Beginning entrepreneurs who decide to start their own business have to face many problems and difficulties. Often they lead, it would seem, a promising idea to collapse. In this case, working on a franchise, which is a collaboration with a successful company, can be a good option. This type of business is highly demanded in developed countries, where more than 30% of trade and service establishments operate using a similar system.
Definition of a concept
What is franchise work in simple terms? Such a business scheme means maintaining a special type of business relationship between an entrepreneur and a company that is successful in the market and has its own brand. That is, the franchise is a long-term lease of a business project. It provides for the acceptance of the terms of the company owning the trademark.
You can work under a franchise only when drawing up a special contract. This document provides for the provision of a whole range of services that will greatly facilitate the start of an entrepreneur who, after signing the transaction, has the opportunity to use the working style of a well-known brand, its name and attributes, company compositions and recipes, service and work technology.
There are franchise firms in Russia. Moreover, such a system of vision of business in the domestic market of services and goods today is developing quite rapidly. Based on the statistics, the franchise allows the entrepreneur to make good profits not years later, but only a few months after the start of business.
Basic concepts
What does it mean to work on a franchise? An entrepreneur who has chosen such a scheme to conduct his business should understand that after signing the contract he becomes part of a large trading network. For example, McDonald’s. And in his future work he will be a representative of this business.
In this type of cooperation, all relations are built between two parties, which are:
- Franchisor This is the direct owner of the brand. He implements a license that allows him to work on his behalf and under certain conditions, and also dictates a style of behavior to the entrepreneur, a business model, and consults on emerging issues.
- Franchisee This is the buyer who receives the right to use the trademark. The franchisee conducts all his business only on behalf of the seller, using his model of behavior, commercial designations, taking into account certain settings from the owner of the trademark. In addition, the buyer pays the company a certain fee for using its brand.
What are the basics of working on a franchise? The buyer needs to successfully conduct business on behalf of the owner of the trademark, follow his instructions and support sales. Such a business in most cases is the most profitable.
Franchise and franchising
A novice entrepreneur should understand that there are some differences between these two terms. And this despite the fact that both are actively used in such transactions. Nevertheless, the principle of the franchise is based on the acquisition of long-term rental rights, equipment, recipes, etc. Franchising is a slightly different concept. It denotes the process of buying a long-term lease. That is, this is a way of doing business in which a production technology or a brand is acquired, a branch of a well-known brand is created with appropriate staff training. Often you can meet such a concept: "franchise package." It implies materials, manuals and documentation that belong to the company.
Franchise Types
Doing business using a well-known brand can be carried out using various directions.
That is why several types of franchises are considered, which have some differences from each other based on the terms of the transaction, as well as the interest rate for using the brand. Among them:
- Free. Such case management schemes are the most popular option. What does it mean to work on a free type franchise? The terms of such transactions allow the entrepreneur to make their own innovations in project management. A free franchise is characterized by relatively small monthly interest deductions, the ability to use a brand, free interesting workshops and other privileges. The terms of this franchise resemble dealerships more than anyone else.
- Classical How does a franchise of this kind work? A transaction with its use provides for an initial payment, compliance with the rules of the trademark, as well as the provision of periodic reports on its activities to the head office of the company. When purchasing this franchise, the entrepreneur is dictated by clear conditions, and all his work should not go beyond the strict framework established by the franchisor.
- Business for rent. What does it mean to work under a franchise of this kind? In this case, the entrepreneur receives the business project in his own management for the period specified in the contract. Throughout this period, the income received should be distributed based on prior agreement.
- Gold. How does a franchise of this kind work? This option is suitable for experienced businessmen. At the conclusion of such a transaction, the entrepreneur becomes the sole representative of the brand in a particular region. In cases where the down payment is high enough, the franchisee gets great opportunities and broad project management rights. This includes the possibility of franchising other entrepreneurs.
- Silver This type of franchise is the most convenient. In this case, the seller company creates a new project. She also finds a rental space, looks for staff, and also solves all the necessary organizational issues. The turnkey business is handed over to the buyer by concluding an agreement with him, which indicates the amount of monthly payments. The company itself is removed from the leadership.
- Corporate With such a franchise, almost all franchisee actions are controlled and regulated by the company. She in this case controls all the work.
- Import substituting. How does a franchise of this kind work? Upon its acquisition, the entrepreneur will have to produce high-quality products that are analogous to branded ones. In this case, you should use your name. The seller in such cases provides all the necessary instructions and descriptions of technological processes.
How it works?
A franchise is nothing more than a fully prepared model or plan for conducting a business project. Thanks to its acquisition, the entrepreneur will not have to waste time solving various organizational issues. This option benefits both parties. The acquisition of a franchise allows the new owner to receive support and support. At the same time, he can start working without an impressive start-up capital, keeping up to 90% of his profit in the first month.
A similar deal is also beneficial for the brand. After all, a company implementing a franchise receives a steady income in the form of:
- The initial lump-sum lump-sum payment paid after the conclusion of the contract. The payment of this amount gives the entrepreneur the right to open a business project using a well-known brand mark. The lump-sum payment includes the expenses necessary for starting up, registering a new enterprise and equipping it with equipment.
- Royalty. This income represents a certain percentage of the total turnover. As a rule, the entrepreneur makes such a payment on a monthly basis to the franchisor account. Its size is in the range of 5-10% of the profit. Royalty is a kind of replacement for rent. For example, when opening a clothing store, how can a franchise work for an entrepreneur? This line of business provides for the regular purchase of goods from the franchisor for a certain amount. Similar actions replace royalties.
How does a franchise work? When drawing up the contract, it indicates one of the payment options (royalties), which for many franchisers that provide services or engage in trade, are the main source of income. Among them:
- percentage of the amount of sales;
- the established amount of payments that must be transferred either annually or once a quarter;
- trade margin that increases the value of branded goods sold by the franchisee.
As a rule, the amount of obligatory payments is quite acceptable for a novice entrepreneur. At the same time, the brand’s popularity helps to attract customers, which allows you to pay back your invested capital with minimal risk.
To the franchisor, such a transaction is beneficial not only in obtaining a stable profit. It helps to expand its niche in the market, while at the same time earning high income.
Types of franchise business systems
Today the market has:
- Franchising of goods. This system provides for the creation of a chain of stores selling food or industrial products. Often, the company itself is the supplier for the entrepreneur with whom she made a deal.
- Franchising services. This direction represents the development of a network of training centers. They carry out training of specialists for work in new branches. In addition, franchising services involves the provision of equipment and control over the work of an entrepreneur.
Actual Directions
To date, economists have identified about seven dozen interesting areas in which the scheme of such a business is the most popular.
Among them:
- production of popular drinks and products (chips, snacks);
- the opening of supermarkets selling building materials, food or gardening products;
- Wellness centers and gyms, massage and beauty salons;
- catering (the whole range of directions from reputable restaurants to eateries offering fast food);
- the implementation of oxygen cocktails and sports nutrition;
- repair and construction services;
- provision of quick microloans and pawnshops;
- branches of decor stores and household appliances;
- Representation of popular online stores.
The most promising area among all the available franchise schemes is those areas that provide various services to the population. It is here that the highest sales figures are shown, which allows the franchisor to receive significant amounts of royalties stably and without delay.
Implementation of the Conceived
What are the main steps that an entrepreneur decides to start his work under a franchise? To do this, he needs:
- Monitor the market. This is the first step in acquiring a franchise. An entrepreneur needs to study the market not only in his region, but throughout Russia. Carefully done work will allow him to find a good franchisor. Directions in this case can be chosen very different. For example, the implementation of electronics, gadgets, baby products, etc. Unusual trade directions may also be selected.
- Franchise monitoring. At the next stage, the entrepreneur will need to study the proposals that are available in this market niche. When deciding on a particular franchisor, it is recommended to pay attention to such criteria as its duration of work (you should not contact one-day firms), the success of franchise sales, and the brand’s popularity.
- Exit to a specific seller. An entrepreneur should contact several companies and specify their terms of cooperation, specifics of work, price of goods, percentage of sales, as well as the amount of royalties that he will need to pay regularly. From all the information received, it is necessary to find the company that will provide the most optimal working conditions.
- The conclusion of the contract. After making the final decision on cooperation and considering all the proposed conditions, you will need to sign the corresponding agreement. It should be borne in mind that for this it is necessary to have registration as an LLC or individual entrepreneur. With an individual, such transactions are not concluded. If you plan to purchase an online store franchise, how it works and what are the conditions of activity, the franchisor will also tell. A novice businessman will need to find an office, buy a computer, all the necessary equipment and hire at least a manager and a courier.
At all stages of the acquisition of a franchise, experienced entrepreneurs recommend consulting with lawyers and analyzing each step.
Franchise Benefits
Entrepreneurs working under a foreign brand have already managed to evaluate the positive aspects of this business scheme. They are as follows:
- Low risk. Entrepreneurs who do not have impressive business experience, from the first minute of their work begin to receive advice and support from the company. Often, franchisors accompany their partners throughout the term of the contract, while teaching them new technologies and techniques.
- Recognizable trademark. It is easier for those who start their business to gain a niche in the market if they are “under the wing” of a company that has good recommendations. After all, a service or product that is already known to customers will certainly be in high demand and will soon begin to generate first income.
- The minimum amount of time to promote the project. To create their brand, enterprises need at least two years. Franchise work can pay off after 5-6 months.
- Professional support. When concluding a deal with a large company, you can count on serious preparation for work. For their franchisees, such firms conduct training courses that address customer service, business and product development topics. Training of personnel who are to work on franchising technologies is also free of charge. Almost all brands provide legal assistance. It is provided at any stage of business. Opens up for franchisees and access to business-friendly information.
- Minimum advertising costs. Companies with a recognizable brand constantly allocate significant amounts to popularize their brand. Thanks to this, franchisees can limit themselves to low-cost advertising on social networks or in the media of their region.
disadvantages
In any transaction, you can find not only positive, but also negative points. The same applies to franchise work. This direction has some disadvantages that a novice entrepreneur should know about. Among them:
- Strict framework. How does a franchise work? An online store or a fixed point selling goods or providing services under a well-known brand must adhere to the rules established by the franchisor. The entrepreneur is not given the right to change the technology for the provision of services or the production of goods. Restrictions may cover such areas as the location and design of the premises, its area, as well as the number of personnel involved.
- Inability to choose raw materials or equipment. In addition to royalties, the terms and conditions of the procurement of materials are indicated in the franchise agreement. In this case, the supplier is only a franchisor company. Such a framework limits the entrepreneur in improving the business and its technical development.
- The high cost of profitable franchises. As a rule, the lump-sum contribution of many projects cannot be overpowered by an ordinary entrepreneur. The cost of franchises can exceed $ 50 thousand, subject to small regular payments. Such tactics are common to many foreign companies that invest significant amounts in advertising, as well as technology development.
- Constant control. A novice entrepreneur runs the risk of experiencing some discomfort due to the close attention of the brand to its activities, as well as the need for regular reports. All terms and options for the provision of documentation are negotiated upon conclusion of the contract. That is why before signing it is worth weighing the pros and cons of such close cooperation.
In addition to the above disadvantages, experienced managers indicate a high pace of work. A company selling a franchise provides a work plan for 2-3 years, the implementation of which does not allow the entrepreneur to relax.
Any violation of the standards will lead to the termination of cooperation.
Franchise Examples
There are many companies in Russia that are expanding the number of points through the implementation of franchises. These are such retail chains as Fix Price, Pyaterochka, Tele2 operator, 33 Penguin company and many others.
Famous franchise brands include McDonald's, Sportmaster, Orange Elephant, Subway, etc.