What is franchising and franchising in simple words - a detailed description of terms + 5 examples of successful franchise business

Hello dear readers of the Rich Pro business magazine! In this article we will tell in detail what is a franchise and how does it work, and also explain the essence of franchising in simple words.

Many, deciding to start their own business, are faced with such a form as franchising (franchise business). But novice entrepreneurs have little knowledge and a vague idea of ​​this way of organizing their business.

From the article it will become known:

• What is franchise and franchising in business - what are their differences;
• What types and types of franchises exist;
• What are the advantages and disadvantages of a franchise business;
• What are some examples of very successful and profitable franchises.

The information presented in this article will be useful both to those people who are only thinking about starting their own business, and to those who want to expand their business.

So, let's begin!

Franchise and franchising: what is it, what is the difference, what are the pros and cons of starting a franchise business - we’ll explain all this in this issue in simple and understandable words

1. Franchise - what it is: definition + clear example

The word "franchise" comes from French "franchise"which means "privilege" and "privilege".

Franchise (from English franchise) is a type of agreement under which one party transfers and the other acquires rights to a business model, the use of technology and trademarks.

This term has a synonym - commercial concessionHowever, it is used less frequently.

1.1. What is a franchise in simple words - description of the term + principle of operation on a real example

If we reformulate this definition in such a way that it is even more understandable, thenfranchise is a purchase of law to open a business under the brand name of any well-known brand. At the same time, they use not only the trademark, but also technology - both production and sales, - as well as the concept of doing business.

Thus, a practically ready-made business is bought, the payback and profitability of which has already been tested in practice.

Franchisor and franchisee - who is it?

The party that buys the right to sell goods and services under a particular brand is called franchisees. The party selling such a right is called franchisor.

How does this work in practice?

for example, someone Andrei would like to start working for himself and start a business. To do this, he registers the IP or opens an LLC.

Having collected some money, Andrey decides to buy a fast food restaurant franchise. So he acquired the status of a franchisee.

Having organized such a restaurant in his city, Andrei soon began to receive income that he did not have while working for other entrepreneurs.

Now he can open a whole network of such fast-food restaurants in his city.

1.2. Related Franchising Terms

In order to better understand this issue, you need to know other terms that are directly related to franchising and franchising.

Despite the fact that in our country the first franchise agreements began to be concluded relatively recently, in the world it is a common practice - and there is a generally accepted terminology that makes similar agreements and relations between franchisees and franchisor as clear and transparent as possible.

First of all, since a franchise means transferring a license, you need to know what it is.

In this case license - This is the transfer of rights that the franchisor possesses (know-how, technology, software, etc.).

At the same time, know-how is any information (relating to the production, sale of products, business organization, etc.) that have commercial value, since it is known only to its owners.

That is, under know-how the secrets of doing business or production on which a particular business is built are understood.

Documents with the help of which the right to use a particular trademark is transferred and bought can be called differently, with one sense:

• franchising agreement;
• license agreement;
• commercial concession agreement.

When such a right is bought, the buyer (or franchisee) makes the so-called lump-sum payment is a payment for the purchase of a franchise. If we are talking about commodity franchising, then instead of making a contribution, the contract may provide purchase of a specific inventory.

Often a contract is concluded in such a way that it is periodically required to be renewed. Then a lump-sum payment is paid each time the contract is renewed.

In addition to a lump-sum payment, the franchisee must pay royalty.

What are franchise royalties - description of the term

Under royalty understand those payments that are periodic and paid throughout the duration of the franchise agreement. This can be a fixed amount or a certain percentage of the business profit.

In commodity franchising, periodic purchase of goods acts as royalties.

When the contract is signed, the franchisee receives franchise package. It may be like in printed form and in electronic. This package includes all the documents and materials with which the franchisee can easily and quickly start a business.

The franchise package necessarily includes:

• franchising policy;
• business management guide;
• corporate identity standard passport;
• all necessary legal documents.

Also, manuals necessary for the proper work of personnel, software, etc. can be attached.

The franchisor is no less interested in the franchisee in making the set of documents as complete as possible - because the reputation and popularity of the entire business depends on the correct organization of the business under its brand.

Franchisers who value their business reputation are very responsible in forming a franchise package.

Take note!

A person who wants to become a franchisee and is looking for the most interesting offer can familiarize himself with companies offering to conclude a franchise agreement on relevant resources with full franchise catalog.

You can always find information about both the companies themselves and the cost of concluding the contract, lump-sum and periodic contributions, the amount of necessary investments to start, as well as contacts by which you can contact company representatives to discuss the details of the transaction.

A novice businessman can either simply acquire a franchise and open a business on it, or master franchiseaccording to which he will become the sole owner of the right to conduct his chosen business in a certain territory (for example, in a city, region, district, etc.).

“Franchise” and “franchising” - what is the difference between these concepts?

2. Is franchising and franchising the same thing or not?

Very often people with no economic background confuse the concepts "franchise" and "franchising". But to be able to distinguish between these two concepts is necessary - especially for those who want to conclude a franchise agreement.

Under the term "franchise" It implies the acquisition of the right to sell goods or services under a specific brand.

Often the word "franchise" is replaced by "franchise package". Although, in fact, the franchise agreements are first signed, followed by the receipt of a franchise package of the company. The composition of the franchise package is strictly stipulated in the contract and can be discussed at its signing.

Franchising: what it is - an overview of the concept in simple words

Franchising - This is the process of creating, building and running a business on the terms of a franchise agreement.

Thus, the franchise acts as the subject of the relationship between the franchisor and the franchisee, and franchising means doing business on the terms of a franchisor company.

What are franchises - 7 main types and types

3. Types and types of franchises - 7 main varieties

Since doing business under a franchise agreement has been around for quite some time, several different types of franchises have developed. They may differ in the degree of involvement in the business management by the franchisor, in the form of payment of the franchise agreement, at the place of manufacture of products sold by the franchisee, etc.

Thus, anyone who would like to work under a franchise agreement can choose the most suitable option for themselves.

Type 1. Classic, or standard franchise

This is the franchise resorted to most often in the world. As a rule, such an agreement implies a lump-sum payment, as well as the existence of periodic deductions in favor of the franchisor.

At the same time, the franchisor has the right to control the process of conducting the franchisee's business and make its own adjustments. He can also check the compliance of a business built by a franchisee under a license agreement with the requirements, rules and codes of a trademark.

Type 2. Free franchise

On the territory of the Russian Federation, this form of commercial concession was most widely used.

A distinctive feature of a free franchise is its low royalties and greater freedom of action for franchisees.

Thus, the entrepreneur is practically not controlled by the franchisor and has the ability to conduct his own business and develop it independently.

Type 3. Import substituting franchises

In recent years, due to the introduction of economic sanctions in relation to Russia, it has become increasingly popular. purchase of import-substituting franchises. Demand for them is explained very simply - consumers in our country are accustomed to European-made goods and products that are of high quality.

Since the import into our state and the sale of some of these goods and products is now prohibited, Russian entrepreneurs are eager to get into this market and offer consumers similar products, but manufactured in the Russian Federation.

Thus, when buying a franchise, the production technology of certain goods and services is acquired, and the production itself takes place on the territory of our country. This is very profitable and allows us not only to provide our citizens with the things and products they need, but also to get good profit from this.

View 4. Silver franchise (turnkey business)

In this case, it’s about buying really finished business, in the creation and promotion of which you do not need to invest time and money. The owner of a trademark independently opens a branch of his company in a particular city, and then sells this business to franchisees. As a rule, in this case there are monthly payments - percent of branch profit.

This is a very convenient way to start your own business for those who do not have much business experience. First of all, since there is no likelihood of making a mistake at the stage of opening the enterprise, and also eliminates the possibility of inconsistency of the created business with the standards of the brand.

When you purchase a silver franchise, you can immediately get to work and generate income.

Type 5. Business for rent

Some franchisors prefer rent a business. In this case, the franchisee’s benefit lies in the fact that he doesn’t need to create and build a business on his own, and the franchisor’s benefit is in the ability to receive monthly income without spending time managing the business. By the way, we already wrote about where to invest in order to receive monthly income in one of our publications.

In this case, the franchise agreement stipulates what percentage of the income the franchisor receives, and which - the franchisee gets. This is a mutually beneficial cooperation and an option suitable for aspiring entrepreneurs.

Type 6. Gold franchise (master franchise)

Those people who already have experience in doing business and who want to work "big" can get the so-called master franchise.

By concluding such an agreement, the franchisee receives monopoly rights for business in a specific region or city.

Of course, the cost of such a license is very high, but in the future these expenses will surely pay off - after all, an entrepreneur will be able to open a network of companies in this region and remain the only representative of the trademark in the territory indicated in the contract.

Type 7. Corporate franchise

This commercial concession agreement is ideal for inexperienced businessmen. He assumes that the owner of the brand will control the development of the business and will be able to conduct it on his own terms.

The ability to make any changes to the franchisee is small. However, it will be easier for a newcomer to learn how to conduct business under the guidance of an experienced team of professionals.

When choosing a type of franchise, you need to evaluate your financial capabilities, ambitions and experience in doing business. In any case, with such a variety of types of franchises, there is always a way out - even for those with little start-up capital and experience.

Franchise Business - Key Pros and Cons

4. Advantages and disadvantages of franchise business

People who would like to become entrepreneurs by buying a franchise often ask themselves the same questions:

• how cost-effective is it?
• Does it make sense to invest money, effort and time in franchising?
• What are the advantages and disadvantages of such a business?

To answer these questions, you need to think about pluses and cons franchise business opening.

Pros (+) franchise opening a business

There are five main advantages of franchising for a franchise buyer.

Plus 1. Minimal risk when doing business

When an entrepreneur decides to start his own business, there is always a chance of failure - the attractiveness of a product or service to consumers may be incorrectly assessed, etc. However, in the case of franchises, this is practically impossible - because a novice businessman gets full instructions successful business development.

As a result, if everything is done in accordance with the instructions, profit will not be long in coming. The path that the franchisee has to go through has already been traveled to him by the owner of the brand - and he is guaranteed to bring income.

Plus 2. Brand Recognition

A lot of money if a company is created "from scratch", goes to its promotion and brand advertising. When it comes to franchises, such expenses will not be required - after all, the brand is already well known to potential consumers of a product or service.

In this case, the company already has a positive reputation, therefore, when working, the franchisee can use an image that has already won the trust of people and is known in the market.

Plus 3. Coming soon profit

Since there is no need for advertising and time to promote the company, the first profit will be made very soon after the opening of the enterprise under a franchise agreement. And it's not easy beautiful words, and a fact confirmed by practice.

So, when McDonalds opened in Moscow, on the first day of its work several thousand people have taken a turn at this establishment yet before his discovery.

Therefore, you don’t need to worry about how to live the first time while the business is at the development stage - the first incomes will be received very quickly. In a separate article, we also wrote how to make money fast and what ways of extra money are possible in your free time from your main job.

Plus 4. The minimum cost of advertising campaigns

The lion's share of the costs of opening any company is advertising. In addition, it is not so easy to find really good specialists who can attract the maximum number of consumers to the company. Moreover, the success or bankruptcy of a company is largely determined by how it is able to retain its customers.

A franchise agreement avoids all these costs and headaches for a businessman. Franchisors provide their franchisees with a full package of documents for starting and running a business, and this package includes complete recommendations for conducting successful advertising campaigns and all kinds of events.

Plus 5. The ability to receive support and training

Usually, starting your own business, a person is face to face with this situation. He has no one to ask for help or advice. When concluding a commercial concession agreement, everything is different - the franchisee is interested in success not only himself, but also the owner of the distribution network. That is why the franchisee will receive maximum support and, if necessary, will undergo full training. As a result, he will be able to successfully conduct his business and receive the desired income.

In addition, most franchisors offer ongoing supervision and assistance of qualified lawyers in situations where such assistance is needed.

Thus, with the full support of the franchisor, the business will develop very quickly, and the franchisee will profit. But there are also disadvantages to starting a franchise business.

Cons (-) of a franchise business

There are also five main ones.

Minus 1. The lack of the possibility of "independent maneuver"

As a rule, all the actions of a novice entrepreneur are strictly regulated, and he must adhere to the rules and codes provided by his franchisor.

A businessman does not have the opportunity to be creative when conducting his business - he must coordinate everything with the owner of the brand.

Minus 2. The need to make periodic payments or purchase goods and equipment

If an entrepreneur does not work under a franchise agreement, then he can appropriate all the income and spend it as he wants. And the franchisee must make periodic payments (usually once a month) and, in some cases, purchase goods or equipment from the trademark owner. It - additional expensesthat will need to be deducted from income throughout the life of the franchise agreement.

Minus 3. High franchise price

Despite the fact that creating your own business under a franchise agreement is much easier than without this agreement, franchises are worth a lot. This is especially true for well-known and well-known brands and master franchises.

Minus 4. Control by the owner of the trademark

Not every entrepreneur will like that someone controls his every step. And to avoid this control when buying a franchise is impossible. The franchisor will monitor all business processes to make sure that the franchisee does everything possible to maximize profits from the business.

Minus 5. The impossibility of applying a creative approach

The franchisee does not have the right to independently choose the direction of development of his business or to be creative in the development of marketing and other programs. He must clearly follow the development program proposed by the franchisor.

Thus, franchising, like any other form of business, has not only advantages.

In the table below, we present the main criteria (parameters) for comparing franchise business opening and traditional business:

The table shows that the main differences between a franchised business and a “traditional” traditional one are the terms of business promotion, advertising costs, risks, initial investment of funds and the freedom of doing business.

Popular franchises for small and medium business

5. TOP 5 franchises for those who want to become franchisees

Before deciding to conclude a franchise agreement, you need to look at real-life examples of such a business. It is worth paying attention to the companies included in TOP 5 the most popular brands offering the conclusion of such an agreement.

1st place. "Mcdonalds"

This company is known, without exaggeration, all over the world. The owners of this company came up with the idea of ​​franchising, deciding to bypass the competition and spread their catering network outside of America.

However, thinking about purchasing a franchise for this company, you need to prepare for a considerable investment at the initial stage. To start this business, you need not only to acquire a franchise for 45 000 dollars, but also have an initial capital of at least 950 000 dollars. Not every novice businessman can afford it.

Most often, franchises are bought by wealthy businessmen as an investment.

2nd place. Popular supermarket chain "Crossroads"

These supermarkets sell products for those who prefer high quality, fresh products and good service. But in order for this franchise to bring its acquirer a stable good income, the supermarket must be located in a busy and densely populated area of ​​the city, have parking and convenient access roads.

In addition, the franchisor places high demands on the area of ​​the room where the supermarket will be located, on internal communications, lighting and even window dressing.

3rd place. Restaurant "Subway"

This is an ideal option for beginning entrepreneurs, because the cost of a down payment for a franchise agreement is7 500 dollars. In addition, the franchisor is pleased to provide its partners with various bonuses and benefits, reduces lump-sum fees and provides comprehensive support in resolving legal and marketing issues.

For these reasons, in Russia the network of these restaurants is constantly growing. Today it operates approximately 700 such restaurants in different regions of the country.

4th place. "Coffee to go"

Coffee "Coffee with you" deservedly occupy fourth place in the ranking. Since the cost of the franchise is only from 100 to 400 thousand rubles. Many people who want to open their own business on the basis of a franchise agreement opt ​​for this particular brand.

In addition, this is a very popular direction, because there are more and more lovers of high-quality and tasty coffee, as well as those who spend most of the day on the run and cannot stop in the cafe to drink coffee.

5th place. "Orange Elephant"

The fifth place in TOP-5 is the franchise of the Orange Elephant chain of children's goods stores. The development dynamics of these stores is impressive, in addition, this network has not yet been maximized and is not present in all cities. This means that franchisees have a great chance of success with relatively little competition.

At the same time, the network not only sells, but also manufactures goods for children's creativity that are presented in their stores. Today the network has franchisees in America, Turkey, Israel, Iceland and many other countries.

Thus, each novice businessman can choose the franchise that is right for him - both by the specifics of the activity, and by the cost and requirements for the initial capital.

6. FAQ - Franchise Frequently Asked Questions

There are questions that are most often asked by those wishing to conclude a franchise agreement.

Question 1. How to choose a franchise?

First of all, it is necessary to determine the amount that the entrepreneur is ready to invest in his business at the initial stage. Today you can find both inexpensive franchises and those that require very large financial investments.

You do not need to overestimate your capabilities, because the success of a business largely depends on this.

Having chosen several franchisors in the right price category, you need to study all these brands and answer the following questions for yourself:

• what do they do (what goods or services are offered);
• what is the policy of these companies;
• what kind of advertising they do.

Based on this, you need to focus on one company - the most suitable in its specificity. This is very important, since a businessman should be happy to deal with his "brainchild". It makes no sense to turn into the work of your life that which the soul does not lie to.

Then you need to contact company representatives and discuss all questions of interest regarding the conclusion of the contract. If everything suits you, then it’s done and the franchise is selected.

Question 2. Is it worth it to open a franchise business if there is no experience?

One of the main the benefits Franchising - that it allows you to open your own business even to those who before that had nothing to do with business.

It is safe to say that in the case of a franchise, the risks for the entrepreneur are minimal. This is due to the fact that, after concluding a contract of commercial concession, the owner of the trademark (franchisor) provides the novice businessman with a business plan and detailed instructions for creating and promoting a business. By the way, you can download ready-made examples of business plans for free in one of our previous materials.

Thus, the franchisee not only receives a guaranteed income in the very near future, but also an invaluable business experience.

Question 3. How much does a franchise cost and what does its cost depend on?

The cost of concluding a franchise agreement may vary.

The price depends on several factors:

• promotion of the brand;
• type of franchise (eg, a master franchise will always cost a lot more than a standard franchise - but it will also generate large revenues);
• brand owner’s ambitions.

In addition, you need to consider lump-sum and periodic payments in favor of the franchisor - they can also be attributed to franchise costs.

There are franchises (eg, “Orange Elephant”), which are relatively inexpensive, do not require very large material investments at the initial stage, but are quite profitable for their own business.

And there are others, such as the franchise of a fast food restaurant KFC, where the down payment is from 47 thousand dollars, and investment from 700 thousand $.

KFC Restaurant Franchise

Question 4. Does a franchise happen without investments?

Turnkey business without investments - this is perhaps dream any novice entrepreneur. But is it possible to fulfill this dream?

Indeed, there are companies offering to conclude a franchise agreement without a first - lump-sum - contribution. However, this does not mean that the business does not need to invest money. Franchisees will have to invest their own funds in the construction or rental of premises, ordering advertising campaigns and paying salaries to employees. Thus, it is unrealistic to completely avoid expenses at the initial stage.

In addition, any franchisor will require royalties, which are usually around 10% of franchise income.

Therefore, in any case, one must not forget about the necessary expenses. But in the case of a franchise, a business will really pay off much faster than a regular one.

Question 5. What franchise business can I open in 2019 with minimal investment?

When deciding to open your own business under a franchise agreement in 2019, you need to remember five most popular destinations, which are more likely to bring a quick income:

• Internet sphere
• the scope of service and the provision of services;
• food service industry;
• trade;
• production.

There are franchises that show promise and promise quick profits to their franchisees:

• Multi windows - a company selling windows made of different materials; down payment - from 100 thousand rubles.
• Ticket com - a company that puts ads on checks that are issued to customers when paying for purchases in stores; down payment - from 150 thousand rubles.
• Lingvitania - A network of centers for the study of foreign languages, lump-sum payment - 220 thousand rubles.
• STARDOG! S - catering points that hot dogs sell. The lump-sum payment can vary from 22 to 330 thousand rubles.
• Gift Calendar - A network selling souvenirs and accessories for the holidays, requiring an initial capital of $ 790 thousand.

P.S. You can also find profitable business ideas with minimal investment for beginners in one of our articles.

7. Conclusion + video on the topic

In this way, franchise agreement - A real and fairly easy way to start your business from scratch. It is especially suitable for those who do not yet have experience in creating and managing an enterprise.

In addition, in the process of organizing such a business and its conduct, you can learn a lot from more experienced businessmen - brand owners.

Many successful entrepreneurs today began precisely with the purchase of a franchise - and were not mistaken with their choice. Everyone can do this without even having a lot of money for a down payment!

In conclusion, we recommend that you watch the video “What is franchising and franchising, what are the advantages and disadvantages of a franchise business, and also a list of areas where franchises are popular”:

The team of RichPro.ru magazine wishes its readers success in all their business endeavors! We are waiting for you to evaluate this material, comments and thoughts on the topic of publication in the comments below. Thank you in advance!

Watch the video: How Franchising Works: An illustrated guide (April 2024).