What is a franchise? How to operate a franchise?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Every year, more and more both beginners and experienced entrepreneurs, when starting a new business, are thinking about buying a franchise. And this is not surprising, because it provides a huge number of advantages. But if experienced cooperators are well versed in this, then newcomers have a lot of questions. In addition, as statistics show, most simply do not pay off their capital investments and are completely ruined during the first few years of operation.

To make the investment successful, let's try to understand what a franchise is and how it works. Also in this article, the most attractive sectors of the market in which it is best to invest money will be considered in detail.

General information

First of all, you need to understand the main aspects of this type of activity. What is a franchise and how does it work?

In simple terms, this is a kind of benefit that allows novice entrepreneurs withwith a small start-up capital, with no special experience, start your own business.

By purchasing a franchise, the buyer receives the right to use the trademark and sell under it certain goods and services specified in the contract. In addition, the franchisor provides full information and technical support, fully working business technology, corporate design of the premises, and also assists in promoting the company on the market. Thus, the franchisor does not have to independently draw up a business plan, develop a well-thought-out marketing campaign, train staff and deal with other issues on which the success of the project depends.

How does it work?

Let's take a closer look at this. The franchise business is quite specific and has many pitfalls that a novice entrepreneur must take into account. Therefore, before buying it, you need to understand the basic nuances in order to avoid many problems in the future. First of all, you should understand how a franchise works in business. This is very important, since sellers do not always provide complete information about their products. Accordingly, newcomers cannot realistically assess the profitability of the future business. If you do not want to throw money away, then before buying, it is best to study the state of affairs of companies already operating under the franchise of your choice. You can also talk to their directors and ask if it is worth investing in this area.

A franchise business works as follows:

• franchisor prepares commercial offer and puts it up for sale;
• interested entrepreneurs enter into an agreement with him and pay a lump sum;
• franchise owner assists customers in opening a point, and also provides a fully developed technology and scheme of work, a business plan and equipment.

Thus, if you do not know how to operate a franchise, the franchisor will help you figure it out. When the point of sale of goods or services is completely ready for normal operation, it goes under the control of the franchisee.

Franchise and franchising: what is the difference

What do you need to know about this? The following will detail how to start a franchise from scratch. However, first you need to understand a little basic terminology.

Many aspiring entrepreneurs who first hear words like franchising and franchising believe they are the same thing. Undoubtedly, these concepts are related, but there are some differences.

Franchising is an agreement between the buyer and the owner of a trademark to use it. This applies not only to the name, but also to technology, corporate identity and business reputation. This deal is beneficial to both parties. One receives a working technology, while the other increases its own profits through a lump-sum contribution and monthly deductions from net profit. As for the franchise, this is the business model.

Advantages and disadvantages of working onfranchise

Any business, regardless of the type of activity, is associated with certain features and difficulties, and also has its pros and cons. Therefore, in order to fully reveal the question of how to operate a franchise, you must first consider its strengths and weaknesses. As for the benefits, the main ones are:

• the ability to quickly launch and promote a business;
• high brand awareness;
• minimum advertising and promotion costs;
• ready business plan;
• free staff training;
• information and technical support.

As for the shortcomings, they also exist. Specialists distinguish the following:

• pen alty or termination of the contract in case of non-compliance with the rules established by the franchisor;
• impossibility of changing the concept of doing business and implementing one's own ideas;
• impressive initial investment;
• in the event of bankruptcy of the franchise owner, it becomes the property of other entrepreneurs who can put forward their claims to the franchisee.

According to official statistics, approximately 85% of franchisees close within the first five years of opening. This is because the franchisor suffers large losses due to poor business practices, too much competition or other reasons, after which his company is taken over by large enterprises. Therefore, before buying, you should weigh all the pros and cons well, so that later you will not regret anything.

How much does it cost to buy a franchise

It is impossible to answer this question unequivocally, because today prices vary in a very wide range. Many beginners consider the cheapest offers, which is not entirely correct, since most of them turn out to be failures in practice. Really working franchises are also not a very suitable option due to their too high cost. The price is formed based on many factors, the key among which is brand awareness and smooth business processes.

Today, there are specialized resources and platforms on the Internet where franchise owners post their offers with a detailed description and cost. It is better to search through them, because in addition to the business plan, you can also find reviews of real buyers there. In addition, some companies acting as intermediaries help start-up entrepreneurs with the conclusion of an agreement and the collection of the necessary package of documents.

If you do not trust such exchanges, but do not know how to work on a franchise on your own, then it is first recommended to consult with lawyers who are well versed in these issues. They will carefully study the terms of the contract and make the necessary adjustments to the document so that it is as beneficial as possible for you. Sure, you will have to pay for their services, but as a result of professional advice, you can avoid a lot of problems and save a lot in the future.

Franchises in whichareas most profitable?

Planning and implementing a business must be taken very seriously. This also applies to the purchase of rights to use a trademark. After all, the project should be not only inexpensive, but also profitable. Many aspiring entrepreneurs are interested in which franchises really work. And this is a very topical issue, because due to the ongoing economic crisis and foreign sanctions against Russia, enterprises in our country continue to close one after another. Therefore, a key factor in the success of investing in a ready-made business is choosing the right niche. According to statistics, the most attractive are the following:

• business;
• retail;
• insurance;
• catering;
• tourism.

Next, we will dwell on each niche in more detail so that you can determine for yourself not only the most profitable, but also an interesting and congenial direction for work.

Features of a franchise in business

Above, we have already covered the main aspects and terminology associated with the acquisition of a franchise. Most entrepreneurs prefer to invest in existing companies instead of implementing projects from scratch, because it is more profitable. Investments pay for themselves much faster and begin to make a profit. When building your own business, it will take you several years to break even, but when buying the rights to use an off-the-shelf technology and brand, this process can take onlyseveral months.

But here comes the question of how a franchise works in business. Indeed, today the market offers a huge number of proposals in various industries. Regardless of which niche you choose, the algorithm will be the same. Of course, there will be some distinctive features, but the essence will remain the same. Now let's talk about the destinations that will remain the most attractive when buying a franchise.

Retail

It doesn't make much sense to tell how to work on a store franchise, since even a person who is far from business has an idea about the functioning of a sales point. The process is extremely simple. You define a group of goods, find a franchisor offering the most favorable conditions, and conclude an agreement with him. Then you rent a room and make repairs in it, after which you start earning. The main thing is to correctly determine the specifics of the store.

According to experts, today the share of retail stores in our country accounts for 45 percent. The level of competition is high, but the potential profit is incommensurable. In addition, you are not limited in choosing the most attractive destination. You can trade anything you want:

• baby products;
• food;
• building materials;
• furniture;
• auto parts;
• clothes and shoes;
• household appliances and electronics;
• specialized equipment;
• loose tea and coffee;
• souvenirs and more.

You may say that it is not difficult to open a store on your own, but such an opinion is erroneous. Launching a point of sale is not a problem, but it is very difficult to attract buyers to it. And by buying the rights to use a trademark, you save yourself from these problems.

How a franchise works in trade has been described above, but its advantages should be mentioned separately. Among the main ones are the following:

• quick start sales;
• well established working method;
• well-established channels for the supply of products;
• minimum risks of bankruptcy.

As for the cons of opening a retail franchise store, there are none, except, of course, those that were discussed earlier in this article. Therefore, the relevance of this type of activity is quite high.

What are the really working franchises? According to the feedback from entrepreneurs, the following can be indicated (with the object of sale):

• "220 volts" - power tools and equipment;
• Alisia Fiori - branded children's and women's clothing;
• "Razlivnovich" - draft drinks;
• Florma - decorative cosmetics;
• "Not Apple" - mobile phones, smart watches and accessories;
• Respect - shoes;
• "Fragrant World" - wine drinks;
• "Concrete Base" - building materials.

This is just a small selection of promising franchises that guarantee high returns. In fact, the offer on the market is simplyhuge, so the novice entrepreneur will have plenty to choose from.

Insurance industry

Another promising direction, gaining more and more popularity every year. How to work in a franchise in this area? Very simple! Find a seller, conclude a contract and start providing real estate, auto and life insurance services. The advantage of investing in a ready-made business is that insurance is a very complex type of activity, which will be very difficult for a beginner to understand. And by purchasing a franchise, you minimize any risks. The best offers so far are:

• "Point of insurance";
• FinSity;
• Uniqa;
• Grave;
• "Dedalus";
• Axa Group;
• Finance Group.

Each franchisor offers a choice of several products with different terms of cooperation. The presented offers are characterized by relatively low cost and small monthly deductions, which makes them one of the most profitable today.

Food service

If you are concerned about whether it is profitable to work on a franchise, then look at the financial statements of catering establishments. Their incomes remain high, regardless of the economic situation in the country, since people are always in need of food. Also, many people like to spend time with their friends outside the home, so they regularly visit various cafes and restaurants.

Opening a public institutionpower supply is no different than starting any other project. As for the most profitable franchises, the following can be distinguished:

• "Baby potato";
• "Dodo pizza";
• Subway;
• "IL Patio";
• McDonald`s;
• "Sushishop";
• Wokker;
• Papa Grill;
• "Golden Bird".

Franchises of catering establishments, in comparison with other types of activity, are attractive in that many of them begin to make a profit from the first day of work. And according to the reporting provided by their owners, this is indeed the case, and not a clever marketing ploy.

Tourism

This direction is quite specific, but with proper planning and management, as well as choosing a good franchise, it will regularly bring stable profits. According to Russian legislation, only a person with special education and work experience in this activity can open a travel company. A franchise relieves entrepreneurs of this need. You simply buy the right to use the brand and work quietly. Among the best offers are the following:

• Tour &Tickets;
• "Sletat.ru";
• "Hot Last minute Store";
• "Wind Rose";
• Coral Travel;
• TUI.

All of these franchises provide favorable conditions and allow you to open a profitable travel agency with minimal problems. However, when buying it, keep in mind thatthis type of business is seasonal, so profitability will change throughout the year.

Pitfalls

While buying trademark rights you get a fully functional technology and business model, as well as assistance in market promotion, certain risks remain.

It was detailed above how to work with a franchise. Pitfalls are another important aspect that any novice entrepreneur should consider. Among the most important, experts identify the following:

• poor business model development;
• too strict terms of cooperation;
• heavy pen alties for breach of contract or withdrawal;
• restriction in the choice of suppliers;
• Inflated monthly deductions.

In order not to be left with nothing, you must carefully work out each of the above aspects.

What experienced businessmen say about buying a franchise

Today, many seasoned entrepreneurs invest in established companies. This option is especially good for beginners. And not a problem if you don't know how to operate a franchise. Reviews of businessmen who have been working on them for a long time confirm that this type of activity is very simple and understandable. You just pay the franchisor, and he does almost everything for you. Therefore, do not be afraid, but feel free to open franchises.