How to choose and open a franchise business - tips and recommendations from a successful franchisee + reviews of popular franchises

What is a franchise in simple words

Today, leaving the office, I noticed that a large beautiful sign had appeared above the neighboring porch. Playing with LED lighting, it invited everyone to come inside and taste the real bean coffee. How amazing! Real coffee before work, and maybe even after, is a great option for me. And their coffee is delicious, somehow they make it in a special way, which makes it taste better than in many other coffee shops. I was lucky that such a coffee shop opened right next to me. That's what I thought until a couple of months later I saw five more of the same coffee shops in different places.

The question arose - how did the owner of the coffee shop manage to do this? After all, it takes at least one and a half million to open one coffee shop. Rent of premises, equipment, personnel, taxes, products. It turns out that this is not just one such wonderful entrepreneur with a lot of money that he simply would not have time to earn in a couple of months from one coffee shop.

It turns out that these are five different entrepreneurs who paid the owner of the very first original coffee shop to share with them the recipes for his delicious coffee, and also allowed them to open identical coffee shops under the same name, which will help them quickly gain regular customers.

This is called a franchise - buying the rights to a business model.

So that you don’t get confused, I’ll say right away - every entrepreneur who bought a franchise from the first one opened a new coffee shop with his own funds. But it’s better to look at this question along with a description of the meanings of other terms that you will definitely come across more than once.

Franchise and franchising: are there any differences between them?

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Most people, including those running their own business or just wanting to start their own business, do not have proper economic education. And often they don’t know exactly what a franchise and franchising are and confuse the terms. Both concepts essentially mean the same thing to them. But these two definitions have different meanings, and you need to be able to differentiate them. We have already discussed above what franchising is in simple words.

It is important to know! A franchise is the direct acquisition of rights to sell goods and services on behalf of a specific brand or brand. Sometimes the term is replaced by the phrase “franchise package”. But this is not entirely correct, because it is received only after signing the contract.

The package of documents contains everything necessary to open a business and run it, as well as important and useful information. The list of documents is stipulated in advance in the contract and specified upon signing. Now the difference between the terms franchising and franchising becomes obvious.

Franchising Dictionary

So, we have the first entrepreneur who actually came up with and implemented a coffee shop project where people can try delicious bean coffee. When he sells a franchise, he is called a franchisor (franchisor).

We have five entrepreneurs who buy a franchise from a franchisor. When they enter into an agreement with him, each of them is called a franchisee.

Franchisees pay the franchisor a lump sum fee - payment for the right to the franchise and everything that is included in it.

Then they spend a certain amount of money to open their own coffee shop with the same name. Together with the lump sum contribution, this amount is called starting investment . Why starters? Because then entrepreneurs will need to invest more money to keep their coffee shop afloat before it breaks even.

And there are also royalties . This is also a certain amount of money. And it is also paid by the entrepreneur who bought the franchise. But if the lump sum fee is paid once, then the royalty is paid periodically. For example, once a month. Of course, this payment is incomparably less than a lump sum payment.

Not all franchises have these payments. It all depends on what format the franchise is. So, for example, if you buy a shoe store franchise from a shoe manufacturer, it is likely that you will not pay royalties or a lump sum fee. Instead, you will have an obligation to purchase a certain volume of shoes for your store.

In fact, there are a lot of terms in the field of franchising. Therefore, if you want to learn more about what franchises are, what advertising fees are, a brand book, corporate style, master franchise and trademark (as well as much more), then we have written an article “Franchising Terms” especially for you.

In order for all these payments and the right to use the brand, as well as technologies, to be legally formalized, an agreement is concluded between the franchisee and the franchisor. In everyday life it is called a franchise agreement . Or a franchise agreement.

But this is only in everyday life. In fact, it will be called either a commercial concession agreement or a license agreement . This discrepancy is due to the fact that, unfortunately, franchising is almost not spelled out in Russian legislation. Despite the fact that the agreement in this matter is the most important thing.

Therefore, we strongly recommend that you read the article “Commercial concession agreement”. It describes in detail what the differences are from the license agreement and why this is important.

Definition of concepts and their differences

Franchise is translated from French as a benefit and means a certain set of documents and rights to use elements of a business. Such elements could be:

• know-how and technology;
• business methods;
• trademarks, marks, logos;
• brands;
• business models;
• software, etc.

In essence, this is a “rent” of a certain brand or trademark, the acquisition of the right to use all its developments, technologies, and reputation in order to obtain one’s own benefit in the form of profit. Franchising is the process of buying a franchise, a certain agreement between the parties to the contract. Simply put, a franchise is an object of franchising. The parties to this agreement are the franchisor and the franchisee. The first is the one who sells the franchise, the second is the one who buys it.

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The contract also stipulates payment of the cost of the franchise. It comes in two forms:

• lump sum payment – ​​one-time payment of the cost of the franchise;
• royalty - payment of a percentage of the profit received in the process of using a franchise or payment of a fixed payment for a certain period.

A businessman assumes certain obligations:

• produce products in compliance with the requirements for their quality and applied technologies;
• carry out activities in a strictly established place according to the intended scheme;
• use the franchisor's trademark.

What is a franchise business? An expert in the field gives the answer in the video.

Types of franchises

In Russia, franchising began to develop much later than America, where this system originated. However, by 2020, domestic franchising has already made great progress. Despite the fact that at the legislative level and in legal practice it still remains undeveloped. There are more than 3,000 franchise offers of completely different formats in our country. Actually, the franchises themselves are different.

There are production franchises . When a manufacturing company sells the technology for producing a particular product and the right to produce this product independently under the brand of this company.

Product franchises are very common. In fact, this type of relationship used to be called dealership. But since franchising has become very popular in our country, the term “dealer” is used less often. The essence of the relationship is that the franchisor produces and supplies the product, and the franchisee sells it. Most well-known clothing and footwear brands are product franchises.

Service franchises, unlike product franchises, sell services. Phone repair franchises, dry cleaning franchises, car wash franchises. The franchisee here receives from the franchisor a brand and technology for providing the service, on which they earn money.

There are a lot of types of franchises, as well as options for their gradation. For example, there is an exclusive franchise , when only one franchisee has the right to represent the interests of the franchisor in a certain territory.

There is a master franchise , which makes the franchisee actually a franchisor, allowing him to sell the franchise to other entrepreneurs. Typically, master franchises are sold to other countries so that the company’s franchising can develop more independently in their territories. This is how most of the world's most famous companies operate, such as McDonald's, Subway, Papa John's pizzeria and many others.

You also need to know that insurance has its own concept of deductible. It means that part of the damage that will not be paid in the event of an insured event and has nothing to do with business franchising.

media product is also called a franchise . A series of books, films, comics, etc., which are united by the same characters, or one world. For example, the Harry Potter franchise, the Lord of the Rings franchise.

The word “Franchise” can also be found in sports . Especially when it comes to American or Canadian sports teams. In fact, here the franchise is the team’s brand.

Pros and cons of franchising

The second point in our review will be the advantages and disadvantages of this type of cooperation such as franchising. Find out how to choose the best franchises based on individual criteria.

Positive sides:

• By purchasing a franchise, an entrepreneur receives a fully tested and proven business project;
• the brand under which the partner legal entity acts is already known to a wide range of people and has its own loyal target audience. You won’t have to advertise and “sell” it to the public and earn their trust;
• employees of the parent company have already gone through all the difficulties of starting a business. So you will have reliable “guides” and many real running projects from which you can learn experience.

As for the negative aspects:

1. Strict regulations for doing business - under a franchising agreement, the franchisee does not have the right to develop its own business strategies and use methods of doing business not specified in the policy of the parent organization. Violation of this rule threatens you with large fines and termination of the contract (as the maximum penalty).
2. The focus of attention is not on you - this means that all the merits of your partner company will in any case be attributed to the entire brand and the franchisor himself, as a consequence.

So, in this case, there are “two sides to the coin” - you can and should work well, but you will not be able to get all the “fruits” of your efforts.

Why sell and buy a franchise?

To make sure everything falls into place, let’s look at why someone sells a franchise (it’s easier) and why someone buys it (it’s expensive).

Franchisor benefits

The owner of the original coffee shop, the same one who came up with the recipe for delicious coffee, would never have opened another five, ten, or fifteen coffee shops at once. Most likely, he would have limited himself to one or two. Simply because it is very expensive. Yes, he makes good money from his coffee shop, because it is popular and the consumer likes it. But imagine, he will need to spend one or two million to open one coffee shop, ten to twenty to open ten coffee shops. And this is only within the same city. Opening costs in other cities will be many times higher.

No, maybe he set himself the goal of conquering the market, but it would have taken him eight years. Not less.

But here, completely different people open coffee shops. With your own money. A lot at once and in different cities at once. And from this he also makes a little profit. But the main thing is that the expanded network is beginning to turn into a recognizable brand and there are even more visitors. This means you need to sell a franchise for two reasons:

• Rapid network expansion
• Increasing brand awareness

But you definitely have a question - what about profit? Why didn’t you, the author, say that the franchise needs to be sold in order to make money? And that’s all because this is a “slippery moment”, due to which there are still many problems in our Russian franchising. But we will return to the explanation later, when we get to the section “Problems of Franchising.” For now, suffice it to say that increasing brand awareness is a phenomenon in itself that can increase a company's profits.

Why buy a franchise?

As we understand, the entrepreneurs who bought the franchise of this wonderful coffee shop not only opened new establishments with their own funds, but also paid a lump sum fee to the franchisor.

Hence the question - wouldn’t it have been easier for them not to invest so much money, but to spend only the part that was needed to launch the new coffee shop itself?

Maybe. But this is far from a fact. Let's briefly explain why:

• Firstly, this coffee shop has already gained popularity in its city. And the entrepreneur who buys the franchise expects that when it opens, he will not have to re-introduce people to what delicious coffee they make there. Right from the start it will have a small, but still audience of clients. And since a chain of coffee shops with this name is growing rapidly and quickly becoming recognizable, every point, wherever it is located, simultaneously increases this recognition and gains an advantage by being involved in this rapidly growing popularity. This means: A franchise is bought for the sake of an already created brand.
• Secondly, the entrepreneur himself may not know how to brew coffee that’s just as delicious, so that everyone who comes in and tries it exclaims, “This is damn delicious coffee!” I’ll probably come here more often!” But the first coffee shop has already proven that this is exactly what visitors exclaim (relatively, but the principle is clear). This means that entrepreneurs: They buy a franchise for the sake of unique technology and know-how
• Thirdly, the entrepreneur who buys a franchise may not have any business experience. Of course, he can figure everything out on his own. And what kind of premises to rent for a coffee shop, and what kind of permits to issue, and what to train the staff, and under what taxation system it is more profitable to pay taxes, and which supplier is better to order coffee from, and which has the equipment for brewing it. But until he figures it all out (it’s not a fact that he gets it right the first time), he will spend a lot of time and money. And the franchisor - the owner of a coffee shop, when they buy a franchise from him, immediately gives all these instructions (if he, of course, responsibly approaches the sale of the franchise, but we will talk about this responsibility a little lower). A franchise is bought for the sake of ready-made instructions that will indicate the most profitable way to launch and run a business.

Thus, entrepreneurs choose to spend money on buying a franchise instead of investing it in opening their own business, simply because it is not a fact that they will spend less in their business, and because the franchisor has a ready-made and tested scheme for developing this business.

Note: many problems in franchising arise, including due to the fact that the franchisee thinks that the franchisor will do everything for him. No. The franchisor simply gives instructions, recommends and regulates.

Advantages

Franchising opens up new horizons both for the franchisor himself and for the young aspiring entrepreneur. The first expands the network of his business, the second, in turn, gets a chance to start activities without coming up with new ideas.

Reputable franchisors carefully analyze the market and conduct a lot of marketing research before selling a franchise. Therefore, the buyer can be sure that there is demand for the purchased product. An independent analysis would result in significant costs and errors for the franchise buyer.

The franchisor provides the results of his research to the entrepreneur with a detailed description of competitors and their market share. He will also give the aspiring businessman competent marketing recommendations and teach him the basic tricks of the job. An entrepreneur will not have to worry about promoting the product through advertising, spending money on materials and negotiating rental terms.

What are the advantages for the franchisor:

• Expanding your business in different regions or countries with minimal expenses.
• There are virtually no risks. The franchisee is responsible for the conduct and development of the business and, accordingly, assumes financial risks.
• Brand promotion and increasing awareness. The number of open establishments directly affects the popularity and dissemination of information and reviews among people.
• High income from the sale of services/products. The franchise is transferred on a paid basis. The owner company receives a fixed income from this.

Benefits for franchisees:

• Minimum risk due to the acquisition of a ready-made business model.
• There is no need to spend money on advertising. The brand is already recognizable and even if expenses for promotion are required, they will be minimal.
• The franchisor provides the entrepreneur with personnel training services and gives detailed instructions on the correct conduct of business, which most often leads to one hundred percent success.

How much does a franchise cost?

Now that we've briefly gone over the terms of franchising, it's time to look at the cost of a franchise. All these lump sum fees and royalties are a complete robbery, businessmen are making money and want freebies. This opinion can be heard quite often. Therefore, we hasten to clarify and answer two questions:

• How are the lump sum and royalties formed?
• What happens if you don’t pay a lump sum fee and royalties?

First, let's get it out of the way that fraudulent schemes exist in every industry. Franchising is no exception. And indeed, some companies randomly set the size of the lump-sum contribution, without justifying them in any way, not only for partners, but even for themselves. This is the wrong approach. And it always leads to loss of reputation with problems.

Secondly, fortunately, there are many more honest franchises. And they set the size of payments adequately to the effort and impact.

So, the size of the lump sum contribution is determined based on what exactly the franchise provides. If this is a standard set of small instructions on starting a business, the right to use a brand and periodic consultations, then the fee will not be large. The franchisor simply does not spend much to demand money for it. However, such a system can also be useful for franchisees. For a small fee, he receives a ready-made business project and tries to implement it, periodically consulting with the franchisor.

But there are franchises that really give a lot. Moreover, the head office allocates entire departments to work with the partner, which accompany him, people’s time is wasted, full training is provided in all the intricacies of business, the first steps are accompanied, and the first transactions are concluded together. In general, everything is done so that the franchisee gets into the working rhythm as soon as possible, understands how and what works in the company and is able to earn money, bringing profit to both himself and the entire network.

In such cases, the lump-sum contribution is usually calculated at the minimum, but based on how much the franchisor himself spent to include his new partner.

The situation with royalties is similar. Any services cost money. The right to use technology and brand, employee and business owner time for consultations, general advertising campaign, periodic supply of promotional materials and other services that the franchisee receives monthly.

This means that royalties, like lump sum payments, should be formed based on specific parameters.

Both royalties and lump-sum payment are specified in the contract as mandatory payments. So there is no question of not paying them. Unfortunately, in practice different situations arise. And if everything is clear with a lump sum payment - it is paid before the main work begins, then the monthly royalty often becomes a stumbling block. Especially in conditions when the new business has not yet reached profitability, and you are already paying royalties. But since this is a contractual obligation, the franchisor can easily sue for non-payment.

What is better - a franchise or your own business?

How to choose a franchise - expert advice

People who have firmly decided to start a franchise business, but have not yet decided on the direction, are faced with the problem of choosing a project. As in any business, there are a lot of nuances and pitfalls.

In this section, I have collected the most useful and valuable tips that will help you enter the business with minimal risk and maximum efficiency.

Tip 1. Choose a direction that you like

This is what I said at the very beginning - the business you are going to start should be interesting to you. Even if you don’t understand the chosen direction at all, you should have the desire to spend time studying it and finding out all the nuances.

Do not choose a franchise based on financial indicators. Experience shows that if you chase only easy money, nothing will work out. You should be inspired first of all by the idea and only then by the future profit.

Tip 2: Make decisions based on numbers

The project you choose needs to be carefully researched. This is where it’s worth taking a closer look at the numbers.

What numbers are important:

1. How much money do you need to invest in the business?
2. How many months will the investment pay off? How long will it take you to get back your lump sum contribution and other investments?
3. How much will your monthly franchise income be?

The responsible franchisor communicates all this information to the client first. An honest franchise is a clear and transparent franchise.

Tip 3. Look for reliable information

However, you can’t take the franchise owner’s word for it. His information needs to be verified. To do this, we need confirmation that the project is already working and has been working for a long time. In general, the more transparent the company’s activities, the higher the percentage of trust.

If a company has video materials that talk about its work, if there are a lot of positive reviews about it on independent thematic platforms, all of these are pluses for the franchisor’s reputation. The more employees a company has, open branches, and videos on the topic of the project, the better.

Information about projects is available ONLINE!

Thus, “Heritage of the 21st Century” is making a special show in which the entire work cycle is shown as openly as possible, without any censorship or embellishment - starting from the arrival of newcomers to the project and training from scratch, to a full-fledged working business after seven months.

It’s bad when absolutely nothing is known about the project and the scant information on the official website contains only unsubstantiated statements about profit percentages.

Tip 4: Gather feedback from other franchisees

To finally make sure that this is a living, working project, ask other franchisees about it. Feel free to ask questions on social networks, in personal correspondence and instant messengers.

But don’t make the typical mistake - don’t ask for an objective opinion from those whose business hasn’t worked out. You still won’t know the real reason for the failure.

No one will tell you that the business did not take off due to basic laziness, reluctance to delve into details and innate indifference.

Look for those who have a successful business - honest franchisers themselves will give you contacts of such people, since they are interested in scaling the enterprise.

Tip 5. Check if the franchise is suitable for your city

Another important point is to understand how suitable the chosen destination is for your city.

To do this, you need to call the franchisee and ask what is important for their business, understand the specifics of the business and find out what to look for when opening a branch in your city.

All businesses will have different “requirements”, but the main ones are:

1. Competitor analysis.
2. Selecting a location.
3. Calculation of traffic (throughput).

Tip 6. Collect feedback, not rumors

It is also important to analyze reviews correctly. People often confuse rumors and real reviews backed by evidence. Listen only to those who have used the product and personally opened a franchise or received training.

People who are not directly involved in projects can write whatever they want online. However, you should not rely on their opinion.

Franchising problems

We will not dwell here in detail on the analysis of all the problems that exist in franchising, but it is impossible not to mention them at all.

Problems on the part of the franchisor

Business model untested.

Imagine that our coffee shop owner started selling a franchise immediately after opening his own establishment. That is, he did not stay on the market for even a year, did not analyze the demand of the potential audience, and did not achieve any result. Maybe it hasn’t even reached payback yet. But he started selling the franchise. What could this turn out to be? The fact that every entrepreneur who pays him a lump sum fee will receive nothing but a title, and will deal with all problems and issues himself. Naturally, there is no point in such a franchise.

The franchisor has no rights to intellectual property.

In this case, the owner of the coffee shop may even work for a long time and successfully. But since he does not have exclusive rights to the name, to recipes for making coffee, or to anything else, it turns out that he is not selling a franchise, but “zilch.” How can this threaten everyone who buys a franchise (and the entire network)? The fact that at one fine moment another entrepreneur will come, register the rights, and say - you use my property. Here's a summons and a claim for damages.

The franchise cost is too high.

To open a coffee shop, it will take a million and a half, if on average and very approximately. And the owner of the franchise wants entrepreneurs to not only invest this one and a half million, but also pay him a five hundred thousand lump sum fee. No, of course, no one will forbid you to do this. Another thing is that expensive franchises sell very slowly. But the problem is not that few people will buy it, but that this lump sum payment is too high. After all, it should not be taken at random according to the principle “I want to earn hundreds of thousands, so I’ll put up a lump sum.” No. The lump sum fee consists of the franchisor's costs for opening a new franchisee outlet, as well as the profitable part. And when the lump sum payment is very large, it becomes clear that the income part is too high.

The franchise is poorly packaged

Franchise packaging is the process of creating a franchise offer. This is a slow and difficult process. But it often happens that in pursuit of a dream (read: quick money), the future franchisor treats the process superficially and does not study the proposal. What do we get as a result? Usually, after paying the lump sum fee, the franchisor is not particularly keen to communicate with the new partner. Because he simply doesn't know what to do. All this leads, at a minimum, to a decline in the franchisor’s reputation, and often to litigation.

For information on how to properly package a franchise, read the article “How to package a franchise yourself, detailed instructions.”

No market analysis has been carried out in other cities

Often this problem occurs unexpectedly. Like snow for utility workers in December. To understand what the point is, let's return to our coffee shop owner. He is doing well, he is developing and has already successfully sold two franchises in his own city. And they are doing well too. The business building scheme is working. And then he sells the franchise to another region. And the problems begin. The profit of the new establishment is minimal, the payback is not approaching, although everything is done the same as in previous cases. What is the problem? The fact is that the differences in the market of that region were not taken into account. And if an analysis of purchasing power and the competitive environment were carried out, it would become clear that the price tag for a cup of coffee at this coffee shop is too high for this region and the market is simply crowded with coffee shops that are no worse, but cheaper. The analysis had to be carried out even before signing an agreement with the new franchisee.

Problems on the part of the franchisee

They will do everything for me.

We have already mentioned this problem. A franchise is the sale of rights. And not buying a ready-made business. An entrepreneur will need to work a lot and persistently, and not sit with folded arms, waiting for profit.

Yes, franchises may offer different conditions. In some cases, the franchising offer package includes personnel selection, in others – a full-fledged launch. But the essence remains the same - to achieve a result, you will need to try.

This is my business, I do what I want.

An entrepreneur bought a coffee shop franchise, but instead of following the franchisor's instructions, he decides to take matters completely into his own hands. Raises the price tag, although the franchisor indicates that this will scare away customers, removes tables for visitors, although the franchisor says that this is mandatory, since visitors like to drink coffee inside, begins to add spices to the coffee, although the franchisor does not recommend this, since the coffee the competitor’s spices turn out to be tastier; he doesn’t promote his Instagram account, although the franchisor pointed out that this increases customer flow by 10 percent (all these are just examples).

As a result, the proven scheme becomes untested and most likely ceases to work.

Note: one of the disadvantages of franchising that everyone pays attention to is the share of slavery. Although everyone loves to use the phrase “start your own franchise business” in commercial proposals, in fact it will not be entirely your business. And you can buy a franchise only when you are ready to accept the rules of the game of the head office.

Why should I pay every month, I have already paid a lot.

Giving money is always difficult. Especially if the profit is still minimal. So it happens that the franchisee begins to delay or ignore the payment of the royalty specified in the agreement. This is wrong, simply because the conditions were agreed upon initially. Leads to a deterioration in relations and often to courts, which takes both time and money from both parties.

This is only part of the problem. But it was necessary to talk about them in order to have at least an approximate idea of ​​what can happen in franchising.

Franchisee problems

Alas, franchising is a complex area, like any business. And problems can be encountered at every step. Here we will list the most common ones that franchisees encounter when buying a franchise.

Expectations are not met . The problem is very common. The fact is that in advertising offers, franchise sellers use such a clause as “average payback period.” Conscientious franchisors set a truly average rate for all their franchisees. But it happens that the timing of achieving a net profit is underestimated. But no one will stipulate such things in the contract, because too many factors influence this. And when promises do not match reality, it becomes very disappointing. The only way to avoid this is moral preparedness and logical thinking. Don't expect super results from the franchise. Just try to come to them.

Note: buying a franchise does not mean that everything will be done for you. In no case. You can also open and develop a business yourself. Just do this with the experience of the franchisor and according to a ready-made scheme that has been tested by another company.

The franchisor is deceiving . Alas, deception on the part of franchise sellers also occurs. And the only way not to fall for it is to pay attention to every little detail. Especially to the franchising agreement. If something happens, this will be your chance to save the situation. Well, when choosing a franchise, carefully study everything - the history of the company, its achievements, terms of work, and reviews (although be careful here, as a rule there are almost no positive reviews), and not just the commercial offer.

Royalty . Royalty is a payment that the franchisee pays regularly once a month (sometimes once a quarter). It is appointed by the franchisor and specified in the contract. We included it in the list of problems for one simple reason. Often franchisees do not pay attention to royalties, because 3-4 percent of turnover seems like a small amount. But when the payback is still far away, there are still few clients and there is no profit, any amount that needs to be paid becomes very noticeable. And some franchisees “forget” that they are required to pay it, or even begin to “download their rights.” This is where problems come in. Because according to the contract, the franchisee is obliged to pay royalties. Be more careful and be aware of what opportunities you have and what responsibilities you have.

No guarantees. A franchise, like any business, cannot guarantee anything. It is a fact. Therefore, when buying a franchise, an entrepreneur risks hardly less than opening a business from scratch. But there are much more tools for becoming more successful with a franchise than with your own business. There is no solution to the problem as such. Although some companies give a guarantee that if, following their instructions exactly, you do not break even within a certain period, then this company will buy the franchise back. But this is a fragile topic. It is very difficult to follow all the instructions exactly.

Franchise example

In fact, you see examples of franchised establishments every day. One of the most famous examples is McDonald's.

All McDonald's restaurants are franchised, each of them has its own manager, who, however, is completely subordinate to the clear instructions of the parent company.

In general, the fast food industry has the most examples of franchises - the same Subway - the most common franchise - more than 24 thousand open points. From coffee shops, you are definitely familiar with the famous Starbucks. If we take our domestic one, then everyone is hearing about Cofee Like.

But franchises can be found not only in the fast food industry. For example, many well-known stores are opened as franchises. For example, clothing stores Befree, or Colin's. Shoe shoes Zenden, Mascotte, Karri.

Kitchen franchises - Maria, fitness clubs - Fit Curves, gas stations - Lukoil. There are franchises of quests, production, real estate sales and real estate agencies, franchises of IT companies and mobile applications, hotel and hostel franchises.

There are companies in all areas that are expanding through the sale of franchises. There are so many of them that it is often difficult to choose just one. Moreover, when searching, you can easily miss some interesting offer. Actually, so that you don’t miss anything and to make searching convenient, we have created a catalog of franchises, which is designed to make the task easier for both an entrepreneur who is looking for a franchise and a franchisor who is looking for buyers.

Therefore, today this tool is more popular, and often more effective than starting your own business from scratch. In general, in this article we examine in detail the question of which is better - a franchise or your own business.

Advantages and disadvantages of organizing a business according to the described model

To contents

Anyone who has ever thought about buying a franchise first of all asks questions about how profitable it is, whether it makes any sense to invest in such a business, waste effort, time and money. What are the advantages of franchising, are there any disadvantages, is it worth pursuing or is it easier to open your own business. So, franchise business: pros and cons.

Advantages

The answers to all these questions will be given by a consistent analysis of all the pros and cons of a franchise business. First of all, it is worth mentioning the undeniable advantages:

1. Minimal risks. Every entrepreneur, when deciding to open his own business, is aware of the risks involved. There is always a possibility that the business will fail, will not be profitable, and will require a lot of money and time to promote it. All this may not pay off, or there will be no demand for the product being sold. But in the case of a franchise, such risks are eliminated, since such a business is already a well-promoted brand that has its own circle of clients, stable demand and reputation in the market. The franchisee receives at his disposal all the secrets, technologies and know-how for its operation. By acting in accordance with the instructions received, the entrepreneur will quickly begin to make a profit.
2. Brand recognition. A company that is created from scratch spends a lot of money on promotion, image, trademark, name and reputation in the market and in its field. If you buy a franchise, there is practically nothing you need to do - everything has already been done before you. The brand has taken its place in the market and has a good reputation. And the franchisee in his work uses the “face” of the company, its image, which is understandable and familiar to the consumer. This is what franchising is.
3. Quick income generation . Profit will not be long in coming, since there is no need for advertising and there is no time for promotion. And the entrepreneur receives his first dividends soon after opening the outlet. Moreover, this is not an unfounded statement, but a proven fact. The simplest and most understandable franchise agreement for everyone, a striking example of which is the well-known McDonald's. When it first opened in Moscow, there was a queue of thousands of people even before it opened.
4. Advertising campaign costs are kept to a minimum. It is no secret that when opening a new business, the main share of expenses at the initial stage goes to its promotion and creating an attractive image of the company. Really good PR specialists are not easy to find, which makes it even more difficult for aspiring entrepreneurs. How well the advertising campaign was carried out, what image the company created, what customers were attracted and how they are retained determines the level of income and, accordingly, the likelihood of a successful business life. A large share of bankruptcies of novice businessmen consists of those who were unable to properly advertise their goods and services and retain consumers. If we talk about a franchise, then such a danger disappears: you do not need to worry about allocating funds for advertising, or about the advertising itself. The franchisor will provide detailed instructions in the package of documents on how to conduct business, with recommendations for successful advertising campaigns and holding relevant events
5. Franchisor support and training opportunities. Beginning entrepreneurs often have no one to turn to for support or advice. By concluding a franchise agreement, you will avoid such a situation. The bottom line is that both parties to the business under a commercial concession agreement are interested in the successful conduct of the business. The seller of the license will definitely do everything to ensure that the person who bought the rights to his trademark achieves success. That is why, if necessary, the franchisee will be given the opportunity to undergo training that will allow him to conduct business correctly.

Most companies offer their franchisees constant supervision of the project, assistance from qualified professionals and experienced lawyers if necessary.

After all, the faster the purchased business develops, the faster its seller will begin to receive additional profit. Knowing and understanding the difference between franchising and franchising, it is very easy to understand the essence of doing business in this way.

Flaws

Having learned what a franchise is and what its advantages are, you should understand that such a business also has its disadvantages:

1. There is no opportunity to conduct business independently. An entrepreneur is not free to float and cannot decide for himself how to conduct business. All his actions are strictly regulated by the signed agreement and the rules established by the company code. The franchisee is unable to change them, and therefore there can be no question of showing creativity when doing business. All actions must be agreed upon with the trademark owner.
2. Periodic payments, purchase of goods and equipment. A person who opens his own business manages his income himself and decides when and where to direct it. Working as a franchise, an entrepreneur is strictly limited in the use of profits. He must periodically pay the franchisor a certain amount, and sometimes must purchase equipment and goods from the owner of the trademark, if such is provided for in the clauses of the contract. These costs will be additional to the required fees. You will have to deduct them from your share of profits during the entire period of the contract.
3. High price . Of course, opening a business under a commercial concession agreement is in many ways easier than starting your own business. But the price for the franchises themselves is quite high. Especially if you want to purchase one that will provide a guaranteed, stable and high income. This, as a rule, applies to well-known, well-promoted brands, as well as gold, master franchises.
4. Constant control by the franchisor . On the one hand, supervision by the owner of the company makes the task easier for a novice businessman, but not all entrepreneurs will like such vigilant control over their activities. It is almost impossible to avoid it. In fact, this is one of the main terms of the contract. And this is not surprising: it is extremely important for the owners of the company that business on behalf of their brand is conducted in a manner that is customary for them, that it corresponds to the image and created image of the company, that it does not spoil their reputation and does not scare away customers. Therefore, such control is the only means to ensure that the franchisee is conducting the business correctly.
5. It will not be possible to apply a creative approach to doing business. By purchasing a license, you automatically sign that you will act in accordance with the rules established by the trademark in everything. This means that there cannot be any creativity or creative approach on your behalf in running a business. The franchisee strictly follows the program provided under the agreement in the package of documents.

Any area of ​​business, including franchising, has its pros and cons. And only you can decide what is most acceptable for you. Although the advantages of this form of doing business largely outweigh the disadvantages, especially for beginners. Because its main advantage and difference from an ordinary, traditional business is the absence of deadlines for promotion, investment in advertising, and risks of failure.

The franchise agreement (sample) can be found either on the website of the selected company or in the public domain upon request. Now any entrepreneur knows what a franchise is in business.