So buy a franchise. Franchise types

Franchise is the right to sell, granted to an individual or group of individuals in the market of goods or services, within a certain territory. Some examples popular franchises today are McDonald`s, Subway, Pizza Domino.

There are many various kinds franchises Many people associate franchising with catering only. In fact, there are over 120 different types today, including in service, health and fitness, financial services, and the like.

How Franchising Works

If you're thinking about buying a franchise, it's important that you understand exactly how franchising works, what the fees are, and what the franchisor expects from you.

A person who buys and operates a franchise is called a "franchisee". The franchisee buys the franchise from the “franchisor”. The franchisee must follow certain rules and guidelines set by the franchisor. In most cases, the franchisee must pay an ongoing fee, called a royalty, as well as an upfront, one-time lump-sum payment.

Franchising has become one of the most popular ways of doing business in today's market.

History of Franchising

Franchising started back in the 1850s when Isaac Singer invented the sewing machine. In order to distribute his machines outside of his geographic area, as well as provide customer training, he began selling licenses to entrepreneurs in different parts of the country.

In 1955, Ray Kroc began franchising food service and built the world's most successful fast food chain, now known as McDonald's. McDonald's currently has the largest number of franchised businesses worldwide.

Today, franchising helps thousands of people own and operate their own businesses. Franchising allows entrepreneurs to be in business for themselves, but not by themselves. There is a statistic that the likelihood of success is much higher if a person starts his own business under a franchise, as opposed to starting his own business from scratch.

Benefits of buying a franchise

Some of these benefits are:

• Corporate image - the image and brand awareness of the company. Consumers always buy better if they know the name of a company they trust.
• Training – The franchisor usually provides extensive training and support to the franchise owner.
• Save Time – With a franchised company, there is already a business model in place so you can fully focus on running a successful business.

There is a reason why franchising has been around for decades. This is a great way to individuals own and manage your own business.

Now that you have an idea of ​​what it is and if you are thinking about buying one, do a thorough research of the company and consult with a franchise consultant before making your final decision.

What to look for when buying a franchise

1. A franchise must have a certain uniqueness in terms of products, services, markets, investment level.
2. Ease of Operation: The franchisee should be able to learn how the franchise operates in a fairly short period of time.
3. The franchise concept should adapt well to different locations and markets, with high demand for goods and services.
4. Should have a good return on investment and a quick profit after starting a franchise.
5. The franchisor must be represented by a strong management team.
6. The franchisor must have a good reputation and a successful history.
7. Business must be learnable, must be good systems and training procedures that are well documented.

Possible moments that should alert you.

1. The product or service has a short lifespan.
2. Gross margins are too low and fees are high to support franchise royalties and others.
3. Franchise skills are complex and/or take a significant amount of time to master.
4. Weak professional support.
5. A franchise requires unique market characteristics that are not easy to find. Thus, a business location has very specific requirements.
6. Franchises have very complex and detailed audit requirements.
7. Franchises from others, such as franchisees, are not successful or have little success.

Franchising terms

Broker - an independent specialist who acts on the market on behalf of the franchisor, selling (transferring) to the last found customers (users) on a paid basis, but on the condition that the user must independently evaluate the terms of the franchise.

Franchising (commercial concession) agreement is an agreement that reflects the essence of the franchise program, which contains a number of conditions: on the business concept, the business itself transferred to the user, initial fees, rights granted to the user.

The second part of the agreement contains conditions on the rights and obligations of the parties (right holder and user).

This is a document provided by the copyright holder to the user, which contains all the information about the company.

Marketing services- marketing and advertising services provided by the franchisor for a separate recurring fee. Typically a % of gross sales or a fixed recurring fee.

International Franchise Association- private, not commercial organization located in Washington, D.C., which serves as the world's center for the exchange of franchise information and franchise promotion.

Franchise Package- a term used in franchising to refer to the entire package of services or conditions offered by the franchisor to an actual or potential franchisee. The Franchise Package covers all the main issues set out in the Franchise Agreement and the list and description of the main services that must be provided by the Franchiser in accordance with the Franchise Program.

Initial (lump-sum) franchise payment- the initial, preliminary payment of the user to the right holder for the right to carry out franchising activities.

The funds paid out compensate the right holder for the costs of the time, effort, and money of the right holder that were spent on building the franchise concept, attracting and working on the approval of future franchise users, their training and supporting franchise users in their business establishment activities.

Onsite support– support provided to the franchisee by the franchisor through phone calls, personal visits and regional meetings.

Potential franchisee- an entrepreneur, a company whose actions are aimed at preparing for franchising activities (purchasing a franchise).

Russian Franchise Association – a non-profit organization founded in 1997 by the leaders of Russian franchising to support and protect the interests of its members and to create a more favorable legal and economic environment for the expansion of franchising in Russia.

Royalty- periodic payments to the franchisor, which are usually calculated as a percentage of sales, but some types of franchise agreement (especially in the service sector) provide for fixed monthly payments.

These payments compensate the franchisor for the ongoing support of the franchisee, research and business development work, along with this they are the main source of income for the franchisor. Therefore, it is advisable for the franchisor to work closely with each franchisee in order to make the business the most successful, because. each of the parties in this state of affairs has the right to count on profit.

Contract timecommercial concession (franchising) – usually a five-year initial term of the franchise agreement is set with the possibility of its renewal.

This in turn depends on the following conditions:

1. fulfillment by the user of all financial obligations,
2. conducting business strictly within the framework of the franchise concept and an agreement to bring the fixed assets of production to current business standards.

In this case, a payment for the prolongation of the contract may be established.

Sub-franchisor (Master Franchisee)- a party that is between the franchisor and the franchisee and has the right to resell the sub-franchise in a certain territory. The term is often used in international franchising.

Territory of using the complex of exclusive rights (Exclusive Territory) – Franchise business is usually limited geographically. If the user's activity involves movement, then he is endowed with a set of exclusive rights within a single geographical unit, sufficient to ensure the potential for growth and development.

The franchising system can be weakened by the presence of a large number of users in one market, however, on the other hand, such a concentration of users can lead to synergies and market dominance, which will eliminate competition and profit from joint marketing activities.

Trademark – name, symbol or other means of identifying a product/service, which must be officially registered and legally restricted in use by the copyright holder or manufacturer.

Franchisor- a commercial organization that provides a set of exclusive rights to the subject entrepreneurial activity in order to conduct their business under its trademark.

Franchisee- an entrepreneur or investor who, through initial investment and subsequent payments (royalties), acquires the right to use a set of exclusive rights of the copyright holder, following his special recommendations for doing business.

Branch system franchisees A person, partnership or corporation that buys the rights from a franchisor to operate a business in a particular area and manages all franchised businesses independently. In such agreements, there is usually a clause on the development of the territory. If the affiliate systems franchisee does not comply with these requirements, the franchisor may resort to some measures.

Franchising- a method of doing business in which the copyright holder company grants the business entity (user) the right to use a set of exclusive rights (trademark, know-how, and so on) for the purpose of advertising, distributing, selling goods and services of the copyright holder that have become known on the market .

Business format franchising- The franchisor licenses the franchisee to conduct business under his own name and provides a complete basis for the franchisee's activities.

Franchise- the creation or continuation of a relationship between the Franchiser and the Franchisee or Licensee, in which the Franchisor supplies the Franchisee with marketing or industrial technologies, including Brand Names, in exchange for a certain fee, made on a regular basis. Also used in casual speech to refer to the Franchisee's business point.

Turnkey Franchise– territory provided and sold to the user (franchisee) fully equipped with equipment and ready for further intended use.

Royalty efficiency- the moment at which operating expenses of the franchisor are fully covered by royalty income from existing franchisees.

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

Famous franchise brands

How a franchise works

Franchising combines forms of small and larger big business. 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 small enterprises conducting their activities and a certain place for the implementation of this activity.

For the successful establishment of a subsidiary, franchisors give recommendations on best organization 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 facilitate the supply of raw materials, semi-finished products, blanks, provide information support, take on partial financial 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 agreements individually may include additional costs for franchisees for the use of a trademark, equipment or mandatory consultations and control over 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 excluding 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.

You can learn from the following video 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 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 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 wages 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.

For reference own business it is not necessary to go through all stages of its development. It may sound surprising, but you can rent it and still make a decent profit. All this is called the newfangled word "franchise", and what is invested in the concept needs to be considered in more detail.

What is franchising

Running a business is a troublesome business, and not everyone is able to understand the nuances of it. Recently, it has become profitable to conclude a franchise agreement (commercial concession). This is a kind of agreement between two parties, where the owner of the business, called the franchisor, for a certain fee, gives the right to use his name, brand, production technology and other aspects of the business to a person called the franchisee.

How profitable this is can be judged by the following arguments. The most basic thing is that the franchisor receives a monetary reward without investing in expanding his business. He does not have a headache about how business is going in the branch, because the newly minted businessman is running the enterprise using the owner's proven methods. This is a kind of work on behalf of the owner, but at the same time the private trader is the owner of the business.

Lump sum and royalties

Since the owner of the business allows the entrepreneur to work on his own behalf, he expects a certain remuneration from this - one-time or regular. The lump sum payment is called a lump sum payment and is the fee to enter the owner's existing business. This is the so-called fee for the costs associated with starting a business. Determining the exact price of the contribution is difficult, as it depends on several factors that are considered individually.

Royalties, the so-called payments to the king (hence the name) are regular payments that are calculated on the basis of agreements. They can be a certain percentage of revenue or a trade margin, or they can be displayed as a fixed figure, which is prescribed in the agreement. If the lump-sum fee has a certain figure, then royalty payments almost always depend on how efficiently the business is operating, and are paid regularly at the end of each reporting period for the duration of the license agreement.

What does the word franchise mean?

Define what a franchise is in simple terms easily. From French franchise is translated as a benefit. The meaning of the word franchise and franchising is practically the same. They have much in common, except that in the first case they understand a license acquired to conduct business using someone else's trademark, and in the second case, the purchase process, the transaction itself. Working, doing business under the company's license - that's what a franchise is in simple words.

How does it work

Each franchise has its own conditions, among which it is worth highlighting a few that are common to all agreements. Franchise work implies comprehensive assistance from the owner company. The owner of the brand provides the entrepreneur with a description, instructions and instructions regarding the conduct of business, hiring personnel, working conditions, recipes and other nuances, the observance of which is simply mandatory.

At the end of the franchise agreement, it can be extended by mutual agreement of the parties. It is important to note that a large number of global companies use this simple form of doing business, because in this way you can make a decent profit, develop product markets, making your own brand not only recognizable, but also popular.

In business

It is believed that all business start-ups have a very high risk of failing, which is why there are so many startups that close in the first years of their existence. This happens because a start-up business cannot withstand competition from large and successful market players or due to the fact that the owner of his own business does not have the set of knowledge necessary to conduct a competitive business.

Franchise business, on the contrary, in most cases, and this is about 80% of the total, is successfully developing. This happens due to the fact that, together with recommendations for running their own business, the brand owner transfers the contacts of suppliers to the entrepreneur. In addition, the entrepreneur does not need to attract customers, since the brand is already recognizable.

In CASCO insurance

If you are going to insure your own car in case of theft or damage, you can get a CASCO offer with a deductible from the insurance company. You have to be careful, because in auto insurance it has a completely different meaning. The concept of insurance with a deductible is a part of the monetary compensation that the car owner simply will not receive in the event of an insured event. She happens:

Conditional (the entire amount is paid if the damage exceeds the established amount specified in the insurance contract);

Unconditional (all money for repairs and auto parts is paid, except for the amount of the insurance deductible).

In trade

To trade goods of a certain brand, the franchisee enters into a cooperation agreement with a well-known brand. The franchise in trade has its own characteristics, which must be strictly observed. These include certain dimensions of the premises, which the franchisor requires from the entrepreneur, color design, location, and much more. Only if the entire list is observed is it possible to obtain a franchise.

Pros and cons

Perhaps there is no ideal business, so it is worth highlighting the advantages and disadvantages of a franchise:

Franchise types

Depending on the country of doing business, there is a variety of classification of the concept. According to the degree of freedom to run your own business, a franchise can be:

• classical;
• free;
• Full construction;
• for rent;
• master franchise;
• corporate.

By type of business, there are:

• production;
• commodity;
• business;
• conversion;
• child.

There are a lot of franchise businesses out there these days. Among the giants in the field of catering and fast food are McDonald's, Grillmaster, KFC. Zara, Waikiki, Milana, Kiabi - clothing and footwear stores that have grown into large retail chains running your own franchise business. The list goes on with many examples of companies that have become widespread through franchising.

How to buy a franchise

The first thing to do before deciding to buy a franchise is to weigh the financial possibilities. The purchase is not limited to a lump sum payment. You need to have money to register legal entity, rent of premises and other expenses. An easy and cheap option would be an internet franchise since there is no need to rent space. On the other hand, when opening a stationary outlet, a production franchise will cost significantly more than a clothing franchise.

If all this is taken into account, then it is necessary to decide on the business that you plan to do. It is important to remember that franchising implies already turnkey solution, therefore, when opening, for example, a bakery franchise, there will be no opportunity to add something new to pastries based on a personal vision, but simply follow the company's concept. Buying a franchise in Russia, as elsewhere, implies a personal acquaintance with company representatives in order to understand how profitable the business will be and how much it will cost.

When choosing a particular company, you can ask the franchisees who are already doing business, how profitable it is, what kind of assistance the parent company provides. These moments are very important. It is possible to purchase a franchise with no initial capital or with minimum investment. A businessman will have to find a suitable premises, to ensure profit at the initial stage. A prime example is a pharmacy franchise or a movie franchise. You can take money from banks, some of which have credit programs.

What you need to know when buying

You can find offers for buying a franchise on specialized sites on the Internet, which provide all the information about the franchisor. Here you can see the cost of projects, contact information, email where you can submit your request. Since business is a risky business, you need to be aware that there can be problems and mistakes when buying a franchise, which can even lead to bankruptcy.

All this can be avoided by carefully studying and conducting a detailed analysis of this information. When choosing a field of activity, you need to study the feasibility of buying a franchise for a particular region where you plan to do business. It is important to know that an option that is perfect for a metropolis or a large city is not always suitable for small town.

Conditions

Each franchisor puts forward its own specific conditions for buying a franchise. Some do not trust entry into business to newcomers, which is common, for certain corporations it is important to have areas of a certain size. This applies to trade. All conditions are necessarily prescribed in the contract and their implementation is simply mandatory.

cost

Many people have faced the problem that the cost inexpensive franchise at the final stage can grow at times. For this reason, before starting the procedure, you should carefully study all the features of maintaining this business. The calculation of the cost of the franchise lies entirely on the shoulders of the franchisee, since the founding corporation in its proposal may not take into account all the nuances. These include not only a lump-sum contribution and royalties, but also those investments that an entrepreneur will need to make to start a business.

Do not be shy to communicate with representatives of franchising departments even large companies for detailed information. In addition, if there is no self-confidence, you can involve experienced professionals - lawyers, accountants, economists - in order to avoid problems. Since corporations and their directors represent average calculations, it is worth making the calculations yourself, depending on the market situation in a particular region.

Franchises in Russia

Can't say what best franchises in Russia, and which ones are not, but you can give a small rating to highlight the successful ones that can bring a good income:

• Felix. Russian manufacturer of office furniture.
• Crossroads Express. Shops within walking distance with a cafe-bakery.
• Positronics. Network of electronics stores.
• InCity. Clothing stores. Opening does not require a lump-sum payment and royalties.
• MrDoors. Manufacture of cabinet and built-in furniture.

Video

What is a franchise in business: definitions of the concept + description of the objects of the franchise package + what is included in its cost + 7 types of franchise + 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 are great risks of becoming the owner of a loss-making business, which at best can be kept afloat.

And there is a third option - to work according to the franchising scheme. In this article, we will similarly discuss what a franchise is in a business, what it involves, and what benefits and disadvantages it brings.

Basic concepts of what a franchise is in business

1. Franchising and franchise: is there a difference?

Those who at least understand the principle of how a franchise works in business have probably heard of franchising. And this is not surprising, because these two terms are closely interconnected, 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) on paid terms transfers the right to another to use a trademark (brand) along with established technologies and principles of production, trade or provision of services.

Franchising parties have their own names:

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

Let's analyze the concept on 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 on a franchise system, and there is also an entrepreneur:

• who wants to start their own business,
• having start-up capital;
• little knowledgeable in matters of doing business, but willing to work hard.

And both parties are interested in each other. Franchisor :

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

Franchisee:

• on paid terms, receives an “instruction” for action and the opportunity to work under the auspices of an already well-known coffee shop chain;
• saves time on studying and building a case.

After the conclusion of the contract, the franchisee becomes a full-fledged owner of the franchise, opens a coffee shop cherished for him and works under the name of an already promoted and well-known network of establishments.

2. Definition of the concept of what a franchise is in business.

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

• it is an acquired right to operate under the name of a certain trademark;
• franchise agreement under which the franchisee has the right to operate under the name famous brand, following a certain pattern of doing business;
• a set of benefits, resources, technologies and privileges that the franchisee receives.

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

3. Franchise objects.

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

Brandbook

This complete guide on doing business, which includes: the use of a trademark (logo, slogan), the rules for choosing and designing a room, 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 a business ideology and a business strategy. Place, design of the premises, assortment or list of services, strictly regulated manufacturing process- all this determines the uniqueness and recognition of the brand.

Tailored business plan


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.

• Support at the stage of starting a business

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

  Technology

  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 a well-established PR strategy.

  This may include a dedicated web page, maintenance advertising company supply with all necessary information resources.

Regular visits, consultations, assistance in the preparation of financial and accounting reports, legal support, exchange of experience and provision of advanced technologies, replenishment of the product range - all this can also be included in the franchise package. But again, its fullness will directly depend on the company that sells the franchise in 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 have an interest 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 complying with the requirements for the opened business, and sometimes for the entrepreneur himself, there are also financial conditions on which partnerships will be built.

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

The main financial income that the franchise seller receives:

• Lump sum is a one-time payment for the purchase of 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 the moment of its extension, then the payment will be collected again.

  There is no single formula for calculating this payment, since many factors affect its size. 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 contract (monthly, quarterly). It can be a percentage of the sale or a fixed amount.

  It is this contribution that “feeds” the franchisor. The funds received are spent on the development of the network, the improvement of technologies, as well as the formation of profits.

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

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

Again, it all depends on the specifics and scale of the case. Some companies require franchisees to cover 100% for starting a business, that is, they themselves need to pay rent, make repairs, purchase equipment, and so on. Others are ready to reimburse part of the costs.

Franchise types

It is not enough to know what a franchise is in business, you also need to understand what types it is:

Pros and cons of franchising a 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 are the benefits for the franchisee?
• What are the "pitfalls" awaiting the franchise buyer?

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

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

But does it make sense to share 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 you can do this with relatively little personal equity by selling a franchise.

Getting extra income

The accumulated instructions and personal secrets of doing business are not distributed to everyone, they are sold for money. The same applies to the recurring costs associated with supporting the franchisees, because they also pay for this.

Great return on franchised outlets


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

High rate of brand awareness increase

It is quite difficult and costly 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 franchisees are very helpful in this matter, as they open a business 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 the gross income of the franchisee's business. This figure is much less than if the company personally opened a branch or representative office.

The need to unify accounting and reporting programs


The franchisor must develop single 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 controlling the franchisee

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

Traveling long distances to carry out checks or hire authorized persons, which will be responsible for a certain area of ​​the network, entail additional costs.

Preparing potential competitors

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

Franchise and franchising in business. What it is?

What are the pros and cons of franchising a business?
popular franchises.

2) Benefits and "pitfalls" of the franchise in business for the franchisee.

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

What are the disadvantages of a franchise buyer?

Additional costs for opening and operating a business

Here we are talking about lump sum and monthly payments. 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

Expansion of the assortment, development of a new design, promotions - all this either requires coordination with the main 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 fixed period

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

Those who know what a franchise is in business have some 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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