Many people dream of starting their own business, but cannot decide to take such a step. The main reason for indecision is the lack of ideas and the fear of risk. Therefore, the franchise business is increasingly attracting the attention of beginners. We will understand the essence of franchising and learn about its pros and cons.
What is franchising
To understand the intricacies of franchising, you need to understand what it is. A foreign word hides the ability of any person to work under the name of a brand they like. And it doesn't matter whose logo it is - Russian or foreign. The main thing is that the consumer knows him, and the owner makes it possible to earn on his name. A franchise is an agreement offered by a brand owner to an entrepreneur.
Franchising is very convenient - no need to wait for ideological inspiration, think about advertising, rating and demand. Everything has already been done for you. The franchisor (owner or representative of the brand) explains in detail to the franchisee (an entrepreneur who signs an agreement to conduct business under a certain franchise) the intricacies of doing business. All risks, estimates have been calculated, and step-by-step instructions have been drawn up. This is what attracts people who do not have experience, or those who tried to discover something of their own, but did not work out.
A franchise is an agreement offered by a brand owner to an entrepreneur.
Financial side
So, you are offered a finished case. Take and use. But the owner of the brand is ready to share not just like that, but for a fee. These conditions may be different for each franchisor.
What do you have to pay the franchisor:
1. Lump sum.
This is the initial payment that is required to conclude the contract. This is a kind of brand rental fee or membership fee. Sometimes these contributions are so large that a novice entrepreneur simply cannot afford the amount.
2. Royalty.
Monthly payment in favor of the owner and it depends on the percentage of the franchisee's income. In other words, the entrepreneur needs to pay a kind of income tax every month to the brand owner for the opportunity to earn income.
But not all franchise forms include these concepts. Everything depends on the specific case. Some companies take only a lump-sum fee, while for others it is zero and the franchisee pays only royalties. But it also happens that the owner of the brand requires payment of both a lump-sum fee and royalties. Therefore, it is worth evaluating your capabilities in advance so that you do not have to take off rose-colored glasses at some point.
There is, of course, another way to open a franchise business - without investments. The principles of the no-franchise franchise are that the entrepreneur who claims the right must convince brand owners that his candidacy will improve performance, but this is a lot of work. Only in rare cases does the franchisor become an investor for the franchisee.
The franchisee must pay the brand owner a lump-sum fee and royalties.
Pros and cons of a franchise
In this direction, as in any other type of business, there are advantages and disadvantages that you need to know in advance. Creating a franchise is a serious work aimed at regulating the relationship between the owner of the brand and the tenant.
pros
1. Brand awareness.
The popularity of the company inspires consumer confidence. There is no need for promotion, PR. Seeing a familiar name, the client will come himself, and not for the sake of curiosity, but to purchase a product or service. Onlookers who are not related to the desired contingent will be bypassed.
2. Business support.
The franchisee will never be left without attention, necessary instructions and training. For any reason, you can contact a specialist. At the first stage, assistance is provided even in the design of the premises, if the brand requires it. In another type of business, a beginner will have to solve all the issues on his own.
3. Guarantee to the bank.
If there is a desire to open a business, but there are not enough funds, then you need to go to the bank, but it happens to a budding entrepreneur. When choosing a franchise, the owner of the brand will support you, he will guarantee the return of credit funds to the bank. Agree that it is more reliable to give funds for an already promoted business than to look for a bankrupt client later.
Minuses
1. Harsh conditions.
It is necessary to work under certain conditions that the owner dictates. Deviation from even one point is fraught with fines for the tenant of the brand or termination of the franchise.
2. The rights of the franchisee are distributed only in accordance with the signed agreement.
If the brand suffers losses or goes bankrupt, then the entrepreneur who leases the right to work under this brand will have to wind down, no matter how well things were going for him. The fact is that if the supplier of goods or equipment disappears, the supply of what the franchisee depends on stops. The risks are high, especially if you do not study the economic side of the prospective partner.
It is also worth paying attention to what conditions the brand owner dictates when terminating the contract. There are situations when a new business does not suit the entrepreneur only after the project has been launched or other circumstances have arisen to close the business. But some types of franchise strictly stipulate that they have the right to sell your department to another entrepreneur at a lower price.
The rights of the franchisee are distributed only according to the signed agreement.
3. Restrictions in the choice of suppliers.
It is possible to purchase equipment or raw materials only from certain persons, which may be unprofitable by location. Attempts to circumvent this clause will result in termination of the contract.
4. Expenses.
Do not forget that all the costs of registering a business, acquiring premises for work, purchasing goods, equipment or raw materials remain on your shoulders.
Legal regulation
When thinking about starting a franchise business, it is necessary to study the legal regulation of such an agreement. Franchising in Russia is a relatively new direction in business, therefore, laws directly related to this type of activity have not yet been adopted. For Russian business, the concept of “commercial concession” is suitable, the principles of which are spelled out in Chapter 54 of the Civil Code of the Russian Federation. But this is not a serious legal form, and therefore some entrepreneurs try to pass off a completely different line of business as a franchise, having absolutely nothing to do with the trademark. So it is necessary to understand that the creation of a franchise must be confirmed by a written agreement, which spells out the rights of the parties.
Registration of a franchise is carried out only by the agency that issued the right to a certain brand to its owner. If such registration of the contract is not made, then the transaction will be considered illegal.
To eliminate all risks and surprises, you need to look at a sample contract of the trade mark with which cooperation is expected. It can be requested from the company or viewed on the official website. Also, a standard franchise agreement can be downloaded from sites where catalogs of companies offering franchising are compiled.
Franchise Business Lines
First you need to study the areas of franchising that are offered in Russia. There are a lot of varieties, because the development of franchises does not stand still. Entrepreneurs, opening a business very often, without having tested it on their own, begin to sell franchises.
Activities:
1. Retailing.
Network retail activity. For a franchise, it is proposed to open a store that is known in many regions. For example, the well-known stores Pyaterochka, Perekrestok, Magnit, L'Etoile.
2. Sphere of public catering.
This is a very popular type of business because food is always in demand. Successful examples include Subway, McDonald's, Little Potato, and various take-out coffee companies.
3. Production.
This is a very diverse type of franchise that gives you the opportunity to choose a direction: in food, growing certain crops, such as exotic flowers for flower shops. Mini-bakeries or retail outlets, where production and sale of products are simultaneously carried out, are becoming widespread. An example is Russian Pies, Pokrovsky Bakeries. This direction is very profitable, because bread is bought every day. If there is a supply corresponding to demand, then the type of production is chosen correctly.
4. Goods for children.
Toys, food and baby care products. In this case, you need to study the competition in your city or other locality so as not to be at a loss.
5. Clothing and footwear.
Goods from well-known and not so famous brands also provide great opportunities for choosing the direction of franchise business development.
6. Products for women or men.
These can be specific attributes: jewelry, watches, spare parts for cars of certain brands.
A more complete classification of types of franchising in Russia is available on specialized websites that provide such information. In the franchise directory, you can select different companies and get information about ratings and reviews from existing franchisees.
To purchase a franchise, you first need to register an IP. Franchise activities are allowed only for commercial organizations or individual entrepreneurs. An individual cannot do business without registration.
To purchase a franchise, you first need to register an IP.
First, study the situation in your city. It is possible that the type of activity of interest is already on the market. Next, evaluate your financial capabilities, because any business requires investments. If the cost of a lump-sum contribution is excluded, then you still have to spend money on premises, the purchase of goods or raw materials, equipment. Think about whether you are afraid of responsibility to the consumer and partner. To let down a respected product brand is to lose profits. Therefore, carefully study your responsibilities before signing the contract. Don't forget about statistics. Statistics is an important parameter that can be the main one when a businessman makes a choice in favor of a particular form of franchise.
Think about what the payback period might be. To do this, you need to talk with those entrepreneurs who are already in business in order to understand which technology works 100%. Although the owner of the trademark gives detailed reports and a business project, it is necessary to take into account not only the central regions of Russia, but also the outback, because the incomes of the population are different.
Let's take an example. The entrepreneur decided to expand his activities. I saw that there were few luxury furniture stores in the city and chose a narrow direction - kitchen furniture. As a partner, I chose the trademark "Kitchen Maria". I spent money on renting a retail space, where the main samples of the factory should be placed, and purchased samples. The owner of the brand gave a big discount on exhibition kits, but made demands that samples from the showroom not be sold for a certain period. The entrepreneur also thought that he would need funds to spend on computers with the factory's design program, but they were also provided free of charge. After the staff was hired, who were trained by the manufacturer, the salon began work. But, despite the fact that the preparations for the opening of the salon were successful, there are no customers. And all because the entrepreneur did not take into account that the cost of a headset from the brand "Maria's Kitchen" is at least 100,000 rubles. This is practically inaccessible to the bulk of consumers in the region, where the average salary is only 20,000 rubles. It is a completely different matter when the salon is open in a big city, where there are more people with high incomes.
Terminating an already signed agreement can lead to serious problems. To avoid problems, the preparation must be very thorough. In order to check the reliability of the chosen direction, you need to find contacts where you can contact representatives. If the site only has a form where you can write a message and wait for a response, you should not do business with this company.
In order to check the reliability of the chosen direction, you need to find contacts where you can contact representatives.
Summarize
Although franchising as a type of business activity for Russia is a new concept, it is gaining momentum rapidly. The pros and cons of such a business are already obvious, there is experience that entrepreneurs share with each other in order to avoid serious mistakes.
The choice of activities is very large. If you study the main types of franchises, you can choose something that will bring not only income, but also pleasure. There is no serious regulation of the process by the regulatory authorities, but with the support of an experienced lawyer, you can eliminate the pitfalls in the agreement.
Having considered the main aspects of running a franchise business, we can only say one thing: if there are no ideas for developing your own direction, then you should use the experience of those who have reached great heights and received respect from the consumer.
Starting a franchise business is considered more profitable and safer than starting your own business without outside help and support. This way of doing business is most suitable for those who do not have relevant experience. It should be understood that the business will not belong to you in full - an enterprise opened under a foreign brand will bring a stable profit (subject to proper organization), but as soon as the contract is terminated or the franchise agreement expires, you will be left without customers, and without goods. But with the experience gained in doing business. All can be found in our article.
How to start a franchise business: simple steps
- Choosing a sphere
First of all, you need to focus on a certain area of \u200b\u200bactivity. Most franchises today are concentrated in the sulfur trade, public catering, less in the field of production and services. Each has its own strengths and weaknesses. So, trading in finished products purchased from the franchisor allows you to get a quick and stable profit. Franchise production - save money, as raw materials are cheaper than finished goods. The service sector does not require the equipment of retail outlets and the maintenance of storage facilities. Public catering is one of the least expensive and most highly profitable.
There are also disadvantages - in catering you can “burn out” if the food turns out to be tasteless, the competition is too big, the influx of customers is too small. The outlet will become unprofitable if you do not have time to sell the goods purchased from the franchisor on time (and purchases should be regular, regardless of whether you managed to sell the previous batch or not). Production is the most complex process that requires the search for narrow specialists, high costs for opening, and constant monitoring of the process. And in the service sector, royalties can reach astronomical numbers.
The franchise business is becoming more and more relevant, and for good reason. It is noteworthy that this option is chosen by both beginners and experienced entrepreneurs, and this is logical. The former do not want to bother with the development of promotional materials, organizational and documentary details, while the latter, in turn, have already “bumped” in their previous activities and are well aware that it is better to invest your money in a proven business scheme that has been working successfully for many years in a row. .
There are a lot of offers on the franchise market today, and at the moment there are several hundred of them in Russia. It is only important to study very carefully what interests you the most, since there are also little-known and sometimes simply absurd ones.
Moreover, we are talking about Moscow, where there is a lot of competition and, perhaps, branches under a certain brand have already been opened. However, sometimes franchisors allow this type of business, because it is beneficial for them to expand it.
How to choose the right franchise for Moscow?
Ideally, if you are already familiar with a particular type of business and are well aware of all its pros and cons. If there is no practical experience, then you need to study the maximum information about the franchisor. For example, to begin with, visit the office (shop) of the company under the guise of a client, to see how it all looks in reality. You may be able to communicate with franchisees who already work under this brand. Read reviews about the franchise, find out how many branches are open under it. As a rule, dozens or even hundreds of franchisees work under the name of developed and successful companies, because a profitable business is stable and worked out to the smallest detail.
In the end, think about what exactly you like, and in the most free form. Do you like coffee or sweets? Then you will be able to open a cafe or coffee shop with great success and pleasure. Do you like to draw or are you interested? Today, there are more than enough franchises in these niches.
In the case of Moscow, it is generally very easy to choose a franchise, because there are both elite areas with wealthy residents and peripheral places where budget goods and services will be in better demand among the local population.
In fact, any type of business can be franchised, and this is often one of the goals of any experienced entrepreneur. Expanding your business while getting a good percentage and greater recognition is the best result for many businessmen.
Money to start a business in Moscow
Naturally, the choice is also influenced by the size of the budget that the entrepreneur has. It’s good if there are several million rubles in reserve and it’s not scary to lose them, but what about those who do not have decent start-up capital? Fortunately, there are several options for starting a business in Moscow today. In particular, you can attract money from outside, for example, in the form of a subsidy or grant for business development. A loan can also be called an additional opportunity, but here it is worthwhile to approach the issue very competently, because in this case the entrepreneur risks not only to burn out, but also to remain with large debts. In Moscow today there are various business incubators and centers to help start-up entrepreneurs. Of course, there are also a lot of private investors in the Russian capital, who may be interested in a particular direction. It all depends on the profitability of the business and how the entrepreneur will present it to a potential investor.
Advantages of a franchise business in Moscow
Moscow is exactly the city where people look at the brand more often than at the price. It is quite natural that there are already fans of a particular brand (company) here, so it is very easy to find a target audience for a franchise business here. Surely in some particular area there are people who are forced to travel to the other end of the city in order to taste their favorite specialty dish or, for example, buy clothes from their favorite brand. Naturally, they will be very happy if a company store or a favorite coffee shop opens in their area. Moscow, as you know, is a very large city, so here you don’t always want to stand in traffic jams or take the metro to the right place.
When buying a franchise, an entrepreneur joins a trading network or becomes a representative of the company that provides him with full consulting, marketing and legal support. Equipment is provided, and sometimes assistance is provided in the selection of premises and staff.
By opening a franchise business, a person joins a business that successfully brings profit not only to the franchisor, but also to the partners of the company. Invaluable advice on general issues can be given here, and, if possible, you can exchange experience with other franchisees. It's definitely better than getting into an unfamiliar kind of business without any support.
When working on a franchise, an entrepreneur does not need to come up with a business idea, because everything has already been worked out and tested in practice more than once. There is a clear business strategy and it is enough just to invest start-up capital. Today there are many franchises that are great for entrepreneurs with no experience in business and personnel management.
A proven way to grow a business is to save money on market research, market analysis, and brand awareness. If the niche is in demand, then the profitability of the business will be obvious. Some franchisors provide truthful data on expected income and payback periods. They have no reason to deceive their franchisees, because any owner of a large company is interested in his brand developing.
It is noteworthy that the representatives of the franchisor can draw up an individual business plan for a particular branch - this will clearly determine all costs. In addition, a design project of a retail outlet can be developed and the entire cooperation scheme in the case of a franchise is usually signed in detail. This will reduce many of the risks that can be quite significant in any kind of business.
Do not forget about the advantages of franchising in the sense that the franchisor is a reliable guarantor when obtaining a loan or subsidy, because any investor or lender understands that a well-known brand is the key to stable and high income. Sometimes franchisors can officially confirm the fact of cooperation, and this is a good help in obtaining investments.
Cons of a franchise business in Moscow
Sadly, franchising has its downsides as well. Moreover, if you do not know them, then you can easily “burn out” at the earliest stages of work.
Probably the most significant disadvantage of any franchise is that the future of the business directly depends on the franchisor. That is, if the owner of the parent company decides to stop its activities, then the entire network will automatically be closed, regardless of the number and profitability of branches. To protect yourself from this moment, you should carefully study the terms of franchises. In particular, some agreements explicitly state the terms for using the franchise and talk about compensation for damage in the event that the company's activities are terminated.
Do not forget about such moments as royalties and advertising fees - they are somewhat similar to loan obligations, especially since they must be fulfilled constantly and throughout the entire period of cooperation. Often, these payments are a fixed amount that is paid regardless of profits, so paying royalties is not always easy. However, there are also franchises that do not imply any deductions - when buying a business, a one-time and fixed amount is paid.
The downside can also be called a strong dependence on the franchise owner. Obviously, there may be tight control on the part of the franchisor and the entrepreneur can sometimes feel like a hired employee. On the one hand, this can positively affect profits, but at the same time, the franchisee will be forced to work within narrow limits, constantly reporting to the head office and unconditionally following corporate rules. In addition, dependence here also implies that the prosperity of the franchisee's business directly depends on the demand for the brand. Therefore, if negative reviews or news about the parent company begin to appear, then the shadow will fall on all its branches, and this, again, is fraught with the loss of customers. Again, if we are talking about Moscow, then control can be stronger, and attention - more. It is natural that all business processes here go much faster than in small towns.
The total investment when starting a franchise business is often more than when starting from scratch. When buying a franchise, you will have to pay an initial fee, buy goods and various marketing materials. When starting a business on your own, these costs may not be required, and in general you can save a lot, because in this case you have complete freedom of choice.
What is important to remember when opening a franchise business in Moscow?
Based on the foregoing, we can make a fair conclusion that it is better to choose a franchise business that better meets the individual criteria of an entrepreneur. As we said at the very beginning, today in Russia, however, as well as in Moscow, hundreds of franchises are successfully operating, so it is difficult to give recommendations on which one is better to choose. You should build on, at a minimum, the financial possibilities and conditions offered by the franchisor. It is necessary to carefully study all the nuances of such cooperation, and only then it will be possible to say that this partnership will be more likely to be successful.
Both experienced entrepreneurs and beginners choose between opening a franchise store and their own business plan. The main advantages and disadvantages are considered on the example of 3 most popular retail franchisors in Russia: Pyaterochka, Perekrestok and METRO Fasol.
How to open a franchise store
Basic terms and concepts that you need to know in order to open a franchise store.
Before choosing a partner, you need to evaluate the strength. The franchisor will require the fulfillment of a number of conditions enshrined in the contract. Failure to do so will result in sanctions.
Experienced entrepreneurs choose according to the marketing package, get acquainted with the conditions, and make a purchase decision only after carefully reading the cooperation documents. You can ask a lawyer for help.
Franchise VS self-discovery
By opening a franchise store, a businessman saves time and effort, but not money. He gets a run-in business model. This is convenient for those who are not launching the first project, and, for example, in order not to depend on one direction, they choose another, little known one.
The lump sum pays for the time that the entrepreneur would have spent identifying the nuances. However, experienced businessmen do not perceive requirements and rigid frameworks well.
Franchises protect inexperienced entrepreneurs from mistakes and teach the basics of managing companies. The mentor guides and supports the junior partner, not allowing them to make big mistakes. At the same time, the business is constrained by the ideas and intentions of the franchise owner.
For those who are tired of hired work and the dictates of the authorities, an independent discovery is suitable. In this case, the entrepreneur is the creator. Creates its own unique business mechanism. Saves 30% capital and spends 1.5 times more time.
Rice. 2. Sample layout in the store "Krasny Pischevik"
Advantages and disadvantages
Advantages:
- The franchise buyer receives guaranteed assistance from his franchisee. Consultations are valuable because the franchiser is constantly calibrating the terms of his product and business format. Learn from your own and partner's mistakes. Implements changes. Leads a novice entrepreneur to the first result.
- No need to come up with new ideas and development strategies. All you need is basic knowledge in the field that the franchisee chooses.
- Before opening a franchise store, there is already an idea of the popularity of the product, the promotion of the brand. Niche testing and loss of test resources are unnecessary. Reducing marketing costs.
- There are cases of obtaining a loan to finance the start-up capital of a junior partner. The collateral for such loans is the property of the senior partner and a surety. Otherwise, it is impossible to get money from the bank for a startup.
- The franchisee receives a detailed business plan. Calculated profitability and initial costs. Understand the payback period and return on investment.
- Large franchises limit the number of partners per locality. This partially removes dependence on competitors.
- Advertising support. The founder of the franchise conducts advertising campaigns and brand promotion at his own expense. This gives recognition to the network of its stores in every city.
- Ready bases of suppliers, goods, contractors.
Disadvantages that lead to failure or force a novice businessman to refuse to buy a franchise:
- The dependence of the business on the founder of the franchise. The development strategy remains in the hands of the brand owner.
- Initial requirements for opening a franchise store. Renovation of the premises in the chosen style, uniforms of sellers, amount of initial investment.
- Dependence on the state of affairs of the entire network in the market. The actions of other partners or the franchise owner may affect the chain's reputation. Poor quality service or products will scare consumers away from the brand.
- The price includes the profitability for the franchise seller. Costs for advertising, personnel, communications, etc. increase the price. A business in which a business is a commodity also has profitability and margins. In other words, a similar project will cost 25-30% less if you enter the market on your own.
- Periodic royalty payments. They reduce profitability for the store owner.
- The contract establishes the rights and obligations of the parties. In case of deviation from the agreement, the parties bear additional costs and fines.
Opening stages. Step by step plan.
Overview of three retail franchises
Reference. Reverse franchising is a type of business activity in which the person who bought the franchise receives periodic payments. The buyer is an investor. The franchise seller opens a subsidiary at the expense of the buyer.
Outcome. The advantage of opening a franchise store is information support. A novice businessman follows a well-trodden path, and a senior partner, interested in his development and profit, tries in every possible way to protect the “junior” from problems and dangers.
Large franchisors provide round-the-clock support, hold gatherings and conferences, introduce innovations, share document templates and best practices in business processes.