Updated on April 22, 2020
Why should we undertake in this market? Perhaps because it has a turnover of almost 26 billion euros and employs approximately 242,000 people? This business formula -which, at the end of 2013, had 1,087 franchise chains and 59,131 establishments, according to data – offers a series of advantages with respect to traditional trade systems.
In general terms, the franchisee benefits, among other things, from a brand image (the ensign), from a know-how (the experience) and from economies of scale (for belonging to a network). Obviously, not everything is a bed of roses and setting up a franchise implies a series of burdens for the franchisee.
Before starting to walk, think!
We are not going to deceive you by telling you that the choice is easy, because it is not, but that should not be a problem either. Think that there are more than a thousand different brands operating in Spain (both national and foreign) and your starting options are at least 1,000, which are the ones with activity. Ufff… Don’t worry, now we have condensed in this article the steps to follow to become a franchise.
By way of introduction, and before starting to examine sectors, brands and markets, the first thing you should do is analyse your possibilities and your profile as a future franchisee. That is, you as an entrepreneur.
The first question to deal with is whether you are willing to belong to a franchise network, because it must be clear to you from the beginning that entering this system implies assuming a series of rules. It is true that the franchisee is an independent corporate entity, in other words, your relationship with the franchiser will not be one of employee-company, but of company (you) to company (the franchiser), although you will form part of a network that is governed by a series of internal guidelines marked in the franchise contract. And that means, among many other things, that the decisions you take (independently of the degree and negotiating character of the head office) will finally be taken by the franchiser, for the good of the whole network.
This is the first starting point that will mark your future relationship with suppliers, customers, employees, etc. and that you must assume as such, if you want everything to work perfectly, because the opposite can be ‘the mother of all wars’. If you are not clear about this, the best thing to do is to start on your own and not with a central franchiser and under the shelter of a network of establishments.
Do you want to be a manager or an investor?
The next link you must overcome is what type of relationship you want to establish with the brand, do you want to be a mere investor or participate in the management of your business unit? Answering that question is not easy either, because the risks you will acquire will be very different depending on one aspect or another, as well as the demands (both financial and management skills) that you will be asked to meet.
On your way, you will discover that some franchises are only looking for investors and others prefer to have managers who are on top of the business on a day-to-day basis.
Along the same lines, ask yourself if you are going to dedicate yourself exclusively or part-time to the business, because the involvement and the risks will also be different.
Just as if you decided to set up a business other than a franchise, you should analyse your level of training and your degree of experience, both in the business world and in the sector in which you are going to work. Experts recommend that you undertake – if possible – activities that are related to the attitudes and aptitudes of entrepreneurs, because it gives you a certain degree of security.
Ability to learn new things and adapt to change
In this sense, many brands look for candidates who meet a series of requirements in line with the activity of the brand -especially if it is very specialized-, but it is also true that there are other franchises that discard among their new associates those who have worked in a similar activity, to avoid the resabiado, because they may have problems adapting to the rules of the franchise chain.
What is true is that one of the requirements demanded by 100% of the franchises is that you are willing to learn new things and adapt to the changes that will mark both the market and the central franchiser.
With these first questions answered, the next step you must ensure is in which sector or sectors you have business options. Choose the two or three that attract you the most. The question now is: what should you value in them?
As we have said before, your previous experience and/or training may mark your first steps and will help you choose markets where you might feel more comfortable. But there is also no written rule to ensure your success by undertaking something you know. It is true that you will have more guarantees of success, but never a hundred percent.
What kind of activity I’m interested in
Perhaps you should value the market for its growth opportunities, thus avoiding entering those that are very saturated or where the competitive advantages between one brand and another are not very noticeable. Analyze those franchises whose business concept is innovative, even though they operate in consolidated markets. In that sense, you can opt, for example, for a brand that operates in a consolidated sector whose business model, due to its degree of innovation, is scalable.
You should also consider whether you decide on a product or service franchise. Choosing one or the other implies, in many cases, different management concepts, as well as different investments and contractual conditions that may make you change your mind about one sector or another and even discourage you from undertaking.
Don’t forget either if you choose a business concept that requires premises or not. The difference here will mainly be the higher or lower investment cost, which will directly affect your profit and loss account, the payback period, etc. In this sense, premises and employees are the two items that will increase your financial plan the most.
What resources do I have?
The next step is for you to choose a couple of brands per sector. To do so, evaluate them taking into account the following aspects:
What resources do you have and what investment costs will you have? Remember -as if it were your life- that whenever you start a business, regardless of the type of business, you must have a minimum of your own resources to cover the investment.
Think that if you are looking for investors for your project (whether you do it alone or as a member of a franchise network), nobody will risk their money if they do not see that you are the first to bet (with your resources) on that project. That is why it is important that you calculate how much money you can count on (your own, family and friends).
In addition, each franchiser will establish or advise that you have a minimum of your own resources to meet the initial investment. It would be a big mistake to go ahead with the process if you have not been able to achieve that minimum. So, with the own resources that you have or values that you can get, calculate what kind of investment you would be willing to endure. And when we talk about investment – as we have warned on other occasions – not only should you calculate what it costs you to enter a franchise (entrance fee, if any; civil engineering work, if it requires premises; purchase of first products and stock, among others) but also how much money it will cost you to maintain yourself until customers start coming in.
In the last point lies much of the success or potential failure of a business -whether it is a franchise or not-, because many entrepreneurs strive -others, not- to get the money needed to start a business and forget or underestimate the financial resources they will need for the day to day, to hold on until they get, first, customers, and then cover the cash flow gaps, which in a high percentage you will have either by lack of self-management or by the market conditions in which you operate.
Are you sure you’re up to the task?
You should also take into account what profile the brands you have chosen are looking for. It is important to know if you adapt to the franchiser’s requirements: if they are looking for a self-employment profile, a manager, an investor, a mixture of these last two…
It also assesses whether the concept of these labels is proven or new. That is, if the head office already has other franchised units or only has its own establishments. And where is the problem there? The logic says that when a company decides to expand through the franchise, it studies the viability and scalability of its model. To do this, it first tries it out by opening its own establishments (traditionally, there has been talk of at least two of its own) and, once the business is up and running, it opts to open franchised units. It is true that this is not a rule marked by blood and fire, because there are franchises that have been operating in the market for years with good results and do not have their own premises. But if you can choose a brand that has already tried the concept on its own, you will have fewer surprises. Knowing if you are going to be the guinea pig implies risks that, evidently, you will have to evaluate if they are worth it, and of which the ensign should warn you.
It is also important that you know what kind of support and specialized advice the network offers to its members. If that support is continued over time, in situ, that is, in your future establishment, in the head office, in another business unit; if it has any kind of cost, among other aspects.
Is the plant solid?
Of course, don’t forget to analyse the financial situation of the central franchiser to know if it has the economic strength to deal with the entry of new franchisees, and that this – the lack of liquidity – is not to the detriment of the rest of the associates, including you. One possibility is that you look for economic and financial information about the brand, either in the Trade Register or by using the services of risk analysis companies. Another possibility is that you study the expansion plans that the head office has, which will allow you to assess – by studying the market and the competition – whether these plans are viable or risky for the whole chain.
An indicator of reliability is to study the number of closed premises -either in the last year or in the history of the franchise chain-. However, do not value so much the number of closures -which can be large or small- as the reasons for the closures and the strategies that the head office has followed to solve these closures. We tell you this because many times the closures are due to the fact that the franchisees have moved away from the path of the network and have made war on their own. Other times, it is due to readjustments made by the headquarters that want to maintain a line and consolidate the units that work best for them. But, in other cases, the closures are due to the fact that the franchisees have been neglected and abandoned by the central. Therefore, it is very important that you know in detail the reasons for each of the closures of the business units.
Ask other franchisees
Another indicator is that you visit several locations, first in the style of the mystery customer to find out how the franchise works, and then by introducing yourself as a potential franchisee. At that point, do not hesitate to talk directly to other franchisees, to know first-hand how the relationship with the headquarters is.
At this point, choose a brand and analyse the following elements in depth:
First, what initial outlay will you have to make. As we have pointed out before, the investment will go up or down depending on whether the activity requires premises, if it is a product or a service, etc. In the same way, calculate the investment you will have to make once the business starts to roll. It will be your capacity to generate cash flow that will allow you not only to survive, but also to grow without stress.
Another aspect to evaluate is what percentage of your own resources is recommended by the head office to cover the initial investment. It is important that you know if they have initiatives that soften or help you to finance yourself, such as renting, leasing, deferment of payments, etc. Or if the franchiser has preferential agreements with banks and suppliers to deal with payments for raw materials, products, stock, etc.
Find out what the estimated income of a unit like yours is. Many brands argue the difficulty of calculating them because the income will vary according to the location, the type of service and/or product, the commercial ease of the franchisee, etc. And that is true, but any serious company -and the vast majority of franchises are- has plans for the viability and profitability of its business concepts, and even more so when it has proven that solvency in other units. Don’t forget to ask about the time of recovery of the investment.
The famous know how
What do they offer you in return? Mainly, the famous brand know-how, advice, support and training and, in the event that such support has any kind of cost, how much and how it is paid. Ask to be given the opportunity to meet other franchisees, as well as the facilities and services of the headquarters. And also be guided by the degree of information transparency that the franchiser offers you.
What’s a franchise? How does the franchise system work? Here are the answers, and you can find out what this contract between two independent entrepreneurs, franchisor and franchisee consists of, and what it is for.
What is a franchise?
Franchising is a type of commercial contract between two independent entrepreneurs, franchisor and franchisee, whereby the first entrepreneur, called the franchisor, grants the second, called the franchisee, the right to exploit exclusively in a market and for a period of time a business model, using his brand to distribute his goods or services under the guidelines of the brand, in exchange for a series of economic considerations.
Franchising is the least risky method of creating a successful business:
- It allows the franchisee entrepreneur to establish a business, taking advantage of an already proven business model, reducing the risk of failure and the investment of openness.
- It allows the entrepreneur to have the help of a service center that helps him to compete in better conditions, achieving lower costs and higher sales thanks to joint advertising.
- The franchisee, in turn, finds local partners who contribute with investment and work, operating the business with greater commitment and profitability than if he opened his own centers. A franchised organisation is more competitive than an organisation based on labour agreements.
Main features of franchises
If you are opening a franchise or franchising a business, you should know:
- Does franchising reduce the risk of starting a business, but doesn’t eliminate it? Statistics show that 80% of independent businesses close before they have five years in business. In franchises, this percentage is reduced to 60%. In other words, although there is risk (inherent in any business activity), this risk is reduced.
- Did you know that there is no franchise law? Franchising is the most flexible contract to create business in the world because legislators decided not to create a franchise law. Thus, each contract is the law that regulates each franchise relationship, and can be adapted to many different business sectors and companies.
- Don’t franchises always earn the same in every location, not every year, nor are they run by different people? The same business can produce very different results depending on who manages the point of sale, its location or the market in which it develops.
- The content of each franchise can be very different.
- Did you know that the most important factor for the success of a franchise is the management of the franchisee and the place where you open the business?
- One person is not good for each franchise. Each person has different skills and abilities, as well as personal affinities and preferences.
- Not all franchises are equally good for everyone. There is no best franchise, only the best franchise for one person in one place.
- Did you know that the best franchises only have 5% of the locations that lose money?
- And not-so-good franchises have up to 40% of the locations that aren’t doing well.
- There are brands that make a million euros in one place and in the same city another place loses money just because of the change of location and management.
- Did you know that the concept of ongoing support that defines the franchise allows for very important differences in services? You should ask and evaluate in each case what you will be able to compare.
- Many franchises copied the conditions and contract of others without their offer making commercial sense or justifying their royalties.
- The value of a franchise is in selling more and having less costs within the franchise than if you set up the business yourself.
- A good franchise should be concerned with opening good projects, not opening many projects.
- Did you know that the entry fee avoids the cost of creating an image and the risk of designing and creating a business?
- Franchising is not inventing, but applying the model that has already worked.
- New franchises have more risks, but you can take advantage of opportunities in better markets and locations.
- Franchises are the professional outlet for people who will not find jobs, but who do not have the ability to create and lead the strategy of a business on their own.
- Did you know that a franchised entrepreneur has at his service head office executives who are experts in strategy, marketing, purchasing, IT? This allows them to have their business, but compete in the marketplace with a good team.
- Did you know that a franchisee’s attitude towards headquarters has a big influence on how well or how badly their franchise develops?
- If you think you can do better than the franchisor, you should not create a franchise.
- The best franchises need to manage a lot of problems. For it to work well, you need a good fit between the franchisor’s style and that of the franchisee.
- As an entrepreneur, you need to be proactive and attack priority issues every day, even if you don’t feel like it. Since you have no boss, no one will tell you what to do, but if you don’t solve it, you pay for the result.
Why do you franchise a business?
Franchise business to grow. Growth allows you to build a notorious brand, thanks to your presence in many locations in a country or even the world. Growth also allows them to buy cheaper and earn more. Growth also allows unit costs to decrease. There are many functions that headquarters does and that need not be duplicated in successive centres. These functions allow the franchisee to have access to economies of scale and improve their profitability.
The franchisors can grow by taking advantage of the economic resources of the franchisees, since they are the ones who invest in the franchises they set up, and also have a very committed team, the franchisees, who generally get better results than the centers managed by the staff themselves. The franchisee is the key to the success of a franchise.
The companies that franchise achieve the following results:
- Sell more: Thanks to the opening of more units, franchisees obtain more income and can obtain greater benefits.
- Buy more cheaply: Thanks to the growth of franchises as shopping centers, they can buy more cheaply, improving the profitability of all units, both their own and franchises.
- Lower your unit costs: There are many functions in a job that do not need to be done in all units, for example, marketing. If I have a marketing manager who costs 60,000 euros and I have 10 stores, I get 6,000 euros per store. On the other hand, if I have 100 stores, the cost per store will drop to 600 euros per store. This increases the profitability of all units.
- Franchises create brand: The networks of units create brand, through the repetition of their facilities that the public sees on the streets and the possibility to gather the marketing budget of all their units. Thus, if an independent store spends 3,000 euros a year on advertising, it will be able to do few actions. On the other hand, if a network accumulates 3,000 euros for 100 facilities, with a budget of 300,000 euros it can do advertising. Advertising increases the sales of all stores and at the same time increases the profitability of stores and franchises.
- Improve your profitability: Businesses that use franchises have a higher profitability than independent businesses. This is the result of higher revenues thanks to superior advertising and marketing on the one hand, and lower costs on the other. If a franchise is well established, which not everyone is, a franchisee should sell more and have less costs than an independent business in its sector.
- A more committed team: Franchisees, as entrepreneurs owning their franchises, make the units work better because they take more care of the business. They sell more and manage costs better.
Why do franchisees establish a franchise?
Setting up a business has risk and the franchise reduces it, although it does not eliminate it.
Creating a business that has already worked significantly reduces risk.
Moreover, creating a business within a franchise network offers some advantages: being able to use a known brand and sell more, in addition to having lower costs thanks to the central purchasing and economies of scale.
If a franchise is well set up, the franchisee will set it up for less investment than it would cost to start from scratch and should have lower costs than if they were on their own.
The franchisor also trains the franchisee, provides the products and services and provides ongoing support services.
Franchising is a formula, which if well thought through, should benefit both the franchisor and the franchisee.
The advantages of franchising to the franchisee
- Reducing investment: If the franchise is properly assembled, the franchisor works to reduce the investment in assembly. On the one hand, there are many cost items that only need to be made when creating the first pilot store(s). Once the model is defined, there is no need to recreate an image, a decoration, or to refine the business. Furthermore, as a franchisee, he can optimize materials, prices and processes, and he can open the new units for less money. The first unit does not cost the same as the number 20, nor 20 as the number 100. If the franchise is good, the investment must be less than creating a plant independently.
- Reduce business risk: Franchises reduce the risk of a new business, although they do not eliminate it. They reduce the risk of creating the business, but location and management risks remain. The risk is reduced from 80% mortality in independent businesses to between 40% and 5% for the most optimized franchises.
- Access to better profitability: Franchise businesses should provide the franchisee with higher revenues and/or lower costs than if the entrepreneur set up the business on his own. Be careful, this only happens if the franchise is well set up, there are many cases where the franchise has not been well designed and this is not the case. The entrepreneur who is looking for a franchise should look very carefully at this point.
Keys to the success of the franchise system
Franchising is a worldwide success because it allows small companies to compete with big companies. It allows the entrepreneur who wants to start a business to do so with the support of a brand and a central organization behind it. They can have better prices and less risk.
At the same time, it allows the franchisor to grow through the investment made by the franchisees so that a small business can compete with the strength of a large one, gaining the size of the franchise network.
This dual benefit franchisor – franchisee is the key to the success of the franchise around the world.
Updated on April 22, 2020
You think establishing a franchise is the best business option for you? We give 5 Keys to creating a franchise and success.
Starting a franchise is an underworld within the company. A complex world that operates under its own rules and that, at first, can drive away those who are thinking of starting a business because of its large-scale operation. But don’t be afraid and keep reading, because here we will explain the 5 keys to starting a franchise and being successful.
Because at the end of the day, there is a whole set of concepts that have to work as a basis, as a basis on which to build a franchise business. These are concepts that are either there from the beginning or there will be no one to build the business. Not even the best ERP program.
So let’s start at the beginning. Let’s say you’ve thought about creating a franchise and you’re wondering: how exactly does it work?
How does a franchise work?
The basis of each franchise is the agreement between a franchisor (that is, the one who grants the franchise license) and a franchisee (the one who makes an investment in the franchise). This implies that, from the very beginning, we are faced with the total opposite of an independent business.
In other words, if you ask yourself how a franchise works, here is the direct answer: the franchisee buys an opportunity to build a business by following the (supposedly successful) methods of the franchisor. In fact, there is usually an Operations Manual that details all of these methods in a completely comprehensive manner.
The existence of this handbook implies that in establishing a franchise, the quality of all franchisees is homogeneous. It also means that the franchisee does not have to work on a strategic plan, as this will already be given to him/her completely.
If you want a secure business and can’t find a totally original and disruptive idea, this is probably the kind of infrastructure you can join with more peace of mind. Knowing, of course, that you will be accountable to a franchisor.
How do you establish a franchise?
That said, does this possibility still seem seductive to you? Do you see yourself as a franchisor or a franchisee? Don’t be discouraged, then, and figure out how to set up a franchise through the five keys we’ll talk about next…
1. Supply and demand
Obviously, the basis of any franchise must be a prosperous market with balanced supply and demand. If a business wants to become a franchise, it is precisely because there is great demand for the product or service it offers. If not, hang up and let’s go.
Therefore, from the very first moment, the creation of a franchise will depend precisely on this primordial foundation. But, well, this is no different in any other kind of business, don’t you think?
2. The franchise agreement
Commercial activity under franchise is regulated by Royal Decree 201/2010 of 26 February. This decree states that the franchise contract is the agreement with which one company (franchisor) assigns to another (franchisee) the right to operate its own system of marketing products or services.
This agreement will stipulate, in turn, what you will receive when establishing a franchise: a product, a service, a commercial exploitation formula, a manual. But also what the franchisee receives, be it a consideration, a down payment, a recurring payment, profit percentages or any other similar type.
There are different standard franchise contracts, but that does not mean that only these can be used. In fact, it is better to use a franchise agreement that considers the specific circumstances of the business itself. This ensures that all your circumstances are covered.
3. The franchisor
A franchisor must provide a recognized brand or a growing business with the prospect of becoming a recognized brand. At the same time, it will have to prove to its potential franchisees that it is financially sound enough to support a model with these characteristics.
4. The franchisee
The franchisee, in turn, will have to prove to the franchisor a financial situation and sources of funding (with or without assistance) that are sufficiently sound to establish a franchise. This and, of course, an honest ability to enter a large-scale business model like this.
The homogeneity of a franchise, beyond the methods, is especially felt in the brand image. And this obviously affects the premises of all franchises. In this sense, the franchisor must establish the guidelines for the franchisee to choose the location that best suits the business: size, location, characteristics?
Also more complex factors such as distance from competition or business concentration of a franchise that may be in the same territory. Besides, of course, image details that certainly affect the decoration of the space. This means, on the other hand, that the franchisee will not have to make a great effort when it comes to establishing a visual strategy for the location, because it will be completely delivered to him.
All these keys have been useful to you and now it is definite that this may be the best business option for you? Well, here’s the foundation. The construction is on your side.
Opening a franchise is not trivial. It requires time and patience and a number of aspects that you must complete perfectly in order not to fail. Therefore, we offer you basic tips that you must know before becoming an entrepreneur and opening a franchise and that you must overcome if you want to run a profitable and successful business. 7 tips to help you open a franchise:
1. Self-evaluate our qualities, skills and abilities
If you have already made the decision that the best way to start a business is under the franchise formula, the first exercise you have to perform is a deep personal self-analysis that allows you to know if your qualities and abilities are the ideal way to become a franchisee. The first of the guidelines to be defined when starting a franchise system is to want to enter the business world with all that this implies.
Make sure that your personal characteristics and circumstances are the most appropriate, as well as your financial and personal situation, professional skills, etc. Look for your family’s support, as you will need to feel constantly supported throughout the process.
Know your investment capacity, if you need facilities, if you are willing to follow the guidelines set by headquarters, if you are looking for more than economic benefits, if the franchise you want exists, etc. Also consider the consequences in all areas if the business does not work as you wish. An honest answer will allow you to see more clearly whether your particular attitude and circumstances are those necessary to join a franchise.
2. Knowing our investment capacity
Before selecting how you will finance your franchise, it is vitally important to develop an economic plan that clarifies how much money you need and how much you have… in other words, developing a financial plan is vitally important when you want to open a franchise, because you must have well connected all the economic and investment aspects.
It is essential to have a clear understanding of our initial investment capacity. Many franchises fall when the financial situation is not completely accurate and stable. You must know with complete certainty where the funds will come from; loans, savings, family, other partners’ capital, etc. You should also consider how this money will be paid back or returned (including interest) once invested.
In the beginning you have to minimize the expenses as much as possible. If you have to go to the financial market for investment, compare the different interest rates and select the lowest that offer the best payment facilities. Getting into debt implies a great responsibility, so you should have time to look for the best financing alternative and, before applying for a loan, make sure you will be able to pay it back in due time. Don’t forget that when you start it is necessary to do it with enough margin not to drown in the first few months.
3. Knowing the sector we want to dedicate ourselves to
Not only is it necessary to know the general aspects to set up a franchise; qualities, capabilities, investment… Another fundamental step is to know in depth the sector to which we will devote ourselves. Although there are sectors that have developed great expectations and generated a very positive evolution, efficiency is mainly due to each particular brand. It is not rare to discover sectors made up of several franchises, in which only a small number of them offer serious chances of success.
So study, read, analyze, one by one and in depth each badge, and you will see how you will find considerable differences between franchises in the same sector.
Clearly, the strength and reputation of a franchise is a valuable guarantee of success, but also learn about the various brands that are still in their early stages and that are delivering significant amounts of innovation, originality, invention, improvement and enhancement, all with extraordinary results.
4. Obtain information about the chosen franchises
The next step is to obtain the necessary information from the franchises we have selected for a possible investment. Get to know all the peculiarities, operations, risks, commitments, opportunities and essential elements included in each of these franchises. It is not superfluous to have the support of a specialized advisor, both at the beginning and during the process, who has exclusive knowledge of the brands.
Knowing in depth what the franchise can offer us as future entrepreneurs is not complicated. Today, the market offers a wide variety of: franchise guides and directories, specialized magazines, specialized portals, franchising and entrepreneurship fairs, seminars and specific franchise presentations, multiple sections dedicated to franchising in the general and economic press, blogs and social networks…
As if that were not enough, major consulting companies such as BeFranquicia are ready to help and inform, some of them with national coverage. In short, franchising is part of the business, economic and informative activity, being present in all forums and business areas.
5. Study the market in which we will operate
You must know your customers, suppliers and of course the competition to make your business more competitive. Listen to your environment, offer your customers what they need, create profitable relationships with suppliers and study the strategy of your competition. Customers are the basis of your franchise, if you don’t listen to them the competition will and you will put on a plate the transfer of your market.
In this way, knowing your customers, suppliers and competition will be essential to make your franchise competitive and take control of the market. Likewise, participation in events, fairs and franchises is an excellent idea for recruitment, besides books and seminars that allow you to generate strategies to be implemented in your business.
In short, analyze the internal characteristics of both the business and the market in which you intend to invest, taking into account the degree of adaptation to it of our personal and economic profile. A successful and profitable franchising business will only take place if we know the market and our competitors.
6. Talking to franchisees
When selecting a franchise, it should not be sufficient to rely solely on the documentary information provided by the franchisor. You have to contrast this information with other franchisees in the chain.
With their experience, they will provide you with very important details about the management control by the central franchisor, the help in solving the problems that can be generated, the ability to communicate and execute animation actions, marketing, actual monitoring of the network, among others.
Do not hesitate, if you have reached this step, call the franchisees who have invested before. This does not mean talking only to the successful associates recommended by the franchisor, but also sharing information with the franchisees who are having problems, and trying to find out why they are not doing well, not to make the same mistakes or simply discard the franchise.
7. Seek professional advice
Finally, unless you are an expert, it is virtually essential not to have professional advice from expert franchise consultants. One example is the consulting firm BeFranquicia. Thanks to their services, they will provide you with an objective assessment that will help you make the most appropriate choice for your particular case. Take all the time you need to corroborate what they tell you.
One of the most important aspects is the contract. This will regulate the rights and obligations of the franchisor and the franchisee for the entire duration of the relationship. A review by a professional specialized in franchising, before signing it, is the best formula to avoid unpleasant surprises in the future.
The contract must regulate the conditions under which the franchisee is authorised to use the franchisee’s trademark, the transfer of know-how and the commercial or technical assistance to be provided throughout the duration of the contractual relationship. The analysis of each franchise contract must, logically, be individualised, but aspects such as non-competition, assignment clauses, offers and supplies… may be an approximation of the subjects on which professional advice is required.
Everyone with an entrepreneurial spirit dreams of having their own business, but data shows that 80% of new businesses created by young entrepreneurs fail in the first year. This is because entrepreneurs do not have the necessary training to run a business. Hence the failures. So… Why create a franchise?
If you want to develop a business and open your own business, establishing a franchise may be the solution to your entrepreneurial ambition. Why? Because you have all the technical and strategic knowledge of the franchisor as a basis and he is responsible for communicating it to you, this is what is known at the business level as Know-how. Furthermore, you will have the use of a common name or signature or other intellectual or industrial property rights and a uniform presentation of the locations or means of transport which are the object of the contract.
Statistics show that under the franchise model, the number of franchised establishments has increased by 5.5% and employment by 3.7%. The advantages of the model are undoubted. If you want to continue to be informed, here we tell you everything you should take into account to do so in the best way, knowing the advantages and disadvantages of this business formula:
The advantages of creating a franchise
- Proven successful and profitable business model. This is one of the advantages of a franchise, while if you set up a business on your own, you have to start from scratch, choosing the commercial offer, looking for trial and error with the products/services, knowing your target audience, areas of greater reach for the selected model, etc. Therefore, the risk of doing business with a franchise is lower than when you start it yourself, because you enjoy the experience, support and brand image of the franchisor.
- Banks tend to be more flexible in financing projects with proven success and profitability. In this case, MundoFranquicia currently has agreements with financial institutions to create a franchise, which makes it much easier to obtain financing than if you created your own business.
- When you are part of a consolidated franchise, the franchisor, thanks to the Know/How, gives an initial training and continuous advice to the franchisee to know perfectly the management of the business. Franchisees’ profiles are varied and they always need to complete their skills and qualifications through a process of continuous training to know how to manage a team, handle suppliers, etc.
- The brand knowledge created in the years of operation of the franchise is an added value that the franchisee has when competing against other brands and finds customers just to start, thanks to the trust generated by the brand.
- The most critical moment when opening a business model is the choice of the opening location. The franchisor, with his extensive experience in the profile of the target customer, can help the franchisee to find the best place to open, and thus prevent the business from failing at the first sign of change.
- The franchisor constantly works on innovation, creation and design of new products/services, this makes the franchisee dedicated only to exploring his business without the need to invest that time if he sets it up alone.
Disadvantages of belonging to a franchisee network
- Loss of independence: One of the biggest obstacles you will encounter when opening your own franchise will be the loss of independence. Therefore, your ability to act within your own business will be conditioned by the previous contract you will have signed with the franchisor. This does not lead to the following inconvenience.
- Limited margin of action: as we have been saying, the main decisions in matters of great weight in the strategies are made by the franchisor and you have to adapt to the methods and processes established in the franchising contract.
- Initial investment: the future franchisee will have to pay the entry fee and royalties in order to use the franchise. But you will never own the brand.
- Your business success is related to the franchise network: just as you will have the prestige and brand image to start the business, if the franchisor and the other establishments in the franchise network fall, you too will fall. This is the so-called “domino effect”.
We always recommend that, before starting a business, you study your profile to see which business best suits your professional characteristics, as many models fail due to a lack of knowledge and a lack of management of the franchisee. That is why it is good to have the support of a franchise consultant to advise you on the best option for your profile.