To run your own business, it is not necessary to go through all stages of its development. This may sound surprising, but you can rent it and make a decent profit. All this is called the newfangled word “franchise”, and what is included in the concept needs to be considered in more detail.

What is franchising

Running a business is a troublesome task, and not everyone is able to understand the nuances of it. Recently, it has become profitable to enter into a franchise agreement (commercial concession). This is a kind of agreement between two parties, where the owner of the business, called the franchisor, for a certain fee gives the right to use his name, brand, production technology and other aspects of the business to a person called the franchisee.

How beneficial this is can be judged by the following arguments. The most important thing is that the franchisor receives a monetary reward without investing in expanding his business. He doesn’t have a headache about how business is going in the branch, since the newly-minted businessman runs the enterprise using the owner’s proven methods. This is a kind of work on behalf of the owner, but at the same time the private owner is the owner of the business.

Lump sum payment and royalties

Since the owner of the business allows the entrepreneur to work on his behalf, he expects a certain reward from this - one-time or regular. The one-time payment is called a lump sum payment and is the payment to enter the owner's existing business. This is the so-called fee for the costs associated with starting a business. It is difficult to determine the exact cost of the contribution, since it depends on several factors that are considered individually.

Royalties, as payments to the king were also called (hence the name), are regular payments that are calculated based on agreements. They can be a certain percentage of revenue or trade markup, or they can be displayed as a fixed figure, which is stated in the agreement. If the lump sum fee has a certain figure, then royalty payments almost always depend on how efficiently the business operates, and are paid regularly at the end of each reporting period throughout the term of the license agreement.

What does the word franchise mean?

It is easy to define what a franchise is in simple words. Franchise is translated from French as benefit. The meaning of the word franchise and franchising are practically the same. They have a lot in common with the exception that in the first case they understand a license acquired to conduct business using someone else’s trademark, and in the second case they understand the purchase process, the transaction itself. Working, running a business under a company license - that’s what a franchise is in simple words.

How does it work

Each franchise has its own conditions, among which it is worth highlighting several agreements that are common to all contracts. Working under a franchise implies comprehensive assistance from the owner company. The owner of the brand provides the entrepreneur with descriptions, directions and instructions regarding running a business, hiring personnel, working conditions, recipes and other nuances, compliance with which is simply mandatory.

Upon expiration of the franchise agreement, it can be extended by mutual agreement of the parties. It is important to note that a large number of global companies use this simple form of doing business, since in this way they can make decent profits, develop markets for their products, making their own brand not only recognizable, but also popular.

In business

It is believed that all business endeavors have a very high risk of failure, which is why there are so many startups that close in the first years of their existence. This happens because a start-up business cannot withstand competition from large and successful market players or due to the fact that the owner of his own business does not have the knowledge necessary to run a competitive business.

Franchise business, on the contrary, in most cases, which is about 80% of the total, develops successfully. This happens due to the fact that, along with recommendations for running his own business, the brand owner gives the entrepreneur contacts of suppliers. In addition, the entrepreneur does not need to attract customers, since the brand is already recognizable.

In CASCO insurance

If you are planning to insure your own car in case of theft or damage, you can get a CASCO offer with a deductible from the insurance company. You have to be careful, because in car insurance it has a completely different meaning. The concept of insurance with a deductible is part of the monetary compensation that the car owner simply will not receive in the event of an insured event. It happens:

Conditional (the full amount is paid if the damage exceeds the established amount specified in the insurance contract);

Unconditional (all money is paid for repairs and auto parts, except for the amount of the insurance deductible).

In trade

To trade goods of a certain brand, the franchisee enters into a cooperation agreement with a well-known brand. A franchise in trade has its own characteristics that must be strictly observed. These include certain dimensions of the premises that the franchisor requires from the entrepreneur, color design, location and much more. Only if you comply with the entire list is it possible to obtain a franchise.

Pros and cons

There is probably no ideal business, so it’s worth highlighting the advantages and disadvantages of a franchise:

a project “with a name” is acquired, becoming part of a large corporation; there is no need to spend money on promoting your own business; the possibility of obtaining an exclusive right to engage in activities in the region; the package of documents includes patents, licenses, etc., so there is no need to waste money and time on obtaining them; centralized advertising company; quick income generation; training and all possible support from the founding company.

high cost of the project; the need to strictly comply with and follow the policies of the parent company; the possibility of fines for violation of agreements; lack of creative (personal) vision of the business concept.

Types of franchise

Depending on the country of doing business, there is a varied classification of the concept. Depending on the degree of freedom to run your own business, a franchise can be:

• classical;
• free;
• Full construction;
• for rent;
• master franchise;
• corporate.

By type of business there are:

• production;
• commodity;
• business;
• conversion;
• daughter

Currently, there are a large number of franchise businesses. Among the giants in the field of catering and fast food are McDonald's, Grillmaster, and KFC. Zara, Waikiki, Milana, Kiabi - stores selling clothing and shoes that have grown into large retail chains, running their business as a franchise. The list goes on with many examples of companies that have become widespread thanks to franchising.

How to buy a franchise

The first thing you need to do before deciding to buy a franchise is to weigh your financial options. The purchase is not limited to a lump sum payment. You must have money for registering a legal entity, renting premises and other expenses. A simple and cheap option would be an Internet franchise, since there is no need to rent premises. On the other hand, when opening a stationary outlet, a manufacturing franchise will cost significantly more than a clothing franchise.

If all this is taken into account, then you need to decide on the business you plan to do. It is important to remember that franchising implies a ready-made solution, therefore, when opening, for example, a bakery franchise, you will not be able to add something new to baked goods based on your personal vision, but will simply have to follow the corporate concept. Buying a franchise in Russia, as elsewhere, involves personal acquaintance with company representatives in order to understand how profitable the business will be and how much it will cost.

When choosing a specific company, you can ask the franchisees who are already running the business, how profitable it is, and what kind of assistance the parent company provides. These points are very important. It is possible to purchase a franchise without having initial capital or with minimal investment. A businessman will have to find suitable premises and ensure profit at the initial stage. A striking example is a pharmacy franchise or a film franchise. You can borrow money from banks, some of which have loan programs.

What you need to know when purchasing

You can find offers for purchasing a franchise on specialized websites on the Internet, where all the information about the franchisor is provided. Here you can see the cost of projects, contact information, email where you can send a request. Since business is a risky business, you need to know that problems and mistakes are possible when buying a franchise, which can even lead to bankruptcy.

All this can be avoided by carefully studying and conducting a detailed analysis of this information. When choosing a field of activity, you need to study the feasibility of purchasing a franchise for a specific region where you plan to do business. It is important to know that an option that is perfect for a metropolis or a large city will not always work for a small town.

Terms

Each franchisor puts forward its own specific conditions for purchasing a franchise. Some people do not trust newcomers to enter the business, which is common; for certain corporations it is important to have areas of a certain size. This applies to the sphere of trade. All conditions are specified in the contract and their implementation is simply mandatory.

Cost

Many people have encountered the problem that the cost of an inexpensive franchise can grow significantly at the final stage. For this reason, before starting the procedure, you should carefully study all the features of running this business. Calculating the cost of a franchise rests entirely on the shoulders of the franchisee, since the founding corporation may not take into account all the nuances in its proposal. These include not only a lump sum contribution and royalties, but also the investments that an entrepreneur will need to make to start a business.

Do not hesitate to communicate with representatives of the franchising departments of even large companies to obtain detailed information. In addition, if you do not have confidence in your own abilities, you can involve experienced specialists - lawyers, accountants, economists - in order to avoid problems. Since corporations and their directors present average estimates, it is worth making the calculations yourself depending on market conditions in a particular region.

Franchises in Russia

It’s impossible to say which are the best franchises in Russia and which are not, but you can give a small rating to highlight the successful ones that can bring a good income:

• Felix. Russian manufacturer of office furniture.
• Crossroads Express. Shops within walking distance with a cafe-bakery.
• Positronics. Network of electronics stores.
• InCity. Clothing stores. Opening does not require a lump sum payment or royalties.
• MrDoors. Production of cabinet and built-in furniture.

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