be bought and the money spent will be returned.

Disadvantages of the system:

1. the franchisee’s dependence on the franchisor - in case of dishonesty of the latter, the entrepreneur will spend money and will not receive the expected effect in return
2. inequality of the transaction - although the nuances of cooperation are agreed upon by both parties together, experienced lawyers of the selling party insert items into the contract that provide them with benefits in any situation.
3. the complexity of conducting civilized franchising in Russian conditions - an imbalance between the standard of living in large cities and regions can lead to the fact that the idea, which went off with a bang in Moscow, will not cause any enthusiasm in Saratov or the Far East.

An additional risk of franchising “in Russian” is minimal participation in the transaction by the state. In Western countries, franchisees receive benefits from banks and government guarantees; franchising work gives them benefits. In Russia, this is a business at your own peril and risk; banks refuse soft loans, the success of a business depends on the enterprise and efforts of the franchisee, honesty and shyness of the franchisor.

Cons of the system lead to the following question: how to minimize the risk of losing money, find a good franchisor, and buy a profitable franchise.

How to correctly draw up a franchising agreement

Acquiring rights from famous brands is a win-win option, which means super-profit and minimal risk. But the starting capital for the purchase of such a franchise is measured in millions of rubles. This option is not affordable for a novice businessman - he is looking for a franchisor with loyal conditions for beginners. Unscrupulous companies that seek to sell air under the guise of a franchise take advantage of this.

What to look for when drafting a contract

1. The subjects of the contract can only be legal entities.
2. It is useful to ask Rospatent whether the franchisor legally owns what it sells and ask for the relevant documents.
3. As in any agreement, the rights and obligations of the parties, the amount of the lump-sum (initial) contribution and the percentage of deductions from profit (if any) should be clearly and unequivocally defined.
4. Be sure to indicate the amount of rights transferred: what exactly the buyer pays for. It is important to stipulate the time of using someone else’s trademark and the issue of competitors on their territory.
5. It is advisable to provide for the actions of the parties in case of termination of the contract. Beginning businessmen often neglect this point - and make a mistake. A true merchant must foresee everything.

Important! The general rule is that all future cooperation issues are clarified in advance and documented.

How to choose the best franchise

Although there is no official gradation, franchisors are divided into those who are interested in their reputation and close cooperation, and those who want to sell more franchises and wash their hands. The first - put forward detailed conditions and present a list of restrictions. The fact that the owner of the brand does not care how things go with the wards is a plus. But strict control is sometimes not to the liking of a free businessman. If the terms of the contract are not fulfilled, the franchisor will terminate the relationship and will not refund the money.

But franchisors of the first category provide novice entrepreneurs with really working tools. Following their instructions step by step, even an inexperienced franchisee will fix the matter and get a legitimate (and most importantly - quick) profit. Such patrons not only give general recommendations - they offer help with equipment, materials, train, tell all the subtleties of the chosen direction literally on the fingers. They are interested in the success of the subsidiary and the latest profit.

Franchising is a system of mutually beneficial partnerships arising between the seller and the buyer of the franchise (French franchise - privilege, privilege, approx. The right to use the brand and business model). The franchisor (seller), in simple words, is a company with a recognizable brand, extensive experience in doing business, a positive reputation, and a broad client base. A franchisee (buyer), in turn, is a company or private entrepreneur who has bought the right to work under a foreign brand. The partnership is based on the provision of a license to use a trademark, management system, business technology with mutual obligations and benefits for its maintenance. It is important to note that a non-launched, non-existent business model cannot be developed using such a system.

The history of franchising in the world

The features of this business system were also evident in the Middle Ages, but in the format familiar to us, it began its history in the United States in the 1950s. Even at that time, Baskin Robbins, Zinger companies noticed the following trend: the larger the number of enterprises, the more difficult it is to manage them, maintain a high level of product quality and sales. To solve the problem, the following idea was put forward: to provide their brand to other entrepreneurs, so that they develop their business under the flagship of the company, while paying the corresponding payments for using the brand.

The history of franchising in Russia

In the 80-90s of the last century, well-known foreign networks entered the Russian market - PepsiCo, Kodak, Subway and others, which laid the foundation for franchising in the country. The relay was intercepted by national brands - for example, 1C, Sportmaster, Teremok. Today in Russia there are a large number of such partnerships in various fields. Such cooperation in the country is regulated by a commercial concession agreement (an agreement concluded in writing between the buyer of the right to use the brand and its owner).

How franchising works: obligations of the parties

Types of Franchising

Despite the fact that there are many different classifications, let us focus on the main types of franchising. Classic - the most common type, which includes royalties and lump-sum payments to the brand owner, his tight control over the activities of the running point. In a turnkey business, a company creates an enterprise on its own, then handing it over to a partner’s management on the basis of a percentage of revenue. Master franchise involves the development of a brand in a certain territory by an entrepreneur individually. He, in turn, can independently attract new partners to the development of a trademark in a given area. The system in the “second generation” is called sub-franchising.

Pros and Cons of Franchising

Is franchising profitable?

This type of business reduces the risk of an unsuccessful start-up at times. Let’s analyze it: if an entrepreneur starts his own business, he faces a lot of obstacles. He needs to choose the right project format, create a brand, develop a strategy, take care of the official design ... And these are just some of the issues that an entrepreneur must solve. It is not known how much time and money needs to be spent to achieve success in the market. Accordingly, the project may not meet expectations at all (and this is with all efforts!) And fall a victim of fierce competition. Franchising is designed to eliminate such errors. The company went through a thorny path, having understood all the intricacies of the market and enterprises in particular, having earned popularity among customers. She transfers all her best practices to her partner, helps with doing business. Therefore, yes, franchising is beneficial both for the investor (receives a successful business model with “built-in updates”) and for the brand owner (receives a lump-sum payment and royalties).

You will learn what a franchise is, what types of franchises are, and what are the main pros and cons of starting a franchise business

Hello dear friends! In touch Alexander Berezhnov, entrepreneur and founder of the site HeaderBober.ru

Today we will talk about such a thing as a franchise.

Recently, the direction of franchising is gaining immense popularity, and in my opinion, completely justified.

Starting your business with the purchase of a ready-made franchise gives the novice entrepreneur ample opportunities. But this method is fraught with some dangers.

All this will be discussed in today's article.

1. What is a franchise - give a definition

The classic wording is as follows.

Franchise  - This is a set of benefits that allows businesses and individuals to use the brand, copyright, and the franchisor’s business model.

There is another definition of franchise, I formulated it myself. It is more applicable to building a business as a whole.

Franchise  - This is a paid right to open a business under the auspices of a well-known trademark (brand), using its rules, technologies, and the way of doing business.

This term can be described in different ways. In my definition, I conveyed the term “franchise” in simple words. Let's look at how such a model works in practice.

In a general sense, franchising is “ rent » trademark  or commercial designation  . The use of a franchise is governed by an agreement between the franchisor (the one who provides the franchise) and the franchisee (the one who receives it). The content of the contract can vary from simple to very complex, containing the smallest details of the use of a trademark. As a rule, the contract regulates the amount of deductions for using the franchise (it can be fixed, one-time for a certain period, which is a percentage of sales). There may not be a requirement for deductions, but in this case the franchisee agrees to buy a certain amount of goods / work / services from the franchisor.

A separate clause of the contracts may be the terms of use of the trademark / brand. These requirements can be either very simple (for example, the franchisee has the right to use the brand in a particular industry) or stringent (for example, the franchisee agrees to use the equipment in the store in strict accordance with the requirements of the franchisor - from the size and color of the shelves to the uniform of the staff).

• the franchisor receives deductions for the use of its trademark ;
• the franchisee pays an initial fee for the right to become part of the system;
• the franchisor provides the franchisee with a business system.

Franchising History

The prototype of the modern franchising system is considered to be the sales and service system. sewing machines Singer  . The founder of the world famous company “Singer Sewing machine company” Isaac Singer became the founder of modern franchising. Starting in 1851, Singer's firm concluded with distributors  the goods a written contract for the transfer of the franchise, the contract transferred the right to sell and repair sewing machines in a certain territory U.S.A.

At the time of the organization of the world's first full-fledged franchise system firm Singer  ensured mass production of sewing machines to maintain the most competitive prices  but at the same time did not have an established system service  , which would allow organizing maintenance and repair of machines throughout USA  . In this regard, a franchise was created system  , which granted financially independent firms exclusive rights to sell and service sewing machines in a certain territory. These first franchises, in essence, were operational distribution  agreements with additional responsibilities of the franchise ( dealer) serve the machine.

Modern franchising experienced a real boom in when the company “ General motors  »Began to apply franchising dealership.

Classic merchandise franchising distributing in the franchisor - franchisor system goods  , and services  began to change only in the 50s of the last century.

In Russia, franchising begins to gain wide distribution only in recent years. In particular, a large part of the food chain operates under the franchise scheme. discount stores « Pyaterochka  ", Part of the communication salons of the company" Euroset  ", Electronic reference card" 2 GIS  », Company 1C.

Franchising in Russian Law: Commercial Concession Agreement

In Russian law, franchising relations are regulated commercial concession agreement.

Under a commercial concession agreement, one party (copyright holder) is obliged to provide the other party (user) for a fee for a period of time or without specifying a period of time, the right to use in a user's entrepreneurial activity a complex of exclusive rights belonging to the copyright holder, including the right to trademark  , a service mark, as well as rights to other objects of exclusive rights stipulated by the contract, in particular to commercial designation , know how (know-how).

The commercial concession agreement provides for the use of a set of exclusive rights, business reputation and commercial experience of the copyright holder in a certain amount (in particular, with the establishment of a minimum and (or) maximum volume of use), with or without an indication of the territory of use in relation to a certain area of \u200b\u200bentrepreneurial activity (sale of goods received from the copyright holder or made by the user, the implementation of other trading activities, performance of work, rendering of services g).

Parties to a commercial concession agreement may be commercial organizations and citizens registered as individual entrepreneurs.

Franchising Benefits

Benefits for the Franchisor

For the franchisor, the franchise’s priority benefit is that it receives, albeit a small, but guaranteed, stable sales volume of its products, since franchisees are obliged to buy from it consignments of goods, consumables or other products / services specified in the agreement. If the income is stable, then it can be successfully planned for the future, which means that new directions can be developed.
  With all this, the franchisor is not burdened with difficulties associated with a number of expenses that ordinary players have - training and staffing, quality control, etc. In addition, the development of the franchise network is an excellent brand advertising that does not require special financial investments.

Benefits for Franchisees

Using a proven business system

Before offering his franchise in the market, the franchisor must “bring to mind” his business system, work out all the business processes and prove the effectiveness of his business. Moreover, the franchisor for effective development  The franchise network must have a flagship enterprise, on the basis of which the business is cloned. Therefore, by acquiring a franchise, businessman  acquires already proven and tested business model  which has proved its efficiency.

The ability to open your own business

Despite the fact that the franchisor has a certain degree of control over the franchisee, which is mainly aimed at improving the effectiveness of partners by identifying possible problems of partner enterprises at the stage of their inception, the franchisee maintains economic and legal independence.

Industry Choice

Potential franchisees have the opportunity to familiarize themselves with business franchisor to the stage of investing own funds. This can be done on the basis of open information - the commercial offer of the franchisor and its existing enterprises, both own and partner.

Ability to reduce risks

Opening Affiliate company  , with a well-developed franchise program, the franchisee becomes part of the “family”, that is, unlike the opening of an independent enterprise, the franchisor does not leave partners face to face with many problems and the risks  starting a business.

Successful market entry

One of the main requirements for a franchise business is the demand provided by the franchisor company of goods  or of services  . Therefore, buying a successful business idea and starting its activities under an already well-known brand, the franchisee already has a circle of customers loyal to the brand by the start of the opening of its enterprise.

Minimum advertising and marketing costs

Due to the fact that the franchisee begins to operate as part of a well-known network, its initial costs advertising  come down to providing advertising for the opening of a franchised enterprise in the local market. The same is the case with current advertising, which is aimed at the "promotion" of the franchise network in this particular region.

Accessing the Franchisor Knowledge Base

The franchisor, providing partners with its business system, transfers not only a debugged mechanism, but also “instructions” for its effective use. The franchisor teaches its partners how to effectively build a business, taking into account all its specific features.

Guaranteed Supply Chain

Since franchising, as a rule, is a priority for companies, and partners - franchisees - have the best conditions, the franchisor seeks to provide this direction with the greatest the resources  , including the supply issues.

Disadvantages of Franchising

• Franchisees are forced to follow the rules and restrictions established by the franchisor, even if they do not bring the maximum benefit to the business.
• Franchisees are often required to purchase raw materials and products from suppliers designated by the franchisor, which may limit their access to the free market and force them to buy raw materials and products at overpriced prices.
• Franchisees may be subject to severe restrictions on exiting a business, including a ban on opening competing organizations for a specified period or in a specific territory.
• Franchisees rarely can influence the issues of centralized marketing and advertising, but at the same time they may be forced to pay for centralized marketing and advertising campaigns. Thus, their funds may not be used in their best interests.

Well-known franchisor companies

There are many companies that provide a turnkey business. It should be noted that the name “franchisor company” does not mean that the company offers all its capacities for franchising, it can have a certain number of objects in its “personal” ownership.

Notes

Sources

Growth strategy "

• Stephen Spinelli Jr., Robert M. Rosenberg, Sue Burley  Franchising \u003d Franchising: Pathway to Wealth Creation. - M.: "Williams", 2006. - S. 384. - ISBN 0-13-009717-9

see also

References