What is a franchise and how does it work in simple terms
An aspiring entrepreneur is faced with a lack of consumer confidence in the product. Over the past ten years, all areas of business have been mastered and compete for a young company. In order not to waste time and money on advertising campaigns, a small business owner acquires a franchise of a large corporation. If an entrepreneur understands why a franchise is needed and how to handle it, profits will not be long in coming.
What do you need to know about a franchise?
Buying a franchise means legally obtaining the right to use the logo, symbols, products or services of a well-known brand. Depending on how popular the brand is, the conditions and cost of the franchise vary. In any case, a business formed by an entrepreneur should function only according to the rules and technologies of a large company.
Before you open a franchise business, you need to figure out exactly what rights the franchisee gets. After the conclusion of the contract, the entrepreneur legally uses:
- logos and trademarks;
- production methods;
- all types of intellectual property (for example, software);
You have to pay to use these benefits. At the beginning of cooperation, the entrepreneur makes a down payment: its amount starts from five thousand dollars and has no upper threshold. Investments do not end there: every month, the franchisee deducts from five to ten percent of the profits to the company’s head office.
Despite the control of the franchisor, the entrepreneur freely uses the rights of the branch director: independently recruits employees, organizes the working day, distributes salaries and bonuses.
By purchasing a franchise, an entrepreneur saves himself from thinking about where to start a small business. Such an investment can save up to five years, which can be spent on advertising campaigns, introduction to the market and popularization of a product or service.
Entrepreneurs identify about a hundred areas in which franchising is developing particularly actively. Popular and in demand among consumers:
- supermarkets, shops and other outlets;
- cafes, bars and restaurants;
- gyms and beauty salons;
- pawnshops and MFIs;
- departments of online stores.
This is the minimum list of promising areas that are suitable for a novice entrepreneur. In the future, any kind of competent cooperation with promoted companies will bring profit.
The initial fee for acquiring a franchise is at least five thousand dollars. Depending on the franchisor company, this amount increases to hundreds of thousands. In this regard, corporations offer to purchase a franchise on credit. This method increases the interest rate from the profit per month, but makes it possible to cooperate with large brands.
The conclusion of this kind of transaction involves the full payment of the initial installment over time. It is important to assess the risks in advance and make sure that the amount of profit will allow you to fulfill the terms of the contract without harming the entrepreneur’s budget.
Pros and cons of a franchise
Pros of buying a franchise
The advantages of a franchise are obvious and come to mind by themselves. This way of starting your own business attracts with minimal risks and is convenient for beginner entrepreneurs. Advantages of franchising:
- promoted brand;
- quick profit;
- complete absence or low need for advertising costs;
- main office support.
Best of all, the advantages of a franchise are seen in the example of opening a well-known catering establishment in a provincial town. Already on the first day, the entrepreneur will profit from the townspeople who dreamed of tasting the famous food from films and advertisements. At the same time, the owner of the establishment does not have to spend money on brand promotion or be afraid of failure.
Cons of a franchise business
Even this, at first glance, an ideal type of business, is credited with a number of shortcomings:
- lack of opportunities for modernization;
- forced change of equipment;
- full control of the franchisor;
If an entrepreneur is a creative person who does not just strive for profit, but wants to create a unique business, acquiring a franchise will limit his potential. There is no place for creativity and creative thinking: according to the contract, the franchisee is obliged to follow every instruction of the main office.
Another disadvantage of the franchise is the strong pressure from the franchisor. For any deviation from the rules, the entrepreneur will have to pay a fine. In addition, the owner of the branch is forced to agree and adopt all the innovations. For example, if the franchisor increases the work schedule of branches to around the clock, the entrepreneur will only have to obey.