Principles of franchising
When you open your own business, a person faces many challenges. It takes a lot of time to unleash the brand and develop the technology. The ability to realize management talents, gain financial independence and make a business a profitable investment is the goal of every entrepreneur. However, due to inexperience, beginning businessmen often make mistakes, feel insecure. What is a franchise and how does it work? Why is a ready business franchise a reasonable choice? We will try to answer simply and affordably.
What is a franchise and how does it work?
A franchise is the right to use a company name, that is, a brand. In addition to the name, the franchise buyer, as a business partner, receives from the franchisor – franchise owner:
patent rights and inventions
right to use technology and strategies
core business model
In other words, a franchise is a set of relations between two parties, regulated by a contract that provides all the conditions for cooperation and indicates what kind of franchise the franchisor provides. This document is called a franchise agreement.
If you give a simple example – a franchise gives you the opportunity to open a branch of a well-known company for your money, which ultimately will be your property.
The buyer of the franchise for the first time receives the equipment, suppliers and assistants, if it is regulated by the contract.
What is a lump sum and royalty?
To buy a franchise, you need to familiarize yourself with the two methods of payment. The lump sum fee is a one-time payment of the franchise. Most often used for small projects and enterprises. After payment you have the right to use the brand name and technology of doing business.
Under a different payment option franchise imply royalties. This is a systematic payment (monthly, every six months, every year). Royalties often make up a fixed amount or percentage of revenue. The terms of the franchise allow two methods of payment of royalties: in a limited period and throughout the use. In most cases, royalties are chosen for large projects.
Main types of franchise
There are many types and types of franchises. Their classification depends on the terms of the agreement and purpose. Here are the main types of franchises that you should know about.
The most common type of franchise, in which an independent entrepreneur is offered an established business, name and trademark. Since the buyer receives all the necessary help and support from the company, the type of business franchise is often called a “turnkey business”. An ideal example of such a business would be the opening of a fast-food restaurant of a famous brand.
Provides for the purchase of the right to distribute the product that the franchisor manufactures. The buyer is obliged to purchase a certain amount of products, after which he receives national advertising campaigns, a trademark, a logo. A good example would be any brand of car manufacturer.
The manufacturer has granted the right to manufacture and sell the product under its trademark. Covers a wide range of products. For example, all food and beverages are made using this particular franchise.
What are franchises?
Direct franchise – the right to open one company in a particular place. The easiest type of relationship. If you have the opportunity and desire to open another institution or store, a new contract and payment is required.
Multi-franchise – makes it possible to take obligations to open several trading places in a certain territory for a specific period of time.
Master franchise – involves a clear commitment, but to all franchisees can sell the franchise in your region.
Free franchise – the owner of the rights does not control the buyer after the sale of the brand name.
Silver franchise – the company organizes the action of an open branch and only then transfers the right to temporary use.
Golden franchise – transfer of ownership of a business in a separate region with a monopoly of further development decisions.
The main advantages of buying a franchise
The advantages are that you do not start from scratch. You have a plan and technology work. All promotional materials are ready. You are known, you have potential customers.
You learn from the experience of the company, which makes the business productive. You are not at risk because the company is interested in your success and guarantees you support.
The main disadvantages of buying a franchise
Of the minuses a bit, but they are more than significant. First, it is the cost of the franchise. Of course, if successful, the soum pays off, but at the same time you can lose more than you would have spent on opening an independent business. Secondly, constant control and lack of discretion. Project conditions often clamp the buyer into a rigid framework on the path of business development. Any idea for change must be consistent with the company and can often be rejected.