Franchising, simply put, buying a business or renting a business. In practice, an individual entrepreneur or contract organization acquires a franchise and has the right to act on behalf of the franchisor (the one who has granted the franchise), use its trademark, brand, prescription, in a word, organize its business according to the already proven and developed successful model.
Thus, a franchise is a right to use a trademark, brand, business model.
You have to agree that before you sell anything, you have to find someone who wants to buy it. Take us, for example, the Contour.Elba service, we have our own customers: IPs and small businesses that need to maintain accounting and reporting online, they buy our product because it solves their specific problem.
It is very important to understand who your target client is and sometimes it is difficult to do it yourself. When choosing a franchise, you already have a client profile, and you know in advance and can understand who, how and why will buy your product.
You don’t have to invest a lot of money in advertising, because the franchisor has already made efforts to promote the brand. In addition, franchisors do not leave their partners to their fate, and conduct training, provide effective ways to build a business and advice on the use of their innovations. This helps to learn and gain experience from professionals, instead of learning from their mistakes.
You won’t need to develop your business strategy, conduct marketing research, develop and register a trademark, you will walk on the beaten track without much time.
Counterparties and suppliers with whom you will have to interact are also guaranteed by the franchisor, you do not need to search for a supplier of a certain product, ingredient, beware of transactions with the company “one-day”. Franchisors pay great attention to the issue of supply.
Thus, with the help of franchising you invest your money in an already successful business, get the luggage of invaluable experience, recognizable brand, already established connections and established reputation.
In short, you get competitive advantages in the market from the very first days of work.
What’s the catch?
When thinking about buying a franchise, you need to know what you’re sacrificing.
To open a franchise company, you must have sufficient capital, because the cost of the franchise does not include the cost of rental of premises, equipment, recruitment of personnel.
In addition to the financial costs that still need to be taken into account.
Minimizing your risk, following a proven model, most of your own ideas will have to be left behind, as the main drawback is the restrictions on freedom of operation set by the franchisor. The established rules will have to be adopted and implemented.
Frequently, franchisors also limit the freedom of choice of suppliers and oblige them to purchase products from specific counterparties that can supply them at inflated prices.
In addition, the franchisor may apply restrictions on exit from the franchise system (termination of the contract), for example, a ban on establishing organizations in this area of activity for some period of time. Thus, the franchisor tries to protect itself from a direct competitor.
But in fact, the disadvantages are not so significant compared to the advantages, and most of them simply do not attach importance to them.
Now on business.
Let’s say that by weighing the pros and cons, you take your first step towards starting a business, where to start.
First of all, you have to define the scope of activities and evaluate these activities in your region. If you start a business with a healthy diet, most of your success will depend on the franchisor’s reliability, and your task is to follow all the rules and regulations.
Much of the success in the service sector will depend directly on your staff, not on your location, not on the franchisor, and not on how responsibly you meet all the requirements.
The next step is to decide on the franchisor. First of all, you will be guided by your personal preferences, your attitude to the product or service of a company, but you should also pay attention to questions about the company and the product:
- Find out about the history of the company and the brand;
- Development of own and franchise enterprises (everyone knows that franchise enterprise, which for a long time are evidence of the success of the business);
- conditions of franchise purchase and payments;
- composition of the franchise package;
- rules and restrictions in the activity, what will be the franchisor’s control – rules and restrictions in the activity, what will be the franchisor’s control;
- investments in franchisees and requirements for its location;
- training and support from the franchisor;
- supply of raw materials and products;
- conditions for leaving the business;
Talk to existing franchisees – this is the right way to find out which franchisor is really the right one, the advantages and difficulties in cooperation.
Be sure to read the franchisor’s documents. Check all legal documents, trademark documents (trademark registration, specify what rights you will have to it), study the franchise agreement preferably with a lawyer. Consider the main points that should contain the contract:
- The subject matter of the contract (franchise)
- term of the contract (if the term of the contract is not specified, it is considered to be concluded for 5 years. The term of validity of the agreement may not exceed the term of validity of the granted right to a trademark)
- rights and obligations of both parties (the contract should contain a full list of the rights granted to you, and make sure that the support system promised by the franchisor is set out in the contract)
- form of franchisor’s remuneration (fixed one-time payments (lump-sum payment); periodic payments (royalties); deductions from proceeds; markups on the wholesale price of goods provided by the right holder for resale; fixed one-time and periodic payments simultaneously)
- Restrictions on the contract (the franchisor may oblige the user to sell products, works or services at prices set by the right holder, as well as to limit the areas in which the user may sell goods, perform works or render services)
- the terms of the termination of the contract (pay due attention to this section, as they may be completely disadvantageous to you)
Please note that the concluded agreement is subject to registration in Rospatent!
Useful tips for last
First, find space for your business and then buy a franchise – there are a lot of franchise offers, and there are few suitable premises.
When buying a franchise, it is advisable that you have an exclusive right to operate in a specific limited area, so that you do not face a situation where a company under the same brand will be set up next to you.
The simplest tax regime will be the UTII or patent, and the STS is also used as the most advantageous system.