Franchise: how to open, features, pros and cons

Many people want to start their own business, but can not decide on this crucial step. The reason for such indecision is the lack of an idea or 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 (holder) the right to carry out commercial activities on behalf of the franchisor, using ready-made schemes for the provision of services or sales of goods under the name of a well-known brand.

The franchisor, as a rule, is a well-known company or corporation that has managed to establish itself in the market on the positive side. In addition, it should have a positive image and a good reputation among consumers. Successful European, American and Chinese organizations are actively engaged in promoting the franchise, thereby expanding geographical boundaries and opening new offices for the sale of their own goods and services. How to open a franchise?

The franchise buyer is granted exclusive rights to conduct business under the brand name. The franchisor, for its part, undertakes to ensure the following:

1. A working and effective business project.
2. Ability to use intellectual property results.
3. Corporate identity and service plan.
4. Training and further training of employees.
5. Continuous interaction, support and advice.
6. Marketing promotion.

All of the above tools can guarantee a stable profit with a total payback period in a year and a half.

Material side

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

1. Paying a lump-sum payment. This is the initial payment that must be paid to enter into an agreement. This is a kind of membership fee or brand rental. The size of such contributions is so large that they simply can not afford the budding businessman.
2. Royalty. Paid every month to the owner. The amount depends on the percentage of franchisee income prescribed in the contract. In other words, the entrepreneur must monthly transfer to the owner of the brand a kind of profit tax.

But not all forms of franchise include these concepts. The conditions are case-specific. Some organizations take only a lump-sum payment, while others, on the contrary, do not have it, but the franchisee is obliged to pay monthly royalties. There are cases when the brand owner requires a down payment and commission for each month. Therefore, before deciding to purchase a franchise, one should really assess one's own capabilities.

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

Franchise Benefits

The franchise, like any other commercial area, has its pros and cons, which an entrepreneur should know about in advance. Opening a franchise from scratch is a difficult task, including resolving the relationship between the brand owner and the businessman.

The benefits of starting your own franchise business include the following:

1. An entrepreneur buys a ready-made business that has managed to establish itself in the market. It includes assistance in organizing, advising, supplying raw materials and other components. The acquired brand is already popular in the market, so the businessman will not have to spend money on its promotion.
2. For this area of ​​business, it is considered the norm to conduct consultations with the franchise owner, support in establishing relations with suppliers, service companies, advertisers, and so on. Franchisees do not need to reinvent the wheel; they did it for him earlier.
3. A loan in order to open a travel agency under a franchise, for example, is much easier to obtain. When making a loan, the brand owner can act as a guarantor of transaction security - this is a big plus. Ordinary entrepreneurs have no such 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 field and elementary management. But it will not be possible to do without spending, the funds will be required to improve their own business.
5. The ability to predict the financial situation. When you start your own business, it is very difficult to accurately calculate the profit. But in the event that you decide to open a coffee shop on a franchise, for example, everything will be much simpler. A large amount of data is provided to the entrepreneur, the use of which will certainly lead him to accurately predict the situation of prospects.
6. No need to study the market. All necessary information is collected and provided by the trademark owner. This is a huge time saver and a guarantee of getting the result in the first month of work.

Franchise Disadvantages

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

1. In order to open a franchise store, you need a lot of investment. Buying a ready-made business and launching it requires significant cash costs. As a rule, beginning businessmen do not have a large amount 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 brand owner incurs losses. This will inevitably affect the entrepreneur.
3. Obligations to the franchisor. Personal earnings will have to be shared with the brand owner. But the percentage of its share is very small, so the entrepreneur will remain in the black.
4. Foggy prospects. The liquidation of the franchise network leads to the mandatory closure of the business. The franchisee has the right to carry out activities only until the moment the agreement is in effect.

How to open a franchise, where to start?

First of all, it is necessary to determine the direction of activity. Experts advise choosing what is of interest and what a person understands. Especially if this is the first thing. If, for example, a future businessman does not understand anything in computer technology, then you should not open an office equipment store. Are you interested in fashion? You can safely open an online store of stylish clothes and accessories through a franchise. If you want to use the knowledge gained over the years of study at an economic university, study the offers of credit institutions.

In addition to personal hobbies, it is necessary to remember the financial side. It is not difficult to acquire a franchise business, 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 purchase a franchise:

1. Investment of own funds.
2. Bank loan.
3. Brand owner investing.

The most obvious option is to buy the case at your own expense. But not everyone has such an opportunity. Therefore, most entrepreneurs begin to build their own business with money borrowed from a bank.

There is a third option, allowing you to open a franchise store without investment. It involves financing from a franchising company. 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 entrepreneurial employee can be appointed to the position of the head of the branch, and after a while become its owner.

If this option is unacceptable, then you can look for an outside investor. One fact of acquiring a franchise significantly increases the chances of success - businessmen are more willing to invest in established brands than in startups. This is explained by the fact that no one can guarantee the success of the latter.

Choosing a profitable business

There are special organizations providing 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 selected brand will be profitable:

1. A wide network of operating points. When a company has many open points and all of them are successful, we can conclude that the brand has a future.
2. Period of existence. It is better to choose an organization that has been working on the market for some time and has managed to recoup investments. Otherwise, there is a great risk of running into those who are not going smoothly, and they sell franchises to cover their own expenses.
3. Entrepreneur support. You should 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 assessing the effectiveness of the selected project. One-day companies only assure that it is profitable to open this franchise, without specifying any specific numbers and without giving guarantees.

It is worthwhile to understand that even the most successful franchise cannot guarantee absolute success and high income - the businessman himself must make a lot of effort and effort. It is necessary to carefully study the market with which it is supposed to work - whether the audience has interest in the selected services or products, whether there are analogues, what are the prices and what are the competitors offering.

Further steps

Not sure how to open a franchise? After all the benefits and risks have been calculated, and the choice of a franchise has been made, several important steps will have to be overcome:

1. Updating a commercial project. As noted above, brand owners focused on long-term cooperation and obtaining results provide a ready-made business plan. It includes financial planning and estimates of necessary investments. This is a standard project that requires some changes, because the conditions vary depending on the city and the location of the point. The requirements for opening a franchise in Moscow and Samara will certainly be different.
2. Rental and repair of premises. Before choosing and repairing the premises, as well as hiring employees, it is worth learning about the requirements of the brand owner. Many companies establish a strict framework on this score - the area and location of the premises, design, team composition and more. Some franchisors help resolve all related issues and provide a ready-made design project. The most detailed organizations independently train employees, send merchandisers and organize the grand opening of the office.
3. Scheduled interaction with the seller. After the purchase and opening of the store, the parties are not limited only to regular payments, the brand owner takes an active part in the activities of the new point. The franchisor provides marketing support, provides training and retraining of personnel, is engaged in the development of shares to stimulate sales (special offers and sales). Retail stores receive recommendations from buyers on the purchase of specific goods. The parties regularly interact on the issue of procurement and delivery of goods.

Franchise payback depends on many points, but on average these terms are much shorter than when starting your own business, built from scratch. And the benefit is more stable, since the entrepreneur is insured against many difficulties that arise during independent conduct of business.

Franchise cost

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

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

Is it worth building a franchise business

Is it profitable to open a franchise? Yes, if you get to the point. Before making a decision, it is necessary to analyze the socio-demographic features of the area and the level of competition. An objective assessment and a detailed examination of the market situation will tell a novice businessman what direction to choose.

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