Buying a franchise can be a good decision for a budding entrepreneur. He has the opportunity to reduce his own risks, as he acquires a business model that has already been worked out and has proven its own effectiveness.
The essence of franchising
Franchising is a special type of economic relationship in which one party (the franchisor) transfers to the other (the franchisee) the right to a certain type of business for a certain fee (royalty). In particular, the franchisee gets the right to work under the franchisor's trademarks, as well as to use a proven business model.
Despite the fact that while the number of firms operating under the franchising scheme in Russia is relatively small, this line of business is becoming more and more popular. There are several reasons for this trend.
The advantages of buying a franchise are the ability to use a proven and proven business organization model, which has already proven its economic efficiency in practice. The franchisor can help with emerging difficulties in doing business, in particular, to form an optimal assortment, provide an established logistics system, etc. At the same time, the franchisee has economic and legal independence.
By opening a franchise business, an entrepreneur already has a pool of brand loyal customers, which helps to reduce the company's marketing costs.
It is easier for an entrepreneur to plan his own business, because he can receive from the franchisor the amount of investment costs, as well as a detailed business plan.
How to choose a franchise
Before deciding to purchase a franchise, it is necessary to carefully analyze the commercial proposal of the franchisor. A huge number of proposals for starting a franchise business are presented in the public domain. It is worth initially deciding on the desired direction of work (trade, restaurant business, etc.), and then choosing from the presented companies based on their own investment opportunities.
Further, the analysis should be based on an assessment of the market potential of a business idea in the region, as well as directly from the franchisor. At the first stage, it is worth considering the prospects of the idea based on the population, the competitive environment, and the availability of appropriate retail space. Indeed, the indicators of profitability and return on business declared by the franchisor may be relevant only in relation to large metropolitan areas, and in a small city such a business may not be successful.
Franchisor assessment should be carried out in a comprehensive manner, based on a number of criteria:
- experience of the company in the market;
- the number of operating franchised enterprises, their financial indicators, the dynamics of opening and closing;
- the presence of a registered trademark;
- conditions for exiting the business;
- requirements for suppliers of materials and equipment - many unscrupulous companies strive to make money on this, offering deliberately unfavorable, onerous conditions for franchisees;
- what kind of support is provided by the franchisor.
Finally, it is worth assessing the overall impression of communication with the franchisor.
It is also advisable to contact companies already working on this franchise in order to find out the possible pitfalls associated with running this business and the difficulties they face.
What constitutes the cost of a franchise
The cost of a franchise consists of several components. As a rule, the contract provides for a one-time fee for the right to use the trademark. It is also called a lump sum.
Also, the contract may contain the amount of deductions for the use of the franchise (fixed, one-time, or a percentage of sales). These payments are called royalties and are a kind of rent for a trademark. But such a requirement can be replaced by a regulated number of monthly purchases from the franchisor.
Some franchises also provide monthly or annual payments to the marketing fund.
In addition to these payments, the entrepreneur also bears all the standard costs - rent payments, renovation of premises, purchase of equipment, salaries of employees, etc.
