Franchise: what is it and why is it needed in business

If you decide to join any project, then you definitely want to know your financial benefits from the partnership: investments, costs, revenue, payback, break-even point, profit. As part of a face-to-face product presentation, a speaker is used who describes each of these points in detail. But what do you do when developing according to the franchising model?

If you decide to join any project, you will definitely want to know your financial benefits from the partnership: investments, costs, revenues, payback, break-even point, profit. As part of a face-to-face product presentation, a speaker is used who describes each of these points in detail. But what do you do when developing according to the franchising model?

The geography of franchise networks is rarely limited to one region. Often, points are opened throughout the country, and international franchising also takes place. In this regard, the justification for the financial benefits of a franchise is most often demonstrated in a financial model. But what it is and what it consists of, we will talk today.

Why do you need a financial model

As I said, all the key financial indicators of the project must be present in the financial model. This document is sent to the person interested in buying the franchise to confirm the economic benefits.

Please note that the indicators in the financial model must be adjusted depending on the region. Also, the model should be dynamic - that is, when some parameters are replaced, the rest should change automatically.

The financial model should be visual and detailed, but at the same time not overloaded. The potential partner must see all the key parameters and draw conclusions. You should not go deep and make too detailed a description of each section, it will be difficult to navigate in such a financial model.

If you need help packing your business into a franchise - contact me, I have a lot of practical experience in franchising, I will be happy to help!

Which sections does the financial model include?

Usually the financial model is made in the form of an Excel table, since some parameters must change. To understand how to build a financial model, let's talk about the sections that it should be composed of. In my opinion, these are the most important ones, which you cannot do without.

Often, people who own large businesses and have several branches entrust part of their responsibilities, hiring deputies for each branch. Such activities formed the basis of the franchise system. In this article, we will tell you in detail everything about a franchise, what it is and why it is needed in business.

What is a franchise in simple words

So, let's start with what a franchise is. A franchise, in simple terms, is a permission to conduct business under the trademark of a well-known brand, while taking its rules, work policy and record keeping as a basis. As a rule, such a permit is paid and upon purchase is drawn up in a package of documents. That is, if you decide to open an online book store under the leadership of a well-known brand, then accordingly it will be necessary to redeem this right for him.

Starting a business on a franchise is possible only if you pay a one-time fee for the right to trade under the trademark of the brand with which the contract is concluded. But it should be said that for this permission the company will charge a kind of tax called a share. Its size depends on the amount of profit and is calculated as a percentage.

Business Franchise: What It Is

We figured out the concept of "franchise", now let's figure out what a business franchise is. In essence, a business franchise is the process of acquiring the rights to conduct business under a well-known brand name. That is, there is no need to "puzzle" your head about what kind of business to do in 2021 with minimal investment, but simply, roughly speaking, to buy out a ready-made business with all its rules, instructions, as well as a business development plan for the corporation.

Franchise Pros and Cons

I think it is worthwhile to initially identify all the pros and cons of the franchise. It would seem that everything is as simple as possible: you bought the right to do business from a popular brand, you follow the already created and worked out rules and make a profit only by paying a percentage for the maintenance of the business.

This is the main advantage of working on the franchise system - you don't need to invent anything. The profit will be immediately, as your business will be a kind of branch, with the same standards and policies.

Also, with the redemption of a license, you not only acquire a ready-made action plan, but also suppliers of products, since this company already has them. You shouldn't be puzzled by the search for qualified personnel either, because, as a rule, the franchisor company trains them itself. You will only need to hire them. Also, if there are difficulties with the staff, a request for a vacancy is sent and a new specialist is sent.

What is a franchise business?

One of the most unusual terms used recently in business, or rather, since the end of the last century, is the so-called franchising.

What is it and with what, given its extensive use in the trade and restaurant business, is it "eaten"? In French, franchising is the granting of certain privileges to someone.

Experts argue that commercial franchising is one of the most promising and affordable options for starting green newcomers in it, who still don't really know how to do anything and therefore constantly stumble upon pitfalls.

This is where they come to understand that, being under the care of someone much more experienced, it is much easier and safer to get on their feet.

Franchising can also be called a type of contractual relationship when the owner of a certain business (franchisor) transfers to another subject of the contract (franchisee) for a fee (royalty) the right to use his brand and business recipe.

Why is the franchising business so attractive for "debutants"? Among its main advantages are the so-called promotion of the trademark (brand), the absence of the need for extensive advertising, corporate support for more experienced ones, which allows a beginner not to make elementary mistakes, consulting and even financial assistance (for example, a guarantee when obtaining loans), serious savings in purchasing goods and much more.

There are three main types of franchising - commodity, service and production. Commodity franchising involves the sale of products manufactured by the franchisee and marked with its own trademark.

Service franchising is the right of a franchisee to engage in a certain type of commercial activity using the trademark of the copyright holder. Production franchising is understood to mean the provision of already patented and used technology to the franchisee.

Small business franchising is an easy and less risky start

According to domestic economists, the development of small business in Russia is impossible without solving a large set of important problems that seriously affect the efficiency of this type of entrepreneurship.

The most key among them are complex relationships with large businesses, the need for a constant increase in the volume of sales of products in the broad market, a decrease in work efficiency, a lack of qualified specialists and some other objective economic difficulties.

Franchising is a kind of "magic wand" and a connecting link between small and large businesses. Thus, small business becomes a good base for franchising.

Organizing your business is just three words, but tons of work, effort and sometimes money behind them. Some do everything from scratch, some follow an easier, well-trodden path - they buy a franchise and develop their business in this direction.

What is a franchise? How it works, what types there are, the pros and cons of the franchise will be discussed in detail below.

What is a franchise?

A franchise is a "right" that is granted by a trade mark, brand, an entrepreneur to open his own business under their guidance and using their TM. Of course, such a right is provided on a paid basis.

Here is the official definition. A franchise is a set of benefits on a paid basis, which allows individuals and legal entities to use a trademark, copyright developments, and work techniques.

In very simple words - a franchise gives you the opportunity to start your own business under the leadership of a particular company. For someone who has decided to become a businessman from scratch, having no experience at all in leadership or project management, this option is optimal, because the franchise holder provides a base for getting started and consulting support.

Real life example

Let's take an ephemeral coffee shop worker as an example, let's say it is the administrator. One fine day he decided that it was enough to work for his "uncle" and it was time to develop his business.

And since he had experience in managing a catering establishment, he decided to put this business into practice for his business - he bought a franchise at one of the coffee houses and started working. The start was successful, as soon his coffee shop became one of the best in the city.

Harsh reality

Almost anyone can start a business, and there are many ways to do this. One such way is to open a franchise business. We will try to explain what a franchise is in this article.

What is a franchise?

The classic definition of what a franchise is, is unlikely to give an exhaustive answer to a novice businessman not yet experienced in business. A dry definition of a franchise reads: Franchise is a compensated right to commercialize a trademark and / or business system. The franchisor is the owner of the rights (the owner of the trademark, distribution system, business system), transfers for a certain fee to the Franchisee (the party that will use someone else's business system, trademark, distribution system to benefit from) within the framework of franchising (a system of promoting goods on the market and services).

Now let's try to explain in more detail what a franchise is.

Franchising History

Starting any business involves certain difficulties. There are a huge number of questions to consider. What product or service will be offered on the market, who will be the buyer (for whom it is intended) of the product or service, where the product will be purchased, what methods of advertising and promotion will need to be used to attract your target audience, and many other serious and important questions. At the initial stage of organizing his business, a novice entrepreneur must also calculate his business, draw up a business plan. If a person has no business experience, there is no reliable input information, then the calculations are likely to be incorrect, far from reality, and therefore there is a high probability of error and business failure.

By the mid-1950s, franchising had developed into a clear business system that allows an entrepreneur to leverage the experience, strengths, and business system of those entrepreneurs who have proven the viability of their business ideas. Ray Kroc, one of the founders of McDonald’s Corporation, became the founder of modern franchising, which involves not only distribution of goods and use of a trademark, but also a business system (marketing system, selection of equipment, personnel management, document management, etc.).

Modern Franchise

Today franchising has become a part of our life. Modern franchising involves the transfer of rights to use the entire system of business processes, honed by the parent organization - a franchiser. In simple terms, when buying a franchise, an entrepreneur, while remaining completely independent in terms of owning a company, receives a complete system of doing business, which includes:

  • the right to use the trademark;
  • recommendation or obligation to use certain commercial equipment (in many cases the equipment is supplied by the franchisor);
  • marketing system <
  • personnel training system;
  • product distribution system.

In fact, an entrepreneur who decides to open his own business may not be able to resolve issues related to choosing a business idea, he just needs to open resources that offer various types of franchises and choose the area of ​​activity that he likes best. The only limitation is the amount of financial investments that will be required to start a business. An entrepreneur may not think about how to draw up a business plan, calculate the future profitability and profitability of the business, the franchisor will help him. He will provide all the necessary data and calculations, tell you what nuances the entrepreneur will have to face, but also give recommendations on how to act so that the business works and generates income.

Basic concepts of franchising

In order to understand the topic of franchising well, and so that in the future you can successfully find profitable offers for buying a franchise, it is worth reinforcing the basic concepts that entrepreneurs use. At the beginning of the article, we gave an explanation of what a franchise is, however, there are several very important points in the framework of franchising:

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