One of the easiest ways to start a business is to open a franchise. Although for many it may mean a large investment, we must take into account all the resources and efforts that are saved in the implementation of a brand. In addition, not all franchises require high investments to acquire them. Therefore, In this article, we want to explain exactly what is a franchise and how it works so that you know this business model and know if it is the option you need. This article will be a Mega Guide to learn everything about “what is a franchise” to start your profitable and successful business.
Well by the beginning; Let’s go there!
What is a franchise, what are franchises?
The franchise is understood as a business format intended for the commercialization of goods and services (the franchisor), in which a person – natural or legal – grants to another (the franchisee) for a specific time the right to use a trademark or trade name. It is a commercial relationship in which one party (the franchisee) pays a quantity of money to another (the franchisor) for using its brand.
On the other hand, the franchise also involves the transmission by the franchisor to the franchisee of the full range of knowledge and experiences that allow him to carry out the efficient operation of the business in a uniform manner with commercial and administrative methods applied in different markets.
The franchise is a formula that has proven to be very successful at present and that allows the rapid expansion of business and market dominance but also implies assuming obligations and a series of economic considerations.
To make it clearer, let’s give an example:
I have a hamburger business. You want to start a restaurant using my brand, my advertising, my prestige, etc., so you decide to start a franchise using my name.
For this, we sign a contract, I give you the logo, the suppliers, etc. and you pay me an initial fee. Also, at the end of the month, you pay me a commission of 20% of your income.
What are the essential elements of a franchise?
These elements are what determine the contractual relationship between the parties, and in principle would be the following:
The Franchisor is an individual or legal entity that owns a brand and its own know-how and decides to transfer them to another person (the franchisee) in exchange for economic compensation.
The Franchisee is an individual or legal entity that starts a business in partnership with the franchisor, which allows him to start a business whose success has been proven, thus reducing the risk you face.
The Brand is the fortification and the key of business. The franchisor owns the property of a brand and transfers its use to the franchisee, who must use it in accordance with the corporate identity and the appropriate instructions.
4. Know how
The know-how is the processes, systems, and regulations of the brand. After this, I would say that it is the second most important badge of the business, the key to making the franchise profitable and successful. Normally, the franchisee will receive an operating manual with the procedures to follow.
The legal document that determines the relationship between the parties, which come together to achieve the success of the franchise. This agreement will reflect the authorization of the franchisor for the franchisee to use the brand and the know-how of the company, as well as the obligation to respect the distinctive features of the business.
And is it easy to get success with a franchise, is it easy to create and expand profitable franchises?
I would say there are examples.
Examples of successful franchises and types of them
There are many franchises that have been successful. You can look at them and why they have triumphed. Surely, it helps you to distinguish if your idea is viable or not.
We are going to make a classification and you will see in each type of franchise an example of those that have been profitable.
1. Commercial franchises
Commercial franchises are those in which the franchisor gives its franchisees the necessary elements for the sale of products or services to the final customer. It is a very widespread model because it allows quickly replicating businesses whose success has already been proven, which greatly facilitates the internationalization of the company.
An example is the uBreakiFix. Professional Electronics Repair! Nationwide Repair Services For Cell Phone Repair – iPhone, Samsung Galaxy, & Google Pixel, Computers & Laptop repair.
2. Industrial franchises
In this case, the franchisor gives the franchisee its know-how, the right to manufacture, the marketing of the products, the brand, administrative procedures, and management.
An example is Coca-Cola.
3. Production franchises
The franchisor manufactures the products and the franchisee sells them. In this contract, the franchisees distribute these products exclusively. In this way, the manufacturer ensures that his production will be sold.
An example is the Mango clothing company.
4. Distribution franchises
The franchisor is dedicated to reselling the products manufactured by other companies (its franchisees). Normally, it also uses another network of franchisees for distribution. In this case, it acts as a purchasing center.
Set another way: the franchisees are the producers and sell their products to the franchisor. He, in turn, can choose between selling them himself or having a series of franchised distributors.
5. Service franchises
The purpose is the provision of a specialized service, which is why know-how is also very important. The franchisor, in this case, will offer and require the franchisee a very specific way of providing stated service.
A sector conducive to this type of franchise is that of car rental. For example, Avis.
6. Master or main franchises
Finally, this type of the franchise is a special type of franchise, in which the franchisor gives the main franchisee the right to use the franchise in a large territory through the relationship with other franchisees. It is the model that is usually used to export the business to another country.
Now, let’s discuss what are the rights and obligations of the parties, since in a franchise, as in any business, there are two parties, two intervening positions, each of them with their rights and obligations. They must comply with them and respect them so that the business is profitable and successful for both.
What are The Rights and obligations in a franchise
These are the rights and obligations that qualify the relationship between the parties for the proper functioning of the business.
Rights of the franchisor
- Charge an initial fee and royalties for your brand and know how.
- Take the strategic decisions that it deems appropriate.
- Give the franchisee the compliance with the rules, the confidentiality of the internal processes and the use of the management methods that he wishes.
Obligations of the franchisor
- Be enrolled in the Franchisor Register or relevant institution or substitute it.
- Control stocks (if any) and the quality of products or services.
- Provide the necessary suppliers and/or wares to the franchisee.
- Advice to the same in what you need.
Rights of the franchisee
- Use the brand and know how while the contract is in force.
- Right to have the support of the franchisor for the start-up of the business (for example, through an operational manual).
- Right to receive support from the franchisor whenever necessary.
- The right to have the necessary materials for the development of the activity.
- Right to national exclusivity in the business.
Obligations of the franchisee
- Follow the methods and systems set by the owner of the franchise.
- Maintain the confidentiality of internal processes.
- Use approved suppliers.
- Respect the established standards for the conditioning of the premises, the advertising methods of the franchise and any other characteristic or distinctive element of the same.
How to start a franchise if you want to create a business
Now that you know what is a franchise, types, main elements … you may be interested in opening one. What do you have to do, where to start?
There are two major phases: the first is the choice of the idea or franchise itself; the second is the steps to be taken to form it.
1. Ideas to create a franchise
You may have many ideas in your head. However, you do not know which is more profitable, which has less risk or requires less investment.
Nowadays, business options are multiplying, some of them absolutely innovative and successful, although apparently ridiculous.
For the search and selection, there are platforms that have registered many franchises of many types.
One of them is Franchise Gator. In this platform, there are hundreds of franchise opportunities you can consider based on location, investment amount and business type. It serves both for entrepreneurs who want to be franchised, and for business owners who want to franchise it.
2. Steps to start a franchise
Study the viability of the business
The traditional business and company planning system says that you must follow these 4 steps:
- Develop a business idea. What are you going to sell? Where? How? To who? What makes it different?
- Then do a study of that business. Analyze your competition.
- SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis. Know your weaknesses, threats, strengths, and opportunities.
- Economic forecasts. Specify what you plan to enter and spend each month.
Determine the legal form of the company
You must determine if you are going to be an individual entrepreneur (self-employed, freelance) or you are going to create a legal person, a society.
In the latter case, it can be a civil society as well as a commercial one, and within these, there are several types: anonymous, limited liability …
In almost all laws, it is possible to form a partnership with only one member without the need for partners. This is a great decision because of the financial and responsibility advantages that it requires, therefore, even if you are alone, consider establishing a society, may be interested.
Look for financing
I am not in favor of getting into debt (less with banks) unless there is no other way. Although I’m sure, there is. Do not you have anything saved? Do not you have family or friends who want to enter the business as silent partners? Can not you start with the basics, without having to ask for anything?
I already know that leveraging through debt can be a great springboard to make money or start a path of success in business, but I do not know. It costs me. I do not sleep calmly owing.
Get the local
Unless it is an online franchise you should get a local.
In this regard, you can rent it or buy it. What is better? There is neither better nor worse, they are different things. It will depend on the money you have, the loan, that you prefer to appreciate property or instead use only …
Licenses and permits
With the administration, we have met.
The administration wants papers and money. Specifically, he wants you to fill out paperwork and pay fees. So you know: you have to comply with the law and regulations of each site.
How to promote a franchise?
If you are the owner of a company that you want to franchise, what you can not stop doing is promoting it to make it known and to know franchisees.
We already know that this means spending money. Many people wonder where to invest money. Well, in your own business, in expanding it and making it grow!
You can do several actions in this regard:
- Attend fairs and industry events. In them, you can meet a highly qualified audience, potential customers who are looking for an opportunity to invest and with whom you can make a very effective networking.
- Make a specific webpage or a section within which you already have, if applicable.
- Create an online marketing plan, which is a written document that defines the business objectives to be achieved in a specific period. And in which the strategies and actions that are going to be carried out in the digital environment to achieve them are detailed. With it, you will learn different strategies to multiply income in your business. Do it from the point of view of experiences, growth in vertical or horizontal.
- Advertising in magazines (online or offline) focused on entrepreneurs.
- Take advantage of traditional advertising (newspapers, radio, and television), but especially in the local area where you want to get franchisees, or make segm
Advantages and disadvantages of franchises
Maybe at this point and with all this information, you have your head in a confusion and do not know if it suits you or not to franchise your business.
As in everything, we must evaluate the pros and cons, which will be different depending on whether you are the franchisor or the franchisee.
From the point of view of the franchisor
Advantage of franchises
The main one is that franchising the business means creating an extraordinary source of passive income. You can grow your business, expand it, but also passively since the base business is already created.
By doing this, you will be able to open up to new markets, reduce investment risk and save a lot in personnel and infrastructure expenses (imagine that, instead of granting a franchise, you have to personally open another branch).
Finally, the name of your brand will increase.
Disadvantages of franchises
The franchisor must make a high initial investment for the systematization of processes and start-up, in order to reduce the difficulties of communication with the points of sale.
It will have less knowledge of the global operation of the business and, in parallel, may suffer a small increase in unfair competition.
From the point of view of the franchisee
Advantage of franchises
You can position yourself in the market and acquire prestige with a well-known brand and a business whose operation is contrasted.
You will be the owner of an exclusive business in your area, in which suppliers are also given and in which you will be able to benefit from the economies of scale of the chain.
Disadvantages of franchises
You will not own the brand that protects your business or independence in making decisions.
The success in your business will depend mainly on the good promotion of the franchise and not so much of its management.
You will have to make a considerable initial investment and pay royalties on a recurring basis.
Conclusions “Franchises, franchisors and franchisees”
I’m glad you have learned here, and I’d be glad if you had this guide useful.
As we have already mentioned, if you have a company and produces profits, an extraordinary way to generate extra income with it is to franchise it.
And if you are looking for where to invest or what type of business to create, or even if you are looking for a profession with a future, perhaps instead of looking for new ideas you can use existing ones (and proven) and become a successful franchisee.
In any case, whether you are a franchisor or a franchisee, you have great chances of success. And this applies to all people and all places.
Good luck and many successes!