Franchise conditions. Find out what a franchise is and how it works, how profitable it is. Pros and cons of franchising

24.02.2022

Franchising is a system of business organization. In the process of franchising, one of the parties transfers to another company the rights to conduct business under its own brand using the established system.

This implies the sale of goods and services in a similar way under the name of a well-known brand, using its support mechanisms and marketing technologies. Companies operating under a franchise, in turn, undertake to comply with predetermined conditions.

Activities

Obtaining such rights involves the provision of a down payment or the initial purchase of goods sold by the enterprise, followed by the treatment of monthly installments or monthly purchases.

There are several types of franchise:

Commodity;
production;
Service;
conversion;
Business format;
Corporate.

All these franchises have their own characteristics that predetermine the format of doing business:

A commodity franchise involves the transfer of rights to sell the goods produced under its own brand with the implementation of subsequent after-sales service.
A production franchise allows you to obtain the right to use unique patented technologies with the obligatory purchase from this company of the raw materials necessary for the manufacture of unique products.
A service franchise involves the granting of rights to a certain company to provide services under the name of a well-known brand.
The business format of a franchise involves the transfer of rights to use a trademark, image, competitive advantages and other subtleties of doing business. In this case, full and versatile support of the company is provided.
In a conversion-type franchise, it is assumed that an already functioning enterprise is attached to a well-known brand, which is granted the right to use a trademark. Companies granting such rights gain control of the established enterprise and may not have to worry about opening a subsidiary.
To work under a corporate franchise means to develop a network of enterprises, hiring many managers, but only two persons appear in the contract.

Features of the regulation

Companies that operate by franchising must comply with strict regulations approved by federal law. The main provision that obliges to comply with this regulation is the law on trademark rights. These can only be commercial organizations, while private entrepreneurs also have the right to work under a franchise.

Along with this, there is a regulation of relations that defines the obligations of the company granting the right to use its own trademark and the company receiving such an advantage.

The regulations oblige a company that allows you to work with a franchise:

Transfer know-how;
Grant a license right to use your own trademark;
To assist in the implementation of management and sales of products.

A company that wants to run a franchise business is required by the regulations to:

Guarantee quality control;
Pay the down payment with current payments;
Be an active participant in training courses;
Conduct business using the symbols and trademarks of the donor;
Strictly adhere to commercial standards;
Inform about emerging difficulties, leave feedback on planned improvements.

There is no need to think that working on such a system brings only pluses, there are also minuses here. The regulation does not always fully reflect information about the specifics of the business, but before starting an activity, it is necessary to weigh all the pros and cons.

Advantages and disadvantages

Consider the pros and cons of franchising activities, as well as the extent to which the regulations reflect the real picture of such work. Of the positive aspects, one can single out the minimization of risks and the preservation of legal independence at the same time.

The newly formed firm does not bear the costs associated with capital investments. By franchising, the organization immediately gets the opportunity to enjoy consumer loyalty, due to brand recognition. Provides access to innovative technologies, which means that you can start a business from a prepared launch pad.

Serious support is provided from experienced partners interested in progressive and positive development. The regulations take into account all these pluses in the stipulated clauses of the contract.

However, when working on a franchise, one should not forget about the disadvantages that the regulations naturally do not stipulate. If the advantages are always in sight, then the disadvantages, as a rule, are not advertised. In fact, the work is associated with many risks, primarily expressed in the immaturity of the economic model and the formalization of processes.

Firms that allow business under their own name may be inflexible in their work, which is expressed in the neglect of the opinion of junior partners. At any time, there is the possibility of a well-known brand refusing to continue cooperation. Also, internal contradictions often arise at these enterprises that adversely affect partners. There is no way to manage the growth of the network and there is a constant risk of reorganization or liquidation of the donor.

When working with a franchise, it is necessary to take into account not only the advantages, but also the real risks.

The contract is the head of everything

Having decided for myself: “I want to work according to such a system!” - Attention should be paid to the study of the proposed contract. It is worth considering that there is no legislative right to conclude it by e-mail or fax. It must be registered in the register of the Federal Institute of Industrial Property. All this allows us to work in certain regions of Russia under a well-known trademark, which is a huge advantage.

It is necessary to evaluate all the advantages, consider reviews of such work, and only then make a decision. Such work is profitable, but it is replete with undercurrents, which it is better to know about in advance. Carefully study the terms of the contract and the information provided about the proposed business scheme in order to avoid unexpected difficulties that may be encountered due to dishonest partners.

Franchise is the right to sell, granted to an individual or group of individuals in the market of goods or services, within a certain territory. Some examples of popular franchises today are McDonald`s, Subway, Pizza Domino.

There are many different types of franchises. Many people associate franchising with catering only. In fact, there are over 120 different types today, including in service, health and fitness, financial services, and the like.

How Franchising Works

If you're thinking about buying a franchise, it's important that you understand exactly how franchising works, what the fees are, and what the franchisor expects from you.

A person who buys and operates a franchise is called a "franchisee". The franchisee buys the franchise from the “franchisor”. The franchisee must follow certain rules and guidelines set by the franchisor. In most cases, the franchisee must pay an ongoing fee, called a royalty, as well as an upfront, one-time lump-sum payment.

Franchising has become one of the most popular ways of doing business in today's market.

History of Franchising

Franchising started back in the 1850s when Isaac Singer invented the sewing machine. In order to distribute his machines outside of his geographic area, as well as provide customer training, he began selling licenses to entrepreneurs in different parts of the country.

In 1955, Ray Kroc began franchising food service and built the world's most successful fast food chain, now known as McDonald's. McDonald's currently has the largest number of franchised businesses worldwide.

Today, franchising helps thousands of people own and operate their own businesses. Franchising allows entrepreneurs to be in business for themselves, but not by themselves. There is a statistic that the likelihood of success is much higher if a person starts his own business under a franchise, as opposed to starting his own business from scratch.

Benefits of buying a franchise

Some of these benefits are:

Corporate image - the image and brand awareness of the company. Consumers always buy better if they know the name of a company they trust.
Training – The franchisor usually provides extensive training and support to the franchise owner.
Save Time – With a franchised company, there is already a business model in place so you can fully focus on running a successful business.

There is a reason why franchising has been around for decades. This is a great way for individuals to own and manage their own business.

Now that you have an idea of what it is and if you are thinking about buying one, do a thorough research of the company and consult with a franchise consultant before making your final decision.

What to look for when buying a franchise

A franchise must have a certain uniqueness in terms of products, services, markets, investment level.
Ease of Operation: The franchisee should be able to learn how the franchise operates in a fairly short period of time.
The franchise concept should adapt well to different locations and markets, with high demand for goods and services.
Should have a good return on investment and a quick profit after starting a franchise.
The franchisor must be represented by a strong management team.
The franchisor must have a good reputation and a successful history.
The business must be learnable, there must be good learning systems and procedures that are well documented.

Possible moments that should alert you.

The product or service has a short lifespan.
Gross margins are too low and fees are high to support franchise royalties and others.
Franchise skills are complex and/or take a significant amount of time to master.
Weak professional support.
A franchise requires unique market characteristics that are not easy to find. Thus, a business location has very specific requirements.
Franchises have very complex and detailed audit requirements.
Franchises from others, such as franchisees, are not successful or have little success.

Franchising terms

Broker - an independent specialist who acts on the market on behalf of the franchisor, selling (transferring) to the last found customers (users) on a paid basis, but on the condition that the user must independently evaluate the terms of the franchise.

Franchising (commercial concession) agreement is an agreement that reflects the essence of the franchise program, which contains a number of conditions: on the business concept, the business itself transferred to the user, initial fees, rights granted to the user.

The second part of the agreement contains conditions on the rights and obligations of the parties (right holder and user).

This is a document provided by the copyright holder to the user, which contains all the information about the company.

Marketing services- marketing and advertising services provided by the franchisor for a separate, constantly charged fee. Typically a % of gross sales or a fixed recurring fee.

International Franchise Association is a private, non-profit organization located in Washington, D.C. that serves as the world's center for the exchange of franchise information and franchise promotion.

Franchise Package- a term used in franchising to refer to the entire package of services or conditions offered by the franchisor to an actual or potential franchisee. The Franchise Package covers all the main issues set out in the Franchise Agreement and the list and description of the main services that must be provided by the Franchiser in accordance with the Franchise Program.

Initial (lump-sum) franchise payment- the initial, preliminary payment of the user to the right holder for the right to carry out franchising activities.

The funds paid out compensate the right holder for the costs of the time, effort, and money of the right holder that were spent on building the franchise concept, attracting and working on the approval of future franchise users, their training and supporting franchise users in their business establishment activities.

Onsite support– support provided to the franchisee by the franchisor through phone calls, personal visits and regional meetings.

Potential franchisee- an entrepreneur, a company whose actions are aimed at preparing for franchising activities (purchasing a franchise).

Russian Franchise Association – a non-profit organization founded in 1997 by the leaders of Russian franchising to support and protect the interests of its members and to create a more favorable legal and economic environment for the expansion of franchising in Russia.

Royalty- periodic payments to the franchisor, which are usually calculated as a percentage of sales, but some types of franchise agreement (especially in the service sector) provide for fixed monthly payments.

These payments compensate the franchisor for the costs of ongoing support of the franchisee's activities, research and business development work, along with this, they are the main source of income for the franchisor. Therefore, it is advisable for the franchisor to work closely with each franchisee in order to make the business the most successful, because. each of the parties in this state of affairs has the right to count on profit.

Contract timecommercial concession (franchising) – usually a five-year initial term of the franchise agreement is set with the possibility of its extension.

This in turn depends on the following conditions:

fulfillment by the user of all financial obligations,
conducting business strictly within the framework of the franchising concept and an agreement to bring the fixed assets of production to current business standards.

In this case, a payment for the prolongation of the contract may be established.

Sub-franchisor (Master Franchisee)- a party that is between the franchisor and the franchisee and has the right to resell the sub-franchise in a certain territory. The term is often used in international franchising.

Territory of using the complex of exclusive rights (Exclusive Territory) – Franchise business is usually limited geographically. If the user's activity involves movement, then he is endowed with a set of exclusive rights within a single geographical unit, sufficient to ensure the potential for growth and development.

The franchising system can be weakened by the presence of a large number of users in one market, however, on the other hand, such a concentration of users can lead to synergies and market dominance, which will eliminate competition and profit from joint marketing activities.

Trademark – the name, symbol or other means of identifying a product/service, which must be officially registered and legally restricted in use by the copyright holder or manufacturer.

Franchisor- a commercial organization that provides a set of exclusive rights to a business entity in order to conduct its business under its trademark.

Franchisee- an entrepreneur or investor who, through initial investment and subsequent payments (royalties), acquires the right to use a set of exclusive rights of the copyright holder, following his special recommendations for doing business.

Branch system franchisees A person, partnership or corporation that buys the rights from a franchisor to operate a business in a particular area and manages all franchised businesses independently. In such agreements, there is usually a clause on the development of the territory. If the affiliate systems franchisee does not comply with these requirements, the franchisor may resort to some measures.

Franchising- a method of doing business in which the copyright holder company grants the business entity (user) the right to use a set of exclusive rights (trademark, know-how, and so on) for the purpose of advertising, distributing, selling goods and services of the copyright holder that have become known on the market .

Business format franchising- The franchisor licenses the franchisee to conduct business under his own name and provides a complete basis for the franchisee's activities.

Franchise- the creation or continuation of a relationship between the Franchiser and the Franchisee or Licensee, in which the Franchisor supplies the Franchisee with marketing or industrial technologies, including Brand Names, in exchange for a certain fee, made on a regular basis. Also used in casual speech to refer to the Franchisee's business point.

Turnkey Franchise– territory provided and sold to the user (franchisee) fully equipped with equipment and ready for further intended use.

Royalty effectiveness- the point at which the franchisor's operating expenses are fully covered by royalty income received from existing franchisees.

The success stories of some entrepreneurs are inextricably linked to franchising activities. Of course, the overwhelming majority of small businesses have heard such terms as franchising, franchise, franchisor, but it is not always easy to explain their essence and give an accurate definition. Let's take a closer look at franchising and together answer the main question - how does a franchise work? First, let's define the franchise itself. And so, a franchise is a complex of relationships between two parties, which is regulated by a special agreement called a franchise agreement. The agreement provides for a clear statement of the terms of cooperation between the parties, and indicates what kind of franchise is provided by the franchisor (franchise owner) to the franchisee (franchise buyer).

How does a franchise work? Is it profitable to operate a franchise? Let's go in order. In order to expand their business or develop it in another region, franchisors (large companies, often even global ones) sell small and medium-sized businesses the opportunity to sell goods (services) of large companies. In practice, it looks like this. For example, there is a certain very popular drink that belongs to a world-famous brand and is sold only in well-equipped outlets (shops). The owner and developer of a trademark wants to expand his business to another region (city or country) and offers a small entrepreneur, under certain conditions, to buy from him the right to sell these drinks on behalf of the manufacturer. It is precisely two parties that benefit from a franchise: the owner of the brand (he is also a manufacturer, a large company, a franchisor) - as he successfully expands his business and increases the volume of production (provision of services) and an entrepreneur (he is also a franchisee), who gets the opportunity to start a successful business with minimal costs, since the drink sold is already known all over the world (besides, the franchisor is directly involved in advertising).

Moreover, the franchisee, in addition to the opportunity to use the brand of the franchisor, enjoys the support of the latter, uses his knowledge and even enjoys his certain authority. The overwhelming majority of franchised firms achieve quite good results in business and, after some time, reach a higher level of entrepreneurial activity. The franchisor, in addition to expanding his business empire, may receive from the franchisee a monetary reward (royalty), the terms of payment of which are regulated by the above franchise agreement.

We have tried to briefly explain to you how the franchise works. If you want to know what types of franchise are, we suggest that you read the following articles.

What does the word "franchise" mean in business (what is it in simple words)

The concept of “franchise” used in Russian comes from the French word franchise, which means “benefits” in translation. Acquisition of a franchise allows an entrepreneur to enter the market on favorable terms, investing a minimum of effort in the development of his company and the search for loyal customers. Nevertheless, the conclusion of a franchise agreement entails certain material costs on the part of the entrepreneur. That is why, when deciding whether to use this approach, it is important to first understand what a franchise means in a business. First of all, you need to familiarize yourself with the basic terms used in this area.

Franchising is a kind of market relations, during which one party (the franchisor) grants the other (the franchisee) the right to conduct a certain type of business using the concept of its implementation developed by it.

A franchise is an object of a franchise agreement, which is the right to use trademarks, trade secrets, reputation and other benefits. A feature of such benefits is that they belong to the franchisor and are widely known among certain categories of consumers.

The essence of the franchise

The essence of a franchise as a business mechanism is extremely simple: one party that has a certain reputation in the market, work experience, and exclusive rights to use a set of intangible benefits (for example, trade secrets) enters into an agreement with another party that wants to use the available opportunities and benefits. At the same time, the brand owner receives additional profit from the franchisee, as well as an increase in the popularity of the product and its promotion in new markets (for example, if the franchisee opens the first point in a region in which the business was not previously represented).

A striking example of franchising is the McDonald's fast food chain, which has been successfully operating in Russia since 2012.

How does a business franchise work?

To start working on a franchise, it is necessary to conclude a written contract with the selected franchisor. It will need to specify:

Rights and obligations acquired by the parties.
The procedure for paying a fee for the use of a franchise.
Detailed terms of cooperation. This item may take more than one page of the agreement, since the parties will need to agree on the slightest nuances of interaction (up to the requirements for the appearance of the premises).
Penalties for non-compliance with established conditions.

The procedure and rules for drawing up such an agreement (in the civil law of our country it is called a “commercial concession agreement”) are established by Art. 1027 and 1028 of the Civil Code of the Russian Federation.

There are the following types of franchise agreement, the principle of operation for each of which differs significantly:

Don't know your rights?

Straight. In this case, the franchisor can open only 1 enterprise and only in the place determined by the provisions of the contract.
Multifranchise. At the same time, the franchisor undertakes to open a certain number of outlets or points of service for a certain period of time.
Master Franchise. When concluding such an agreement, the franchisee assumes the obligation to sell the franchise in a certain territory, that is, he himself becomes a franchisor.

Violation of the regulations established by the contract entails the imposition of various penalties and fines on the entrepreneur, the amount of which is also determined by the concluded agreement.

So, what is a franchise and how does it work in business? Next, let's talk about how it is paid.

How to pay to use a franchise

You will have to pay for the opportunity to do business under a promoted brand. There are 2 main ways to pay for services under a franchise agreement:

Royalty is a cash contribution paid at a certain frequency, such as once a month or quarterly. Its size may be fixed, or it may depend on the amount of profit / revenue received by the businessman. This approach is used if the franchisor is a large company with a solid turnover and a large number of consumers.
Lump payment. Such a contribution is paid by the businessman once - at the time of the conclusion of the franchise agreement. In this case, the owner of the rights to the trademark used by the businessman will not have to control the cash receipts. Using this scheme is the most profitable option for small companies.

Often, in practice, these methods of mutual settlements are combined. For example, the franchisee pays its partner a small lump-sum fee and then makes regular cash payments as royalties in the course of business.

What does a franchise mean for business development

The use of the franchising mechanism is of great importance for the development of the market as a whole. The use of this technique allows expanding the range of products offered to consumers in the regions. Due to the lack of sufficient funds, local producers cannot independently provide a decent level of service, product quality and other factors that are decisive when a consumer chooses a particular product or service. The use of technologies created by large corporations allows not only to win the trust of consumers and expand sales markets, but also to offer them a product with special characteristics.

For example, by opening a franchise store for quality watches from a manufacturer, a businessman can fill a niche previously represented by cheap items made in China. Offering a choice to customers who previously ordered such things in online stores or purchased them in other cities, it will not only satisfy their need, but also bring additional profit to the manufacturer.

Pros and cons of buying a franchise

When deciding to enter the market using a well-known brand, it is necessary to weigh all the pros and cons of using a franchise.

The advantages of this approach to running your own business are:

Significant reduction in advertising costs: acquiring a franchise involves obtaining the right to use a trademark that is familiar to the vast majority of consumers and has a positive image in their minds.
No need to independently develop a business strategy and promote a product / service on the market: the franchisor will provide a ready-made marketing program, following which will attract customers and generate income.
Legal, consulting, organizational and other support from the franchisor at all stages of doing business.
Minimizing the risks that may arise not only when entering the market, but also during the further development of the business: the conditions created by the franchisor make it possible to avoid many of the difficulties that novice businessmen face (for example, partners are often provided with established supplier bases, assistance in obtaining premises, selection and training of personnel, etc.).

However, there are some disadvantages of working under a franchise agreement:

The cost of some types of franchises can be very high.
Since the business is conducted under a well-known brand, it is necessary to coordinate all decisions with the franchisor and create all conditions for maintaining its reputation, which does not allow for almost any amateur activity.
Sometimes the franchisor obliges the businessman to purchase consumables, products and other items required for business activities strictly from certain suppliers.

Thus, the use of a franchise is an approach to running your own business, involving the conclusion of a contract, one party to which is the owner of a certain good. Moreover, it is assumed that this benefit (know-how, trademark, commercial solution, etc.) can bring profit. The second side of the agreement here is a businessman who is ready to use this benefit for the purpose of doing business. The possibility of working under such conditions is legalized by Art. 1027 of the Civil Code of the Russian Federation, which defines the essence of a commercial concession agreement.

When a person opens his own business, he has to face a lot of problems - to promote a brand from scratch, to develop technologies. In such conditions, it takes years to get a decent result. But at this time, competitors do not stand still, as the heroine said Carroll, « to stay in place, you have to run". That is why everyone who knows what a franchise is and how it works, tries to compare the possibilities of a franchise before investing big money in their business.

What is a franchise and how does it work? How to buy a franchise and what typical mistakes does an entrepreneur make? We will try to provide as much information as possible.

What is Franchise in simple words

Franchise is when enterprises with established technology and a well-known brand allow other companies to use their name. In addition to the name, they also pass on other knowledge, such as production technologies, corporate standards, patent rights and inventions. This is the definition of a franchise in simple words.

The first company that comes to mind when we hear the word "franchise" is McDonald's, but franchising has much older roots. Isaac Singer, inventor of the famous sewing machine Zinger, in 1858, was the first to lay the foundations for the concept of franchising. He began to sell licenses to distributors in different parts of the country, supplying them with their own merchandise and training staff.

According to the formal definition, a franchise is a permission for a legal or natural person to use the benefits franchisor. At the same time, the one who acquires this right is called franchisees, and the whole business model is called franchising.

Sometimes this right is transferred free of charge, but more often franchisees obligated to pay for the benefit received. The fee is divided into two parts:

Lump sum. A one-time amount that is transferred at the conclusion of a franchise agreement.
. Monthly or annual payment.

Each franchisor develops its own conditions, which may differ significantly.

There is no concept of a franchise in Russian legislation. In Chapter 54 of the Civil Code of the Russian Federation, a definition of a commercial concession is introduced, according to which a complex of benefits is transferred by the copyright holder.

The aforementioned chain of fast food restaurants owns less than half of 36000 restaurants; most open on a franchise basis. grants the right to use your famous brand, logo, menu and so on. Businessmen who own restaurants, in turn, pay fees (royalties), which are calculated as a percentage of sales.

This is the main compromise in the franchise relationship. Franchisor ( in this example McDonald's) allows other people (franchisees) to use the business model and brand awareness, and in return receives a percentage of the turnover.

What are royalties and franchise fees?

One of the most frequently asked questions is how much does it cost to open a franchise business? You can estimate the costs at the stage of choosing a franchise.

The initial payment in the form of a fixed amount is called lump sum, periodic payments for continued cooperation - royalty.

In exchange for the right to use the franchisor's name, product or technology, some or all of the following fees are usually required:

Lump sum– initial franchise fee, which is non-refundable. The size of the amount varies greatly, but the trend is as follows: the higher the degree of brand recognition, the more expensive the entry "under the wing" of a strong company.
paid on a regular basis monthly or quarterly) during the term of the contract. A kind of membership dues, in fact. Fixed amounts or percentages of gross sales - the options are different.
Tuition fee- some franchisors include training in the price of a lump-sum fee, some take it out as a separate line.
Advertising fees are contributed to the advertising or marketing fund of the parent company. This money is spent on TV and radio advertising, development and printing of POS materials (booklets, posters, flyers).
Franchise renewal (renewal) is the fee for renewing the franchise agreement.

Large franchisors often develop multiple brand entry schemes. Preliminary calculations of payback and profitability for a particular region are taken into account.

For example, the franchise 220 volt”is transferred free of charge, however, the partner undertakes to purchase goods only from the franchisor.

Franchise types

The word franchise translated from French means " benefit". As you know, benefits are different. Depending on how different franchisors allow their name to be used and what they offer in return, there are three main types:

business franchise;
commodity;
production.

Business Franchise

What is a business franchise? This is the most common type of relationship in which the franchisor offers an established business, including the name and trademark, to independent entrepreneurs. Fast food restaurants are a good example of this type. The franchise catalog contains both long-established brands - Papa Johns Coffeeshop Company, and new ones - " Food from the Champion", bar " Honey, I'll call you back».

The franchisee receives assistance from the parent company in choosing, planning and designing the premises, recruiting and training staff, and developing a marketing component. Lump sums and royalties vary greatly, sothat it is necessary to carefully look at the conditions of each particular company. This type of franchise is often referred to as a "turnkey business" as the franchisee gets almost everything they need to start their own business.

Commodity franchise

The franchisee receives the right to distribute the product manufactured by the franchisor. Well-known commodity franchises are, for example, or any other car manufacturer, some brands of clothing and shoes: Incanto, BAON, ALBA.

This type of franchising often does not involve royalties. The franchisee is required to purchase a certain volume of the franchisor's product or range of products. And he provides national advertising campaigns, provides a logo and a trademark.

Production franchise

The manufacturer grants the right to manufacture and sell goods using its brand and trademark. This type is widespread in the food and beverage industry, for example -.

Another technical point that is important to understand when looking for a suitable idea for investing money. The rights that a franchise agreement provides differ greatly in one case or another.

What are the franchises

Direct Franchise- the franchisor grants the right to open one enterprise in the agreed place. The oldest and simplest form of relationship. The disadvantage is this: if the franchisee has the desire and ability to open additional outlets, each time a new contract and new monetary contributions are required. That is, on the example of a clothing store: it is impossible to open another store without coordinating the issue with the parent company and without paying a lump-sum fee.
Multi-franchise- the buyer receives the right and obligation to launch a certain number of production / trading places in a certain area for a fixed period of time.
Master Franchise similar to the previous paragraph, but has one significant difference: the franchisee receives the right and obligation on its own behalf to sell the franchise in the territory approved by the agreement. The master franchisee becomes the franchisor in his region.

We emphasize once again: in the last two versions of the franchise agreement, a right and an obligation are provided.

If the franchisee does not maintain the contractual pace of development and expansion, this is punishable by: termination of the contract, penalties, transfer of exclusive rights to another businessman, etc.

In addition, there are the following types of franchises:

free. The franchisee receives the right to use the brand, but his actions are not controlled by the owner of the rights.
Silver. In this case, the company opens a branch, organizes its activities, and only after that sells the right of temporary use.
Golden. Transfer of monopoly rights to conduct business under the brand name of the right holder in a particular region. The buyer of a gold franchise decides for himself how he will use the name and develop the business.
Import-substituting. This scheme is somewhat reminiscent of plagiarism. A businessman works in the country under the name of a well-known company, while not deducting royalties to it. What is it like " Adidas" And " Abibas”, The names are similar and there is nothing to complain about. However, this business has nothing to do with the original brand.

The Civil Code requires that every commercial concession agreement be registered with Rospatent. In this case, the franchisor must first register his trademark and technologies there. Theoretically, it is possible that McDonald's will miss the re-registration period, then any entrepreneur can apply for it.

Almost every industry has successful, proven business practices. We sell franchises of retail stores, beauty salons, fast food restaurants, factories and many others. For convenience, we have compiled some popular brands in a table - a mini-catalogue of franchises.

Notable pizza franchises

	Lump sum		Total investment	Payback period
Dodo Pizza	350 000	3-5%	3 000 000	1 year
Pizza Celentano	400 000 – 800 000	2%	2 000 000	1 year
papa johns	1 000 000	6%	10 000 000	2 years
Domino`s Pizza	2 000 000	7%	15 000 000	2 years

In the pursuit of profit, it is important to strive not only for momentary benefits. Ray Kroc, the founder of the McDonald's network mentioned more than once said:

"If I had a brick every time I said 'quality, service, cleanliness', I think I would cross the Atlantic Ocean."

What should be in the contract

A typical franchise agreement consists of several hundred pages. About, what is a franchise in simple words It's hard to explain, and even harder to do on paper. Therefore, without legal support, a businessman will not be able to figure out the intricacies. For example, the Civil Code contains the following rules:

The duration of the contract does not have to be specified. But if it is, it is necessary to agree on the condition of prolongation.
Only legal entities and individual entrepreneurs have the right to be parties to the contract; this is not available to individuals.
It is impossible to conclude a contract in any other form than in writing.
The franchisor is obliged to teach his own technologies not only to the franchisee, but also to his employees.
The franchise buyer must comply with all requirements of the seller to ensure the quality of the product or service.

The contract also specifies control technologies, whether it is mystery shopping, passing exams or visits of controllers.

How not to fall for the bait

Upon entering the franchisor's website, the visitor blossoms with delight. And the investments are minimal, and the support is comprehensive, they promise bonuses and lure with gifts. It's all hosted on a single page site.

When it comes to signing a contract, a businessman finds a document in front of him on a hundred pages. This is not an exaggeration, this is exactly the size of a standard contract. Moreover, it was drawn up taking into account the interests of the franchisor. How the franchise works and how it protects the franchisee, he must take care of himself. Even if at first glance the offer seems tempting, you should only believe the contract written on paper.

When concluding a contract, it is worth attracting a lawyer, his payment will pay off many times over with subsequent savings. If it will be difficult to make your own additions to the standard agreement with McDonald's, then you can easily insist on canceling or changing several clauses in an agreement with a lesser-known company.

Questions to ask a franchisor:

When did the franchisor start selling the franchise? If the franchise is young, and the results of the franchisee's activities are not yet clear, this is another reason to think.
Is the business financially successful? Having seen the results of activities over the past three years, you can roughly orient yourself in the prospects of your own business.
How many franchisees have closed? The percentage of successes and failures is not a theory of probability, but specific numbers that give an idea of the chances.
What kind of support is provided? Premises valuation, staff training, payback calculation, advertising and promotion in a new region? What does the franchisee get besides the brand?

The short list of questions can and should be supplemented by questions that arise during the study of the proposal. And most importantly: business is not a statue carved in stone, everything flows and changes.

Pros and cons of a franchise

A business system that has been tested by time and tested more than once in different regions is the undeniable and main advantage of buying a franchise. Fill bumps on your own or copy the experience of a successfully developing and competing company?

Arthur Bartlett, founder Century 21 Real Estate: "The franchise has become the savior of free enterprise, it has given small businesses a chance to survive..."

Yes, the franchising business option does reduce the risk of failure. Not as much as the brochures of interested companies promise, but still. US statistics confirm that 90% of independent business projects fail within the first three years.

It is a difficult task for an individual entrepreneur to compete with big business. A recognizable brand, special conditions for cooperation are an obvious plus that a franchise gives.

“The world does not stand still. We don't deserve to be where we are if we're not ahead of the curve and taking the necessary steps to stay competitive." Fred DeLuca, founder subway.

The franchisor provides well-established business technologies that are constantly being improved: advertising, marketing, administrative support. Lack of knowledge and experience is not a problem - the franchisor provides training for the franchisee.

In many cases, the franchisee receives exclusive territorial rights, a monopoly on the allocated area. Of course, under the brand name of the franchisor. If the brand is successful and recognizable, it will “crush” competitors in the niche.

The sad fact is that some franchises achieve an 80% failure rate while others experience almost no failure.

Before signing an agreement, you need to carefully read the statistics: how many projects are successful, how many have closed. Talking to franchise owners is not the last thing; you don’t need to spare money and time for this item. OpeningFranchising may seem like an easy way to run your own business. But some factors are not evident, and the idea is so tempting that the potential franchisee steps on the rake of unsuccessful predecessors.

Franchising is not a flexible way of doing business. Features of a particular area, which are well seen and understood by the franchisee, are often not obvious to the franchisor. Make changes to the business format, offer additional discounts to customers, choose a product in accordance with the tastes of buyers ( in a retail store, for example) is not always possible.

If an agreement is signed that obliges the franchisee to expand the network, the business is obliged to work well and bring profit to the franchisor. Failure to comply with the agreements is a reason for the franchisor to refuse cooperation without compensating the franchisee for any damage.

Instead of output

You can already understand what a franchise is in simple words - this is an agreement that allows one of the parties (the franchisee) to sell a product or service using a trademark, marketing strategies and technologies to the second party - the franchisor.

Franchising is a progressive business method that benefits both parties.

In time " catch a jet" And " collect cream» on a new trend - the dream of any entrepreneur. However, here it is better to do the opposite. You need to look for a franchise that has already managed to establish itself. Steady growth, a low percentage of "burned out" franchisees - the only indicators that need to be guided.

Marriott, founder of the hotel chain: “My life experience shows that success is never final. We make decisions on the way to the final result.”

If you find an error, please highlight a piece of text and click Ctrl+Enter! Thank you so much for your help, it is very important for us and our readers!