What is a franchise in business? franchise agreement. Franchise Terms

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

More and more foreign expressions, phrases and words come into our everyday life. This is a natural phenomenon, because if a couple of years ago some term was not known to anyone, and now everyone is hearing it, then it turned out to be appropriate in the Russian lexicon and only occupied a free niche, displacing cumbersome and complex linguistic constructions. All this fully applies to the term franchise - "benefit", which we borrowed from French not so long ago, and now we are actively using it in domestic business. After all, many such foreign expressions are also found in the field of business relations, which reacts very quickly to changes in market conditions and is simply obliged by the nature of its activity to promote innovations to the masses.

Introduction

However, not all companies are guided by their own principles of doing business and building its hierarchy, for some it is much easier to follow the beaten path of network leaders, which provide ready-made management solutions. In simple words, only renting a trademark and its products is practiced, borrowing all the complexities of the system. As a result, opening a franchise business is sometimes much easier than competing withsmall players. If earlier only a few resorted to such methods of doing business - advanced nouveau riches or experienced businessmen with experience in organizing international companies, now everything is different, and no one will be surprised by such a model. As a result, conversations about what a franchise is in business are conducted everywhere. They compare the most famous examples of successful companies that have offered the market a universal or multicultural business model that has proven to be relevant in all corners of the world.

First use in practice

The most striking example, which is rightfully called the founder of franchising, is McDonald's. Overall, her success stories are the envy of many companies, but there are also some instructive moments. After all, the network owes its popularity not to the McDonald brothers, who organized the first fast food establishment, but to Ray Kroc, a modest businessman who previously sold equipment for making milkshakes. A significant meeting that turned the life of the whole society did not portend anything special. Ray Kroc went to have a bite to eat in a small establishment and was very surprised by the popularity of the system presented in it - fast and inexpensive food, delicious hamburgers with soft drinks were just the format that society with an eternal lack of time needed. After talking with the Macdonald brothers, the businessman offered to sell their idea throughout the United States of America and concluded the world's first contractfranchises. Ray Kroc's personal funds were not enough to advance the cause, and he decided to mortgage his own house. After this fateful decision, things move very quickly: now the McDonald's empire has more than 30,000 restaurants and is still gaining momentum, and the businessman is a billionaire.

Activity data

Some interesting statistics about establishments that are found in all corners of the globe, and a 52-year-old businessman who entered into a franchise agreement with brothers whose names appear on the signs of these restaurants:

• In the 70s of the twentieth century in the United States of America, citizens spent at least 6 billion dollars annually on food at McDonald's. At the beginning of the twenty-first century, these values \u200b\u200breached truly colossal figures - more than $ 110,000,000,000. These figures exceed the combined spending on books, magazines, newspapers, music, videos, education, leisure, computers and software combined.
• The popularity of the restaurant is due to the fact that it focuses on family values and children's holidays that are understandable all over the world. After all, the image of the clown Ronald McDonald is so recognizable that only characters known for millennia can compete with him - Santa Claus and Santa Claus.
• At least 90% of new vacancies that are freely available on the US market are provided by this well-known network. Every eighth person worked at McDonald's.
• The restaurant chain's advertising spending is in the millions and remains one of the mosthighest in the world.
• Starting a McDonald's franchise business is not as easy as it used to be, but with $300,000 for the minimum down payment, it can be done.

What did Ray Kroc do?

The businessman did not invent something new or make changes to the existing principle of customer service in fast food establishments. He just took the perfectly established system of doing business from the MacDonald brothers and rented it in order to subsequently sell it to other interested parties. All restaurant recipes, cooking features, prompt customer service, staff training principles and the necessary equipment were carefully studied and applied with the greatest efficiency in megacities, where they turned out to be more relevant than ever.

Compared to Subway

To finally understand what a franchise is in business, it is worth considering the principles of its functioning using real examples. Let's stop our choice on the closest competitors of McDonald's - Subway. They came closest to the power of the founding corporation of fast food chains.

Specialization

At its core, Subway also focuses on small businesses - the franchise of this restaurant is sold in almost all countries of the world, and at the moment they have more than 34,000 establishments. While the same "McDonald's" has only 33,000 points of sale. It would seem that a larger presence should lead to revenue leadership, but this is not the case. Annual revenue"McDonald's" on average exceeds the volume of financial flows of its competitors by almost 2.5 times.

Case studies

Let's dot the i's, because the question of what a franchise is in business causes a lot of confusion, especially when it comes to the principles of its functioning in various fields. Consider its common types in other areas of business.

Principles of opening a franchise travel agency

This organization is responsible for the implementation of leisure activities to the end consumer. After all, the franchise of a travel agency consists only in the sale and performance of intermediary functions between operators and consumers, for which the company receives its interest. The most obvious advantage of business cooperation between two parties in the field of business is that the start-up company minimizes the possible risks. After all, the organization opens under a well-known trademark, which speaks for itself and is, as it were, an additional licensing of a travel company and a guarantor of its solvency and reliability. However, if there is a choice - which travel agency franchise is better, then you need to pay attention to the following nuances:

• one-time fee amount;
• the presence of a monthly fee (roy alties);
• prominence of the organization;
• terms of work in business and its success;
• staff;
• number of company partners;
• availability of information about leaders in the public domain.

Manyfirms allow you to find out these questions in the online form of their homepage or after filling out a questionnaire on the site. After that, representatives of the organization contact interested parties and clarify all the details of cooperation.

Auto franchise business

Vehicles with internal combustion engines or other types of power plants are found on city streets regularly. After all, the days when a car was considered a luxury have long passed - now it is just a means of transportation. It justifies its existence by the convenience of traveling from point A to point B, and many happy owners can no longer imagine their lives without an "iron" friend. Therefore, service stations and service centers have become a very profitable business, the liquidity of which is beyond doubt. After all, it provides a stable income, and the profitability and prospects of its development are generally difficult to dispute.

Specific transport services activities

In auto service, a franchise can be a great solution for those who are just planning their own business. However, it should be understood that such investments should also be carried out wisely. After all, franchising in this area offers various packages - multi- or mono-brand. The fundamental difference in them is as follows: while a contract directed at one manufacturer allows you to work only with a specific brand of cars and keeps entrepreneurs within the framework of corporate foundations, focused on various manufacturersbusiness operates differently.

Business Principles

Away from megacities where people prefer used cars, it is rare to find the same vehicle models. Therefore, a mono-brand franchise for a small city will often be inappropriate (although there may be exceptions, as in the case of the Far East, where most vehicles are imported from the Land of the Rising Sun), while in megacities it is possible to successfully implement a project, where only cars of one manufacturer will be serviced (for example, Ford, Toyota, Mercedes, and so on). Thus, the services provided will be brought to perfection, and the flow of regular customers will provide the best advertisement for the service station or warranty service.

Risk prevention

If you need to create an insurance company, then there is no need for specialists to explain what a franchise is in a business for a particular case and about its importance in a service where customer acquisition is built on trust. After all, when organizing your own company, which will assume obligations to prevent or compensate for risks, it is important to rely on the experience of qualified market players, since it is impossible to build a liquid or properly functioning system from scratch. It is necessary to adopt the skills and principles of the activities of the largest companies or networks involved in insurance of both legal entities and individuals. After all, compensation for property or other casesupon the occurrence of obligations, they are reimbursed by the organization to its client in the amount that is provided for by the contract. It is the amount of such compensation that determines the insurance deductible. In the most common case, payments on it are carried out as follows. Compensation is not paid if the value of the loss does not exceed the amount indicated in the contract. However, the conditional deductible assumes that if the parties exceed the approved financial losses, an insured event occurs and the damage is compensated in full.

Advantages and disadvantages

Although the use of ready-made management technologies is fraught with many positive aspects, it is worth considering the issue comprehensively, since the legal nuances of the contract have a significant impact on the success of the case and may require some amendments. Therefore, before signing the papers, it is important:

• discuss aspects of future activities with auditors and consultants who, within their competence, can provide the necessary explanations or recommendations;
• soften the rules of cooperation and the conditions for resolving disputes;
• display in the contract the terms for making corrections by the parties, which will allow to fully adjust the terms of the franchise;
• make provision for mutual payment of legal fees;
• delete positions that recommend debate in arbitration proceedings, which is a private matter and does not set precedents;
• negotiate principles for contract renewal;
• prescribe the orderactions in case of force majeure situations and favorable conditions for the period of restoration work.

If these important conditions are observed, positive business results will not be long in coming and will delight both customers and owners who have taken responsibility for the development of the business.