Updated on April 22, 2020
5 Keys to creating a franchise
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.