Starting your own business with a franchise is much easier than doing it yourself. How to do everything right and what must be done, we will figure it out in our article.

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

What is a business franchise?

A franchise is the right to open your own business under the auspices of a well-known trading company, with the condition that technologies and procedures are preserved. 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 allows you to reduce the promotion process by as much as 5 years! At the same time, the owner receives additional advertising, and as a result, additional customer attraction with the help of a well-known brand.

Unfortunately, according to experts, half of the companies that have just appeared cannot compete with business sharks and are liquidated on their own during the first 2 years. Using a franchise greatly reduces this percentage because you don't have to start all over from the beginning. You already have a well-established name with a positive reputation, which in itself will attract a certain customer base.

In fact, a franchise in business is a working scheme that is guaranteed to make a profit. By purchasing it, you will undoubtedly begin to receive the first profit already at the initial stage.

There are such main types of franchises that bring maximum income:

In fact, this list is much wider, we have listed only the most profitable options in our opinion, subject to a minimum start-up capital. If you do not have enough money to buy a franchise right away, 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 start your own business: a lump-sum fee and royalties.

A lump-sum fee 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 do not have the 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 name of the company, its methods of work and technology.

Royalty is a periodic payment for services for using a franchise. This payment method is more often used by large corporations or companies.

Advantages of franchising

Like any other type of activity, the franchise has its strengths and weaknesses. Only after studying them, you can make a really thoughtful and balanced decision.

Franchise Benefits:

• Using a well-known name. You do not need to waste time promoting your own name. Under the contract, you get a name that everyone already knows, which has proven itself well.
• Quick financial gain. You will receive excellent earnings on the very first day of the institution's operation.
• New knowledge and support in doing business. You do not need to spend a lot of time learning all the basics and little things. 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 dedicate 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.
• The cost of promotion and advertising is minimal. You will most likely be provided with recommendations for promotions.
• The risk that the case will burn out is minimal. Of course, there is one, but when using a franchise for a young businessman, all conditions are created for him to start earning from the first day of work.

Downsides of franchising

Despite such an extensive list of positives, 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 was concluded. There is practically no room for maneuver and manifestation of one's own ambitions or character.
• According to the terms of the contract, you can purchase equipment and supplies that you need to 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 gets the maximum profit, and you work for days on end. But this is only necessary so that the business develops as quickly as possible and begins to bring maximum profit.
• Expensiveness of some franchises. But here you are free to choose what you can afford.

As you can see for yourself, there are far more positives than negatives. And if you think about it, then some of the minuses can also be translated into the category of pluses.

To study our material with the calculations given in it according to the business plan.

How can a beginner choose and start a franchise business?

There are many young people in our country with great ambitions, desires and opportunities to start their own business based on a franchise. But there are a lot of pitfalls along the way. To avoid unpleasant situations, we recommend that you listen to these tips:

• Read the contract carefully from start to finish. Remember, the most interesting moments are written in small print. Feel free to ask questions about any points you don't understand.
• Before concluding a contract, 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 the level of earnings, plans, connections and subsidiaries that are already working under his leadership.
• The contract can describe things that are absolutely strange at first glance. For example, the cashier must necessarily make a certain gesture before serving the client, or the 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, which clearly shows that there is still a significant benefit from this process.

After signing the documents, you will be given a clear sequence of actions that you must strictly adhere to.

As for the choice of the direction of business, here you need to consider several aspects:

• The amount of money that you can invest in your own business at the initial stage.
• The relevance of the direction in your city. You have to soundly assess the profitability of the business. For example, if there are already more than 5 fast food establishments in a small town, then, most likely, opening the sixth one will not bring the expected profit.
• Consider your own desires. You are likely to devote a large amount of time to this business for many years, and perhaps for the rest of your life, so choose a business that suits you.

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, was just born, to calculate its approximate cost before you start making the first profit.

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

• Equipment that will be used in the production of a product or in the service of people.
• Registration of normative documentation.
• Acquisition of premises, or its removal. May need to be repaired.
• The first purchase of products or materials.
• Employee salaries.
• Promotion and implementation of various promotions.

Often, after making such calculations, people realize that they themselves will not be able to pull such a business, then they begin to look for partners.

Also, 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 begins to bring money.

Drawing a conclusion from everything written above, we can say with confidence that starting your own franchise business is not at all difficult. At the same time, it will give you a great boost to get started and earn your first income. There are certain risks of burnout, but their percentage is much lower than that of those who open their own business on their own, without outside help.

In contact with

Franchising is a system of business organization. In the process of franchising, one of the parties transfers to another company the rights to conduct business under its own brand using the established system.

This implies the sale of goods and services in a similar way under the name of a well-known brand, using its support mechanisms and marketing technologies. Companies operating under a franchise, in turn, undertake to comply with predetermined conditions.

Activities

Obtaining such rights involves the provision of a down payment or the initial purchase of goods sold by the enterprise, followed by the treatment of monthly installments or monthly purchases.

There are several types of franchise:

• Commodity;
• production;
• Service;
• conversion;
• Business format;
• Corporate.

All these franchises have their own characteristics that predetermine the format of doing business:

1. A commodity franchise involves the transfer of rights to sell the goods produced under its own brand with the implementation of subsequent after-sales service.
2. A production franchise allows you to obtain the right to use unique patented technologies with the obligatory purchase from this company of the raw materials necessary for the manufacture of unique products.
3. A service franchise involves the granting of rights to a certain company to provide services under the name of a well-known brand.
4. The business format of a franchise involves the transfer of rights to use a trademark, image, competitive advantages and other subtleties of doing business. In this case, full and versatile support of the company is provided.
5. In a conversion-type franchise, it is assumed that an already functioning enterprise is attached to a well-known brand, which is granted the right to use a trademark. Companies granting such rights gain control of the established enterprise and may not have to worry about opening a subsidiary.
6. To work under a corporate franchise means to develop a network of enterprises, hiring many managers, but only two persons appear in the contract.

Features of the regulation

Franchise companies must comply with strict regulations approved by federal law. The main provision that obliges to comply with this regulation is the law on trademark rights. These can only be commercial organizations, while private entrepreneurs also have the right to work under a franchise.

Along with this, there is a regulation of relations that defines the obligations of the company that grants the rights to use its own trademark and the company that receives such an advantage.

The regulations oblige a company that allows you to work with a franchise:

• Transfer know-how;
• Grant a license right to use your own trademark;
• To assist in the implementation of management and sales of products.

A company that wants to run a franchise business is required by the regulations to:

1. Guarantee quality control;
2. Pay the down payment with current payments;
3. Be an active participant in training courses;
4. Conduct business using the symbols and trademarks of the donor;
5. Strictly adhere to commercial standards;
6. Inform about emerging difficulties, leave feedback on planned improvements.

There is no need to think that working on such a system brings only pluses, there are also minuses here. The regulation does not always fully reflect information about the specifics of the business, but before starting an activity, it is necessary to weigh all the pros and cons.

Advantages and disadvantages

Consider the pros and cons of franchising activities, as well as the extent to which the regulations reflect the real picture of such work. Of the positive aspects, one can single out the minimization of risks and the preservation of legal independence at the same time.

The newly formed firm does not bear the costs associated with capital investments. By franchising, the organization immediately gets the opportunity to enjoy consumer loyalty, due to brand awareness. Provides access to innovative technologies, which means that you can start a business from a prepared launch pad.

Serious support is provided from experienced partners interested in progressive and positive development. The regulations take into account all these pluses in the stipulated clauses of the contract.

However, when working on a franchise, one should not forget about the disadvantages that the regulations naturally do not stipulate. If the advantages are always in sight, then the disadvantages, as a rule, are not advertised. In fact, the work is associated with many risks, primarily expressed in the immaturity of the economic model and the formalization of processes.

Firms that allow business under their own name may be inflexible in their work, which is expressed in the neglect of the opinion of junior partners. At any time, there is the possibility of a well-known brand refusing to continue cooperation. Also, internal contradictions often arise at these enterprises that adversely affect partners. There is no way to manage the growth of the network and there is a constant risk of reorganization or liquidation of the donor.

When working with a franchise, it is necessary to take into account not only the advantages, but also the real risks.

The contract is the head of everything

Having decided for myself: “I want to work according to such a system!” - Attention should be paid to the study of the proposed contract. It is worth considering that there is no legislative right to conclude it by e-mail or fax. It must be registered in the register of the Federal Institute of Industrial Property. All this allows us to work in certain regions of Russia under a well-known trademark, which is a huge advantage.

It is necessary to evaluate all the advantages, consider reviews of such work, and only then make a decision. Such work is profitable, but it is replete with undercurrents, which it is better to know about in advance. Carefully study the terms of the contract and the information provided about the proposed business scheme in order to avoid unexpected difficulties that may be encountered due to dishonest partners.

A franchise is one of the most effective forms of organizing a small business today.

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

The concept of a franchise

business franchise

According to statistics, a small business started by franchising is many times more successful and has opportunities for development than a small business starting 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 put their business 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 prominent examples of global companies that at one time gained fame through the provision of product and brand franchises are McDonald's, Coca-Cola, PepsiCo and many others.

Famous franchise brands

How a franchise works

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

These agreements provide franchisees the right to implement and promote their business activities on an already established basis(on behalf of the franchisor). At the same time, as a rule, the concluded agreements quite clearly define the term of the contract, the form of conducting their activities by small enterprises and a certain place for the implementation of this activity.

For the successful establishment of a subsidiary, franchisors give recommendations on the best organization of its activities: what equipment to use (under what conditions: purchase at better prices, rental, etc.), what qualities and professional skills the staff (employees) should have, can contribute 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 means a company created and regulated on the basis of franchising (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 start-up entrepreneurs, the benefit lies in the opportunity to put their business on the already acquired experience of a larger company. In turn, a larger organization (franchisor) has the opportunity to expand the market for its products, increase production capacity and turnover by opening new firms (branches) - franchises.

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

Pros and cons of such a business

When concluding franchise agreements, it is possible to determine both pluses for subsidiaries and some minuses.

As previously mentioned, the advantages include:

• support from a larger company in the information, raw materials sectors;
• the possibility of using its technological, design developments, experience in business organization and the possibility of obtaining additional financial investments in a developing company;
• for this kind of entrepreneurship, many banks provide the possibility of concessional lending;
• in addition, in the case of using a trademark of a large brand, a novice entrepreneur has the opportunity to save a significant amount on the absence of the need for marketing costs.

The disadvantages include:

• the impossibility of refusal to fulfill previously concluded agreements on any production stages, rules for the sale of goods or services of the franchisor;
• under some of the contracts, on an individual basis, additional costs for franchises may be included 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 an aspiring entrepreneur to decide on his franchise business idea, he needs to consider the following:

1. Rule 1. When choosing a field of activity for a future company, it is advisable to rely directly on your personal preferences for a particular area. As a rule, if the occupation is close to you in spirit, then it will be much easier to navigate the emerging difficulties of the company and methods for their elimination.
2. Rule 2. Before opening a franchise business, you need to decide on the territory that will be covered by the range of your service. This is a rather important stage, since it makes no sense and practically minimizes the profit of being in the same territory of two or more franchise firms with contractual obligations of the same franchisor.
   When negotiating the terms of the agreement with the parent company, it is best to provide for clauses that exclude the possibility of granting franchising to firms 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 partner firms of the parent company. This information, as a rule, does not belong to the public, however, 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 and the real risks of loss for your company.
4. Rule 4. If you have already finally decided on the choice of a franchisor and are ready to conclude an agreement, you need to pay special attention to the documentary basis of the agreements.

It should be borne in mind that franchising is a complex partnership 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 contract you sign.

Compliance with this recommendation will help you defend your case in case of disputes 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 its change, or else try to find a compromise implementation of 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 proposed, 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 directly the franchisor, you must take into account that in addition to the costs of a business franchise (and offers without start-up investments are very rare), a number of expenses will fall on your shoulders to ensure the life of your company.

Such expenses should include:

• the need to pay for the rent of the premises in which your company will be located (including payment for utilities: electricity, gas, water, services of household 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 extinguishers: 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, prospectuses, business cards);
• expenses for the salaries of employees, service personnel (including mandatory contributions for each employee to the pension fund, social insurance);
• taxes on company profits or payment of a single tax;
• payment for the services of state regulatory organizations;
• insurance payment;
• payment for the services of a cleaning company;
• payment of possible penalties in connection with the failure to fulfill any obligations to the franchise company;
• payment for the services of legal and notary organizations when concluding contracts;
• payment of the body, interest and possible penalties under loan agreements (in the event that bank funds taken on credit were attracted for the organization of the company).

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

Hello! From this article you will learn:

• What is a franchise in simple words;
• How to open a franchise business;
• Common types of franchises and how they work;
• Pros and cons of franchising.

And much more related to franchising in Russia.

What is a franchise

Aspiring entrepreneurs face difficulties and problems that can lead to the collapse of an idea. A good option is to cooperate on a franchise with a successful company. This type of business is most in demand in developed countries, where it accounts for 30% of all operating establishments in the service and trade sectors.

The term means a special kind of business relationship between an entrepreneur and a company that has successfully taken place and has a brand.

In simple words "franchise" is a long-term lease of a business project on the terms of the trademark owner.

A special agreement provides for a whole range of services that greatly facilitates the start and allows you to use:

• The name of the brand and attributes;
• General working style;
• Branded recipes or formulations;
• Technologies of work and service.

This system of doing business is rapidly developing in the domestic market of goods and services. If it takes more than one year to independently create a project and bring it to a stable result, franchise work can give a good profit in six months.

The difference between franchising and franchising

These two terms are actively used in the designation of such transactions.

An entrepreneur should understand the difference and correctly operate with them:

• Franchise denotes what is bought on a long-term lease (rights, prescriptions, equipment, etc.);
• Franchising– the process of acquiring a long-term lease.

The latter is a way of doing business, which involves the purchase of a brand or production technology, staff training and the creation of a branch of a well-known brand. The term "franchising package" is often used. It combines documentation, manuals and materials belonging to the company.

How does a franchise work

Before understanding what a franchise is and how it works, you need to get acquainted with the basic terms and names.

There are two parties involved in organizing a business project:

• Brand owner directly franchisor): sells a license, allowing you to work on your behalf under certain conditions;
• Buyer ( franchisee): uses the acquired potential in the working process, transferring a part of the income determined by the agreement to the franchisor.

Franchise is a fully prepared plan and model for running a business project, so the future entrepreneur does not need to spend time on organizational issues. Despite the cost, this option is beneficial for both parties. The new owner receives support and support, and starts working without a huge initial capital, leaving himself about 90% of the profit in the first month.

The brand receives a stable profit in the form of:

• Lump sum, which is paid once after the signing of the contract. This amount gives the right to open a business project under the sign of a famous brand. It includes all costs for launching, designing and equipping a new enterprise (rent, development of a marketing and advertising strategy, staff training);
• Royalty as a percentage of total turnover. In most cases, payment is made monthly to the franchisor's account and amounts to approximately 5-10% of the profit received. This is a kind of replacement for rent. In the commodity form of franchising, a royalty is a regular purchase of goods for a certain amount.

Royalties are the main source of income for many franchisors engaged in trading activities or providing services.

The contract specifies one of the payment options:

1. Percentage of product sales;
2. A fixed amount that is paid annually (or quarterly);
3. The trade margin on branded goods, the sale of which is carried out by the franchisee.

A low percentage of mandatory payments at the level of 10% is an acceptable amount even for a novice entrepreneur. The popularity of a trademark helps it to attract a large number of customers, recoup investments with minimal risk. Such a transaction is beneficial for a franchisor company not only by the return of stable profits without preliminary investments. It allows you to expand and advance in the market, to receive high incomes.

There are two main types of systems that are found on the market:

• Merchandise Franchising: chains of stores of various types are being created for the sale of industrial products or food products. The franchisor himself is often the supplier of these goods;
• Service Franchising: a network of training centers is developing, which train specialists for new branches, provide equipment and control.

Such types of work were chosen by the well-known companies McDonald's, Lukoil and Zara, the Perekrestok retail chain and the Beeline mobile operator. Economists identify at least 70 interesting areas where the franchise is relevant and in demand.

The first places in such a list are occupied by:

• Production of popular foods and drinks (snacks, chips or beer);
• Supermarkets of various types (food, building materials or gardening);
• Gyms and health centers, beauty or massage salons;
• Public catering (from fast food eateries to reputable restaurants);
• Pawnshops and organizations providing quick microloans;
• Sale of sports nutrition, oxygen cocktails;
• Construction and repair services;
• Departments of household appliances or decor stores;
• Representation of well-known online stores.

The most promising areas are those related to public services and the provision of various services. They show high sales turnover, so the franchisor will quickly and consistently receive decent royalties.

Types of franchises

There are several types of franchises that differ in terms of cooperation and interest rates for using the brand:

• free- the most popular option that gives great opportunities to the entrepreneur. It allows you to make innovations and features in project management. This type is characterized by affordable monthly interest, the ability to use a trademark, interesting free master classes and other privileges. It is more like a dealership than others.
• classical- provides for a standard approach in the form of a lump-sum contribution, compliance with all rules for the provision of services on behalf of the trademark, periodic activity reports to the main office. Clear conditions and strict limits distinguish foreign franchise companies.
• Business for rent- a franchise entrepreneur receives a business project for management for a certain period. During this period, all income is distributed in the agreed proportion.
• Golden- This is an option for experienced businessmen, which allows you to purchase from the franchisor the right to be the sole representative of his brand in the region. With a high cost of a lump-sum contribution, the entrepreneur receives broad rights and opportunities for project management. They even extend to the possibility of selling a franchise to other businessmen.
• Silver- the most convenient form of franchise. The company is completely turnkey, independently looking for a place to rent, personnel, and solves organizational issues. It is transferred to the franchisee on a monthly interest basis, and the company is removed from management.
• Corporate- the contract provides that almost all actions of an entrepreneur who has acquired a franchise are regulated and controlled by a well-known company. He plays more of a managerial role.
• Import-substituting view- involves the production of high-quality products, similar to branded ones, but under its own name. This makes it possible to preserve technology and originality while working with ready-made recipes or instructions.

The latter has recently appeared on the domestic market, but is actively promoted by foreign companies producing food, cosmetics and detergents.

Franchise cost

When choosing a franchise for many entrepreneurs, the main issue is cost. It directly depends on the fame and popularity of the trademark, the position of the company in the market of goods and services.

An important component is the list of services and equipment that will be available after making the first installment. The average franchise size ranges widely from $1,000 to $100,000.

The most loyal conditions for a lump sum are offered by supermarket chains, chains of small eateries or cafeterias. Given the economic hardship for SMEs, many have canceled the initial payment. This attracts potential franchisees on favorable terms.

The second important issue is regular royalty payments. Almost always, they are prescribed in the contract not in a fixed amount, but as a percentage of turnover or profit. Most fast food chains, grocery supermarkets are limited to 2-5%. Narrow companies or well-known brands may charge 10-12% for work under their own name.

Some entrepreneurs do not have the financial means to purchase a franchise package, but have organizational skills and a desire to develop their own business.

In this case, the exit will be a franchise without investments, which can be obtained in one of the difficult ways:

1. Find a network with a missing or formal lump-sum fee;
2. Submit an original business plan and try to get a small initial investment from the franchisor;
3. Look for interested third-party investors on favorable terms.

A common option is when the network provides franchises to its current employees on the most convenient terms. These are talented managers or heads of departments who have the opportunity and desire to become a co-owner of a new branch or outlet.

The benefits of franchising

The number of enterprises that are actively working under a foreign brand has exceeded 10,000 projects.

Each of them appreciated the obvious benefits of cooperation:

• Low risk. Entrepreneurs with little experience in financial affairs receive support and advice from the first minutes of work. Many franchisors accompany partners throughout the entire term of the contract, teach new techniques and technologies.
• recognizable brand name. It is easier for a novice businessman to settle in the market "under the wing" of a brand with a good recommendation. The product or service is already known to customers, is in demand and will quickly bring the first income.
• Saving time for project promotion. Most businesses take at least 2 years to build their own brand and get their money back. A franchise project can reach self-sufficiency in 5-6 months.
• Professional support. Large companies take the training of future franchisees seriously. For them, training programs and courses are held on the topic of production, doing business and customer service. Personnel who will work on the basis of franchising technology are trained free of charge. Most brands are ready to provide legal assistance at any stage and provide access to useful information.
• Minimum advertising spend. Companies with a recognizable trademark constantly run large advertising campaigns. Therefore, franchisees can limit themselves to low-cost advertising in local media and social networks at the level of their region.

The main advantage for a franchise company is the guaranteed sale of a certain volume of products. Brand owners can plan the pace of production and work, future costs and develop new products.

Franchise Disadvantages

Every trade has its downsides. There are also a number of shortcomings in the work on the franchising system, which the entrepreneur must remember before the final signing of the contract.

List of disadvantages:

• Strict framework. All actions and decisions of the franchisee are regulated by the cooperation agreement with the brand. He has no right to violate the technology of production or provision of services. Restrictions may relate to the design and location of the premises, its area and the number of staff.
• Inability to choose equipment or raw materials. In addition to monthly interest payments, the contract specifies the conditions and volumes of purchases of materials only from the franchisor. This limits in technical development and improvement.
• High price for profitable franchises. Many projects have a large lump-sum contribution and are beyond the means of talented entrepreneurs. The cost can exceed $50,000 with small regular payments. This is typical for foreign companies that invest heavily in advertising and development of their own technologies.
• Control by the franchisor. It is not always comfortable and easy for aspiring entrepreneurs to work under the close supervision of a brand. This includes regular reports in various forms. All options and terms are specified in the contract, so you should weigh the possibilities of such close cooperation. It is better to choose a more obscure project that will give freedom of action and bring pleasure from work.
• Limitations in self-expression. Strict technology compliance requirements may include certain promotions, pace of development and expansion. Buyers of a free type of franchise have a large selection of marketing tools. In this case, the company practically does not interfere with the principles of franchisee management.

Among other disadvantages that accompany the work, experienced managers highlight the fast pace of work. The company provides a clear regulated plan for the next 2-3 years, which does not allow you to relax or retreat. All products or services must strictly comply with the franchisor's regulations, and any violation leads to the revocation of the license and termination of cooperation.

How to buy a franchise - the main stages

After assessing all the risks and prospects, you can start looking for the best offer. Running a franchise business comes with certain responsibilities and restrictions. Therefore, a quick return on investment and the profitability of the project largely depend on the capabilities of the franchisor.

Important! You can find a franchise in our. It contains the most reliable franchisor companies that have long established themselves in the market!

The choice of a future partner should be considered carefully at each stage of the transaction:

1. Market analysis and selection of a promising direction activities. Each area has certain problems and shortcomings. Profitability depends on many factors, including the location of the office or outlet, the number and level of training of staff.
2. Search for the optimal franchise in catalogs and websites, careful study of each proposal.
3. Introduction to the franchise company, working conditions and requirements for applicants. Reputable brands are willing to make contact and are ready to provide maximum information.
4. Communication with established franchisees who can provide guidance, advice, or highlight controversial business issues.
5. Getting advice from a franchising specialist. It can be found in consulting or legal form. It will help to understand the contract, show hidden opportunities and "pitfalls" of the business project. The lawyer will study the proposed documents, check the correctness of registration of trademarks and licenses.
6. Assessment of own financial capabilities. In addition to the down payment, investments in the design and rental of premises, hiring staff, paperwork and seals may be required.

The final stage will be the conclusion of a franchise agreement with the selected partner, the signing of contracts and fruitful cooperation. Experienced franchisees strongly recommend that novice entrepreneurs consult with lawyers at all stages and analyze each step.

Requirements for a potential franchisee

The financial crisis has forced companies to reconsider their selection of candidates for cooperation. The main criterion is the financial capabilities of the franchisee. In addition to the lump-sum contribution, decent expenses will require rent and equipment of the premises, the purchase of the first batches of goods or raw materials.

Franchisors indicate the minimum starting amount that a potential candidate should have:

• McDonald's network - more than 1 million rubles;
• Clothing brand Zara - 1.2 million rubles;
• LLC "Burger King" - more than 2 million rubles;
• Coffee Woods coffee houses - from 200 thousand rubles.

When interviewing representatives of a franchise company, the following points are of interest:

• Experience in a managerial position, ability to lead a team and make decisions;
• Knowledge or skills in the chosen field of activity;
• Availability of space for production facilities, a restaurant or workshop;
• Psychological stability and the ability to work with limitations, under control.

The main problems for partners arise with a different approach to doing business and solving difficult situations. Therefore, foreign companies often conduct special testing and surveys. It helps to assess the potential and stress resistance, the ability to maintain the corporate spirit. Domestic companies give preference to work experience and financial stability.

Features and content of the franchise agreement

After choosing what to open under a franchise, the conclusion of an agreement is an important component that determines the norms and rules of cooperation between the parties. Therefore, do not neglect the advice of a lawyer, the study of each item.

A franchising agreement (commercial concession or license) must be concluded in writing. The validity period in this type of relationship is not a mandatory part of the document and can reach 50 years.

Franchise or commercial concession agreement signed between the franchisor and the franchisee. The first is indicated as the right holder transferring certain rights for use. The second party is a natural or legal person.

The subject of a commercial concession agreement may be: a company's trademark, production technologies or know-how. Be sure to specify the volume and terms of submission. The document details the method and amount of payment of the lump-sum contribution, as well as royalties. By agreement of the parties, these points can be indicated in percentages or in specific numerical terms.

Sometimes a subconcession clause is specified in the contract. It means that, under certain conditions, the franchisee can transfer the rights to a third party to carry out entrepreneurial activities. The parties may indicate other situations that can lead to a change in conditions: the unprofitability of an open business project, changes in the composition of management and other circumstances.

Rights and obligations of the parties

The franchise agreement is primarily aimed at securing the rights of the parties and the designation of their obligations.

The franchisor is required by law to:

• Transfer to the partner in full the documents and equipment that is necessary for doing business;
• Guarantee and ensure the uninterrupted supply of goods or components of proper quality;
• Train staff in the technology of the work process;
• Provide franchisees with full comprehensive advice on all issues related to working moments.

The brand reserves the right to control the activities of the branch, the quality of its products or the provision of mass services to them.

The agreement provides for the following rights and obligations of the franchisee:

• The use of the trademark and all technological capacities only in accordance with the rules of the document;
• Ensure the high quality of products manufactured under this sign;
• Comply with all the rules for using branded equipment, do not change the technology and recipe;
• Do not declassify technologies and professional know-how;
• Participate in the financing of the advertising fund, support promotions on behalf of the brand.

The contract may contain other clauses and sections that regulate relations between the parties and make their work comfortable. They depend on the type of franchise, type of activity and other indirect factors. The document should not restrict the rights of the franchisee, especially in the area of ​​pricing and project management. It is subject to mandatory state registration.

The conclusion of a franchise agreement gives the entrepreneur the opportunity to open a profitable project under the authority of a serious brand. In order for cooperation to become profitable and full, it is necessary to register all the exciting moments and nuances, discuss them with an experienced lawyer.

Experts consider the problem of keeping technologies and recipes secret, as well as the negative in the case of franchisees, among the disadvantages of the agreement. A serious problem is the success of a branch that leaves the brand network and becomes a competitor in the industry.

Contents of the franchise package

After the conclusion of the contract, the company provides the new partner with a franchise package, the contents of which are covered by a lump-sum fee:

1. The possibility of using a well-known trademark in the production process;
2. Developed instructions and recommendations on corporate identity, design and packaging;
3. Developments on the organizational structure: training and motivation of personnel, creation of conditions for work and development, job descriptions;
4. Information about the product and raw materials, including certificates, norms and technologies;
5. A complete list of trading partners and wholesale purchase centers with coordinates;
6. Instructions for launching and maintaining a business project;
7. Requirements and recommendations on pricing policy;
8. Transport schemes.

Franchising packages of each brand may vary, so it is better to specify the exact list of services and documents individually. For small cafes or shops, dishes or packaging materials with a logo, uniforms and room design can be added. In practice, an entrepreneur must receive all the conditions for doing business.

Famous companies include in the package ongoing legal and marketing support, advisory services and retraining of personnel at various stages. They provide support with government registration, health checks and reporting. This helps the branch to maintain momentum and develop actively.

Popular examples of franchising

Several hundred companies are actively working on the domestic market, which are constantly expanding their network through franchising.

Based on many parameters and the rate of economic growth, it is possible to compile a certain rating of brands offering a ready-made franchise business:

1. "Fix Price" - a chain of stores where goods are available at one price, already has 2050 outlets;
2. Pyaterochka is a retail chain with 6,200 supermarkets throughout the country;
3. Operator "Tele2" - a provider of communications and the Internet with 3,100 franchisees at the end of last year;
4. The KFC network - with the high costs of launching a new cafe, 30,000 outlets are already operating;
5. "33 Penguins" - a company that opens an ice cream parlor and is aimed at visitors of different ages (1312 establishments);
6. "Invitro" - independent laboratories offering a wide range of analyzes at an affordable price (more than 700 departments);
7. "Sportmaster" - favorite stores of fans of an active lifestyle offer excellent conditions for cooperation;
8. "Orange Elephant" - the most profitable children's franchise of 2015 quickly pays off and opened 360 branches in 9 years;
9. Askona is a furniture factory whose products can be purchased at 600 points.

Among fast food and fast food chains, the proposal to open a franchise business can be discussed with representatives of:

• McDonald's - the most famous franchise requires a serious approach and large initial investments from applicants (more than 36 thousand establishments in the world);
• "SUBWAY" - a fast food chain with the largest franchise and 43 thousand cafes in many countries;
• Russian "Stardogs" - with affordable conditions for small businesses.

All these franchises are in our franchise directory!

Entrepreneurs who are interested in a franchise without investment are offered cooperation by small companies. They provide complex services or retail goods: the souvenir brand "Present Day", the toy store "Your Bear" or the transport company "Your Ticket". Their conditions and the cost of royalties are within the power of entrepreneurs who do not want to take loans or loans.

How to choose a franchise

Before purchasing a franchise, it is necessary to carefully study the demand in the region, assess the purchasing interest and solvency. It will be right to consider all the indicators in the future, so as not to crash after a few years of work.

An important issue is the reliability and popularity of the franchise partner. Good companies offer not only a brand and equipment, but also ongoing training, advice and loyal financial conditions. The most comfortable will be cooperation with minimal intervention and control of work from the network.

Is it possible to work with several franchises at the same time

Until the last wave of the economic crisis, most established brands did not give entrepreneurs the opportunity to manage multiple business projects at once. It was believed that the franchisee will not be able to control and develop them successfully, will lead to bankruptcy. A significant slowdown in economic growth has led to the development of multifunctional franchising. Many companies began to cooperate with successful entrepreneurs who had experience in this system in other areas.

Experts recommend that one businessman work with no more than two franchisors at the same time. Proceed to the next case should be after establishing stable operation of the first branch. The option is more suitable for active and creative people who have free time and a team of like-minded people.

Can I get a loan for a franchise?

Such projects are approved by banks due to the presence of a well-defined business plan and economic strategy. Compared to self-employed businesses, franchisees close only 15% of the time. Therefore, banks are increasingly developing special programs adapted for this type of business.

Is it worth it to cooperate with a brand that has few representatives

The domestic franchising market is in search of new directions. Some companies do not have permanent offices in a number of regions. Therefore, buying a franchise from such a brand will bring a bonus in the form of a small number of competitors and sub-franchising in the future. New little-known brands can offer great conditions and minimal royalties to grow and gain momentum faster.

In this article, I will tell you about what is a franchise and what constitutes franchising - franchise business. To date, this is one of the most common options for starting and running a business, for sure you yourself are a client or buyer of at least several franchise companies, without even knowing it.

After reading this article, you will already clearly understand what a franchise is and, perhaps, you will think about doing it in this way.

What is a franchise and franchising?

Let's start with the most important thing: what is a franchise and franchising as a type of business.

Franchise- this is a form of agreement concluded between two business entities, one of which (the franchisor) owns a well-known trademark, brand, and the second (franchisee) wants to use this brand for its commercial purposes. We can say that a franchise is a lease of rights to use a brand.

- this is a franchise business, that is, a business operating under a well-known brand on the terms of an agreement.

In recent years, franchising has taken a leading position in terms of prospects among all other forms of starting a business. A franchise business is easier to open, and most importantly, to “promote”. Put yourself in the place of a client or a buyer: after all, you are more likely to use a service or buy goods from a well-known, reputable brand, and you will always treat something new with distrust and suspicion.

Collected world statistics show that more than 80% of companies opening a franchise business have been operating for more than 5 years, while over 50% of companies opening under their own brand cease their activities in a year or two.

In fact, franchising is in most cases a deliberately profitable and promising option for starting a business. For a novice entrepreneur, this is a good opportunity to build their business under the brand and under the guidance of already established businessmen. Franchisors are interested in the successful development of their franchisee's business, because the promotion of their brand and profit depend on it, so they will always try to help as much as possible, give the necessary advice and recommendations, sometimes they even provide their followers with ready-made and already tested business plans.

On the other hand, opening a franchise business not only provides the businessman with rights, but also imposes on him certain obligations to comply with the business requirements specified in the agreement.

How much does a franchise cost?

To open a franchise business, you will have to pay for it. Speaking about how much a franchise costs, it should be mentioned that payments here can be of two types:

1. Lump sum- a one-time payment for the lease of a trademark or brand, necessary in order to sign a franchise agreement and open a franchise business. The lump-sum contribution can be very different: from hundreds to hundreds of thousands of dollars, depending on the popularity of the brand and the scale of the business being opened (for example, for opening a supermarket and a trading stall, it will differ significantly). In some cases, it is allowed to pay a lump-sum payment in installments, but, as a rule, for a short period (several months).

2. Royalty– regular monthly deductions from turnover. The amount of royalties can also be different, depending on the conditions of the franchisor, as a rule, it is in the range of 8-10% of the turnover.

In some cases, the conditions for opening a franchise business may include only one of these types of payments: either a lump-sum fee or royalties, but most often include both.

It cannot be said that the payment of a lump-sum fee and royalties is exclusively payment for the right to use the franchisor's brand. For this fee, the franchisee receives the necessary recommendations for starting a business, from the design of premises to technologies, which only remains to be adapted to their conditions (often it can already be as close as possible to them), calculations of all necessary costs, contacts of suppliers of raw materials and materials, etc. .d.

Of course, in addition to paying the cost of the franchise, a novice businessman will have to bear all the other traditional costs of starting a business: rent or purchase of premises, repairs, equipment, personnel, etc.

Most Popular Franchises.

Consider the most popular franchises, or rather, the areas of the franchise business that are relevant at the moment:

1. Retail business. Retail chains and supermarkets.

2. Catering. Fast food cafes, bars, restaurants, pastry shops, etc.

3. Food production. Bakeries, ice cream production, breweries, etc.

4. Services sector. Transport companies, taxi services, Internet providers, advertising business, etc.

5. Goods and services for children. Children's brand stores, private kindergartens, development centers, etc.

6. Beauty and health. Sports clubs, fitness centers, hairdressers, spas, sports nutrition, cosmetic brands, etc.

7. Construction. Technologies for the production of building materials.

8. Clothing and footwear. Chain stores and boutiques.

9. Finance. Pawnshop networks and.

10. Innovation. Innovative goods and services: production and sale, .

Legal regulation of franchising.

It is important to know that today in Russia, Ukraine and many other post-Soviet countries there is no law on franchising as such, despite the fact that it is periodically discussed and even submitted such bills. Perhaps in the near future a law on franchising will be adopted in a number of countries, and perhaps not.

However, this does not mean that the franchise business is outlawed, just that it is regulated by other regulations. For example, the concept of "franchise" is not fixed anywhere in the legislative base of the Russian Federation, however, there is its analogue - "commercial concession", the concept of which is disclosed in Chapter 54 of the Civil Code.

It should also be understood that there are many companies on the market that allegedly offer to open a franchise, but in fact their conditions cannot be attributed to franchising in any way, it can be, for example, just cooperation or something else.

The legal regulation of franchising in our countries is not yet sufficiently developed, which, accordingly, creates the conditions for the existence of all kinds of schemes that are called franchise business, but in fact they are not.

Now you have some idea of ​​what a franchise and franchising as a type of business are, how much a franchise costs and what are the most relevant franchising trends today. In the following publications, I will dwell on all the advantages and disadvantages of a franchise business, as well as how to choose a franchise, where to look for offers from franchisors and how to analyze them correctly.

For now, that's all. Stay with us, improve your financial literacy, learn how to effectively manage personal finance and explore promising ways to earn money and invest. See you in new posts!