Franchise: how to open, features, pros and cons

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

Many people want to start their own business, but just can not decide on this important step. The reason for such indecision is the lack of an idea or the fear of failure. Therefore, as a result, newcomers stop at the option of building a franchise business.

This article provides information on how to open a franchise, what are the advantages, disadvantages and other nuances in this business.

Franchise Features

When concluding a franchise agreement, the terms of cooperation between the two parties are prescribed. The agreement guarantees the franchisee (owner) the right to carry out commercial activities on behalf of the franchisor, using ready-made schemes for the provision of services or the sale of goods under the name of a well-known brand.

A franchisor is usually a well-known company or corporation that has managed to establish itself in the market on the positive side. In addition, it must have a positive image and a good reputation among consumers. Successful European, American and Chinese organizations are actively promoting the franchise, expanding thethe most geographical boundaries and opening new offices to sell their own products and services. How to open a franchise?

The franchise buyer is granted exclusive rights to carry out business activities under the brand name of the trademark. The Franchiser, for its part, undertakes to ensure the following:

1. A working and efficient business project.
2. The ability to use the results of intellectual property.
3. Corporate identity and maintenance plan.
4. Employee training and development.
5. Constant interaction, support and advice.
6. Marketing promotion.

All of the above tools allow you to guarantee a stable profit with a total payback period of a year and a half.

Material side

For example, a person decided to open a franchise travel agency. To do this, he signed an agreement and received a ready-made business, it remains only to take it and start using it. But the owner of the company shares the trademark not just like that, but on certain conditions. They are different for each franchisor, the following schemes are most often used:

1. Payment of a lump sum. This is the initial payment that must be paid in order to enter into an agreement. This is a kind of membership fee or rent for the brand. The size of such contributions can be so large that a novice businessman simply cannot afford them.
2. Roy alties. Paid monthly to the owner. The amount depends on the percentage of the franchisee's income,prescribed in the contract. In other words, the entrepreneur must pay a kind of profit tax to the trademark owner every month.

But not all forms of franchise include these concepts. Conditions are case specific. Some organizations take only a lump-sum fee, while others, on the contrary, do not have it, but the franchisee is required to pay a monthly roy alty. There are cases when the owner of the brand requires payment of the first installment and commission for each month. Therefore, before deciding to purchase a franchise, you should realistically assess your own capabilities.

Is it possible to open a franchise store without investments? Yes, there is such a way. Its principle is that the entrepreneur who claims this right must convince the brand owner of his ability to take the business to the next level. This is a very difficult task. In rare situations, the franchisor is ready to become an entrepreneur's investor.

Franchise Benefits

A franchise, like any other commercial direction, has its pros and cons, which an entrepreneur should be aware of in advance. Starting a franchise from scratch is a daunting task, which involves managing the relationship between the brand owner and the businessman.

The benefits of starting your own franchise business include:

1. An entrepreneur buys a ready-made business that has managed to establish itself in the market. It includes assistance in organizing, consulting, supply of raw materials and othercomponents. The acquired trademark is already popular in the market, so the businessman does not have to spend money on its promotion.
2. It is the norm for this line of business to provide franchise owner advice, support in establishing relationships with suppliers, service companies, advertisers and so on. The franchisee does not need to reinvent the wheel, it has been done for him before.
3. A loan to open a travel agency franchise, for example, is much easier to get. When applying for a loan, the owner of the brand can act as a guarantor of the security of the transaction - this is a big plus. Ordinary entrepreneurs do not have this privilege.
4. Low requirements. Franchise business does not require specific knowledge. It is enough for the buyer of a trademark to have some knowledge in the chosen area and elementary management. But you won’t be able to do without spending at all, funds will be required to improve your own business.
5. The ability to predict the financial situation. When starting your own business, it is very difficult to accurately calculate the profit. But in the event that you decide to open a coffee shop franchise, for example, everything will be much easier. The entrepreneur is provided with a large amount of data, the use of which will certainly lead him to accurately predict the situation of prospects.
6. No need for market research. All necessary information is collected and provided by the trademark owner. This is a huge time saver and a guarantee of getting results in the first month of work.

Disadvantages of a franchise

In addition to the obvious advantages, this form of business also has significant disadvantages:

1. Opening a franchise store requires a large investment. Buying a ready-made business and launching it requires significant cash outlays. As a rule, novice businessmen do not have a large amount of money or they are afraid to spend it, respectively, few people consider this option.
2. Almost complete dependence on the franchisor. This is especially true if the owner of the brand incurs losses. This will inevitably affect the entrepreneur as well.
3. Obligations to the franchisor. Personal earnings will have to be shared with the owner of the brand. But the percentage of his share is very small, so the entrepreneur will remain in the black.
4. Misty prospects. The liquidation of the franchise network leads to the mandatory closure of the business. The franchisee has the right to operate only as long as the agreement is in effect.

How to open a franchise, where to start?

First of all, you need to decide on the direction of activity. Experts advise choosing what is of interest and what a person understands. Especially if it's the first time. If, for example, a future businessman knows nothing about computer technology, then you should not open an office equipment store. If you are interested in fashion, you can safely open an online store of stylish clothes and accessories as a franchise. If you want to use the knowledge gained during the years of study at an economic university, study the offerscredit institutions.

In addition to personal hobbies, you need to remember about the financial side. Buying a franchise is not difficult, but they all differ in initial cost and subsequent investments. The most expensive are the offers of restaurants, hotels, fitness centers and hypermarkets. Retail stores are much cheaper.

Purchase method

There are several ways to buy a franchise:

1. Investment of own funds.
2. Bank loan.
3. Investment by brand owner.

The most obvious option is to buy the case with your own funds. But not everyone has this opportunity. Therefore, most entrepreneurs start building their own business with money borrowed from the bank.

There is a third option that allows you to open a franchise store without investment. It involves funding from the company selling the franchise. This can only be done if the franchisee is already working in the right organization, and she practices a similar form of relationship with employees. An enterprising employee can be appointed to the position of branch manager, and after a while become its owner.

If this option is unacceptable, then you can look for an investor on the side. The mere fact of acquiring a franchise significantly increases the chances of success - businessmen are more willing to invest in established brands than in start-ups. This is explained by the fact that the success of the latter no one canguarantee.

Choosing a profitable business

There are special organizations that provide a list of open franchises in Russia, but you can contact the owner of the selected brand yourself. The choice of such companies is great, but are they all profitable? Here are the main signs that the chosen brand will be profitable:

1. Wide network of operating outlets. When a company has many open points and all of them are successful, it can be concluded that the brand has a future.
2. Lifetime. It is better to choose an organization that has been operating in the market for some time and managed to recoup the investment. Otherwise, there is a high risk of running into those who are not doing well, and they sell franchises to cover their own expenses.
3. Entrepreneur support. It is necessary to find out in detail what kind of assistance the brand owner is ready to provide to the buyer. All support measures should be recorded on paper, do not take a word.
4. Business plan. Serious institutions provide a ready-made business plan and materials for evaluating the effectiveness of the selected project. One-day companies only assure that it is profitable to open this franchise, without indicating any specific figures and without giving guarantees.

It should be understood that even the most successful franchise cannot guarantee one hundred percent success and high income - a businessman must put in a lot of effort and effort himself. It is necessary to carefully study the market with which it is supposed to work - whether there is an interest inaudience for selected services or products, are there analogues, what are the prices and what do competitors offer.

Next steps

Don't know how to open a franchise? After all the benefits and risks have been calculated, and the choice of a franchise has been made, several more important steps will need to be overcome:

1. Updating a commercial project. As noted above, brand owners, focused on long-term cooperation and results, provide a ready-made business plan. It includes financial planning and an estimate of the necessary investments. This is a standard project that requires some modifications as conditions vary depending on the city and point location. The requirements for opening a franchise in Moscow and Samara will certainly be different.
2. Rent and renovation of premises. Before choosing and renovating a space, as well as hiring employees, you should find out about the requirements from the brand owner. Many companies set strict limits on this - the area and location of the premises, design, team composition, and so on. Some franchisors help resolve all related issues and provide a ready-made design project. The most thorough organizations independently train employees, send merchandisers and organize the grand opening of the office.
3. Planned interaction with the seller. After the purchase and opening of the store, the parties are not limited to regular payments, the brand owner takes an active part in the activities of the new point. The franchisor carries outmarketing support, conducts training and retraining of personnel, develops promotions to stimulate sales (special offers and sales). Retail stores receive recommendations from buyers for the purchase of specific products. The parties regularly interact on the issue of the purchase and delivery of goods.

The payback of a franchise depends on many things, but on average these terms are much less than when starting your own business, built from scratch. And the benefit is more stable, since the entrepreneur is insured against many difficulties that will arise when doing business on his own.

Franchise cost

The cost of the selected project directly depends on the field of activity and the popularity of the chosen brand. Of the huge list of options available, the most popular and cost-effective are fast food outlets and clothing stores, and you can also open a pharmacy franchise.

The amount of a lump-sum payment for a medium-sized business starts from 150,000 rubles. A popular brand like Adidas will cost $20,000 and a StarBucks outlet will cost $150,000. Each trademark owner independently determines the final cost of the franchise, taking into account the estimated profit of the franchisee and the assessment of economic efficiency for their own business.

Is it worth building a franchise business

Is it profitable to open a franchise? Yes, if you do it right. Before making a decision, it is necessary to analyzesocio-demographic features of the area and the level of competition. An objective assessment and detailed consideration of the market situation will prompt a novice businessman which direction to choose.

Franchising, as a form of entrepreneurial activity, is the most promising and effective way of doing small business. Both parties involved in the transaction receive favorable conditions for their own development. The seller, who is the owner of the brand, gets the opportunity to expand the boundaries of sales and attract new consumers of his product. The franchise buyer gets a proven and working business scheme, as well as the active support of the franchisor and assistance in resolving important issues.