What is franchising: how will it help to build a business?

For many entrepreneurs, the complexity of the way to business is not so much to find a good idea, and not even to collect seed money.

The main difficulty for them is inexperience and the absence of an intelligent mentor who will help build a profitable business.

If you understand in detail, what is franchising , you can open a private company, relying on other people's experience and using the achievements of business giants.

In the west it is a very popular thing, gradually franchising is gaining popularity in the countries of the post-Soviet space. ..

What is franchising and who invented it?

Even if you do not know the word "franchising", then for sure you know what a franchise is, because this phenomenon has long entered our life, mainly in the insurance sphere.

But today we will not talk about insurance, but about franchising in the business world and how it can be used to launch a start-up.

What is franchising in an accessible language?

The official interpretation of the term "franchising"( from the English word franchise, that is - the privilege, the right to something, the license) is quite complicated.

Type of relationship between two market entities( franchisor and franchisee), under which the first entity transfers the second right for a certain amount of money( royalty) to use either its trademark or an already developed business model.

If you explain what franchising is in a simple way, then it's better to turn to the example.

Imagine that there are two entrepreneurs:

• is large, which has a prosperous business, whose trademark is recognized in at least one country, as a maximum - has international fame;
• is a beginner in a business that has seed money, but who does not know what kind of business to do to build a successful business.

And these two entrepreneurs conclude a cooperation agreement.

PS.Sometimes the contract of franchising is very detailed, in which everything is written down, including the color of the form of attendants and the decor of the interior, sometimes - not too detailed, containing only a description of the use of the trademark for a certain amount.

And now a businessman-novice has not just a sum of money that he did not know where to put, but becomes the owner of a promising start-up with a recognizable brand that people like and an experienced partner.

Good bargain, right?

The relationship between the franchisor and the franchisee is well illustrated in this scheme:

Of course, large businessmen with a recognizable brand give the opportunity to develop small businesses not on the kindness of the soul, but because they have monetary benefits from this.

For the right to cooperate with a giant, a novice entrepreneur pays a one-time large sum( a lump-sum contribution), and then unfastens the monthly / annual or specified amount or a percentage of the profit( royalty).

Franchising costs money.

Who invented franchising?

Our businessmen through one know what franchising is, but, at the same time, it is quite an old phenomenon.

It was invented by the creator of the legendary sewing machines Isaac Singer in the middle of the XIX century.

In 1851 Singer signed the first cooperation agreement with the distributor, according to which the distributor was granted the right not only to sell, but also to service sewing machines in the US.

So the first franchise system was established.

In the early twentieth century, such a system of relations between the two market entities used in the US is already quite active, but the forefront was just commodity franchising( the right to preferential use of both goods and trademark).

Then the oil companies realized how profitable to use franchising, giving the world network gas stations.

But the modern version of franchising was finally formed only towards the end of the 1950s and, having left the borders of his homeland( USA), began traveling around the world.

But only in the mid-1990s did he come to Russia.

If we talk about companies that have gained worldwide popularity and earned huge money thanks to franchising, then the first comes to mind "McDonald's".

Beginning Russian businessmen can easily join the ranks of entrepreneurs by buying franchise supermarkets Pyaterochka, refueling Lukoil, network operator MTS, etc.

There is a "Russian Franchise Association", which helps young entrepreneurs to get on their feet. More details about it can be found at the link http: //www.rusfranch.ru/

Types and forms of franchising

Due to the fact that franchising is not a new phenomenon, it has managed to grow and develop over the decades of its existence, therefore there are different forms and types of this kind of relationship between the two entities.

The main types of franchising:

1. Sales.

   The manufacturer provides the distributor with exclusive rights to sell their products, and on preferential terms for the seller.

2. Insurance.

   Gave a new impetus to the insurance business, because small insurance companies had the opportunity to cooperate with the giants.

   This gave them the opportunity to reduce their administrative costs and offer their customers a wider range of services.

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3. Commodity.

   The most popular type of franchising today, when one businessman for a fee gets the right to use the brand or trademark of another.

4. Business.

   This is a license sale, through which the franchisee gets the opportunity to open stores, catering establishments and others under the brand of the franchisor.

5. Industrial.

   Not the most popular kind of franchising in Russia, as production is not the favorite type of business, but some entrepreneurs buy a franchise to produce goods.
   

There are different forms of organizing a franchise business, but there are only two basic ones:

1. Regional franchising.

   In which the franchisee actually gets into his possession a particular region, which he undertakes to control for the use of franchise by other companies, etc.

2. Individual franchising.

   Franchisee concludes a cooperation agreement with the franchisor and is engaged in the promotion of only his business under his trademark.

What is a franchisee and what does he have to do with franchising?

This article is probably more interesting for future entrepreneurs who are looking for an opportunity to reduce risks when opening a new business.

It is the business-beginners who consider franchising as a way to start a start-up. And if so, then you should know what a franchisee is.

Actually, franchisees are not "what", but "who."So they call one of the parties: one that acquires a franchise of a well-known and well-promoted company or a trade mark, under which it will work.

To become a franchisee, you will have to invest financially well.

First, you need to buy a franchise.

Secondly, you take on all the costs of starting a start-up( the franchisor, that is, the one from whom you buy a franchise, does not invest in money).

Thirdly, monthly or annually( here what the terms of the contract will be), you pay the franchisor royalties( or a specific agreed amount, or% of the profit).

But even if you have enough money to buy a franchise and start a business, this does not mean that a large company will want to cooperate with you and you can become a franchisee.

The conditions that the franchisee must fulfill to interest the franchisor:

1. To listen to the terms of cooperation and accept them as they are, the franchisee has no right to propose terms and make changes.
2. Take on all financial obligations.
3. Sign the contract and comply with it.
4. Do not abuse the franchisor's help - he will not build a business for you.
5. To adhere to those standards that the franchisor founded, so as not to damage the reputation of the brand.
6. Observe confidentiality and not give out production or marketing secrets that the franchisor shares with you.
7. Do not delay payment of royalties.
8. Do not try to cut costs, saving on quality.
9. Contribute to the development of the corporation.
10. Build relationships based on trust and mutual respect.

Advantages and disadvantages of cooperation on the franchising system

Although today franchising is a rather popular form of cooperation between the two market entities, not all businessmen are aware of its main advantages and disadvantages, and therefore often fall prey to a wide variety of misconceptions.

Advantages and disadvantages of franchising

Franchising cooperation benefits both sides: franchisor and franchisee, although, of course, the franchisor is in more favorable terms, because not only does he have the opportunity to expand his business, he also earns wellOn this.

But franchisees can not be considered deprived as well.

Advantages of franchising:

1. Opportunity to untwist business according to the already prepared scheme.
2. Distribute a brand or brand to a wider audience.
3. The monetary compensation that the franchisor receives and the opportunity to reduce the amount of capital investment for the franchisor.
4. Reduced risks for both parties to the contract.
5. A large selection of facilities for cooperation, especially for the franchisor.
6. Minimum costs for advertising and marketing research.
7. Ability to expand the client base without much effort.
8. Sharing knowledge - not only the franchisee learns from a more experienced partner, but the franchisor can learn something new for himself.
9. Easy access to the market for the franchisee and the opportunity to conquer the market for the franchisor.
10. The consumer gets access to quality goods and services in his region, which he was previously unavailable.

Disadvantages of franchising:

1. The control that a franchisor must establish over a newcomer in a business and which often does not allow the franchisee to act at his own discretion.
2. Business relations in this case are built on trust, and this is not so easy to do if the acquaintance is established only recently.
3. If one of the parties does not comply with the terms of the contract, then the reputation of both the franchisor and the franchisee may suffer.
4. Non-ideal legislation that does not allow the franchisor to fully control the franchisee, to ensure that he keeps confidentiality, etc.

In simple words, what is franchising and how to conduct business with it:

Misconceptions about franchising, the victim of which can become

If you want to open a business in the franchise system, you should study the topic in detail and choose the right partner that will help youeasy to join the ranks of entrepreneurs and build a profitable business.

If you do not, you will easily fall prey to delusions that are floating on franchising, and can lose all your money.

3 main misconceptions about franchising, the victim of which are franchisees:

1. This is just buying a brand or a trademark.

   Yes, sometimes it does.

   But in most cases the franchisee gets a ready-made model of doing business, consulting assistance.

   And often - ready-made infrastructure facilities and credit on preferential terms.

2. All will do for me.

   This error confronts the first.

   Some entrepreneurs are confident that if they pay money to the franchisor, then he must build a profitable business for them.

   As a last resort - to provide ready-made step-by-step instructions, understandable even to the baby.

   Help, of course, you will have a franchisor, but you'll have to do everything yourself.

3. Franchising is the key to success.

   Yes, this kind of cooperation minimizes risks, but it does not destroy them completely.

   You can easily choose the wrong partner whose products / services are not in demand among consumers.

   Or, unwittingly, break the contract and your cooperation will end there.

   In general, no one will give you a guarantee that franchising is the key to a successful business.

Knowing what is franchising , you can build your business under the "wing" of an experienced partner who will gladly share with you his experience for a cash reward.