Franchise For Your Business: Advantages and Disadvantages

The franchise is a business method that allows you to become an entrepreneur Benefit from the support of the know-how of marketing and visibility of an already established brand in the field of activity chosen.

A franchising job is one of the most solid opportunities for the development of its own sales point. From a clothing store to a travel agency, from catering to the betting industry, opportunities can be many. Below we will try to explain the reasons that could lead you to open a franchise store, or to be yourself and your brand the object of franchising others.

The Franchise

Franchising is a contract of commercial affiliation that is entered into between entrepreneurs: the owner of a registered trademark and known on one side, and on the other an affiliate who intends to start a business and intends to rely on a brand known in its own business sector, to exploit the marketing and potential customers, which starting from scratch could not get, at least in the short term. In return, however, the franchise will give up part of his entrepreneurial freedom, which will be decided by the company that owns the brand.Franchise For Your Business Advantages and Disadvantages

The company that owns the brand, with the signing of the contract, issues the authorization to use its corporate brand in exchange for an entry fee or a collaboration formula determined at the beginning, which may be a royalty on the turnover or the obligation to supply the warehouse from the parent company.

The type of contract that is stipulated depends on a lot on the sector of affiliation (usually in the service sectors we speak of royalty on turnover, while if the parent company adopts the franchise only to market its products, the contract usually provides the supply of warehouses of the parent company).

To better understand what I’m saying, think of the Mc Donald’s brand: most of the restaurants in the group are not managed directly but franchised to local entrepreneurs. The affiliate entrepreneur uses a well-known brand to open his own restaurant (with exclusivity in this area), but as a counterpart, he must set up the restaurant, adopt behavioral and catering manuals that are the same for all restaurants that adopt the best known fast food brand in the world.

Advantages and Disadvantages of a Franchise Store

Opening a shop in a commercial affiliation, but above all having a successful franchise is not easy, and is not suitable for all entrepreneurs. If you already own a brand and would like to have a sales network to sell the brand all over the world, the commercial affiliation allows you to do all of this without directly investing your capital. Naturally on condition of being good at convincing other entrepreneurs to choose your brand in place of others. Today, markets are saturated in many sectors, and for an entrepreneur to choose one brand rather than another to start their own business can be a fundamental choice.Franchise For Your Business Advantages and Disadvantages

On the other hand, if you are a potential entrepreneur looking for the right sector or brand to enter the market, franchising allows you to enjoy the benefits of relying on a consolidated structure, with a functioning and profitable business model, can grant immediately. In practice, the franchise formula offers the security and experience necessary to start a new business. The parent company allows the use of its brand only under certain conditions. For this reason, only after having carried out a feasibility study, analyzing the catchment area, the location and the possibility of earning, the entrepreneurial initiative can start. Therefore, before starting your business, the help of Chartered accountant to help you prepare your business plan, to assess the progress of your company, both in the start-up phase and in the consolidation phase.

Alongside these positive aspects, first of all, the reduction of the feared business risk, the entrepreneur who decides to start a business with a commercial affiliation must be well aware of the fact that he must renounce part of his business choices. The parent company in exchange for the exploitation of the brand requires compliance with company policies, guides and detailed instructions to follow to make the product you sell suitable and compliant with the brand you are using. All this greatly reduces the potential and creative freedom of the entrepreneur. If you are not willing to accept all this, franchising is not the business formula for you. Returning to the example of the houses of fast food, the entrepreneur will be required to set up the rooms, to prepare the kitchen, to buy raw materials as provided by the parent company, under penalty of termination of the contract, in addition to any compensation or compensation.

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How to Choose a Successful Franchise

Starting a successful business is not a simple thing, and there is no cheaper solution for everyone. What we can do to help you is to provide you with some elements of evaluation that can help you choose the sector, or the right brands to start your business successfully. Of course, these elements are those that your trusted advisor will ask you to analyze when you go to him to start the start of your business plan, the fundamental element from which your choices about the activity will arise.

When evaluating a Franchisor, it is important to always remember that a brand that has a winning commercial formula does not fear to have to provide all the necessary data to understand every aspect of its network and the comparison with others. Here are some essential elements of evaluation :

  • Verify that the franchisor has already tested his business model ;
  • Check the number of franchisees currently operational;
  • Check the number of franchisees who have ceased operations and changes in management;
  • The duration and quality of the training that the franchisor dedicates to its affiliates;
  • Assistance in choosing the location ;
  • Ask the franchisees already active opinions on the work of their franchisor;
  • Profit margins, taking into account all running costs as well as the estimated time for the return of the investment.

Carefully evaluating these elements, together with the quality of the answers (both technical and contractual) that the franchisor will give you, will allow you to get a complete picture of the activity. Remember that the franchising market offers every kind of opportunity: there are many young companies, with still few franchisees and a brand that is still little known, that is able to offer formulas with a high potential for earning and expansion. The established brands are almost always a guarantee, visibility, and reliability, but maybe they do not offer the same profit margins as a new growing brand. At this point, if you have not already done so, consulting your accountant will be essential to evaluate the data collected and provide important advice regarding the management, the market sector and the fiscal discipline of your business.

The Franchise Contract

Once you have chosen the sector and the brand on which to bet to start up your business, you just have to stipulate the affiliation contract. The drafting of the contract and the analysis phase of the same are fundamental steps for the success of your business, so you can not face this phase without the help of a lawyer and a chartered accountant. The task of these professionals is to:

  • Estimate the economic weight of the parties’ rights and obligations,
  • Detect whether there are any shortcomings in the contract,
  • Request the quantification and precise indications of generic or abstract expressions;
  • Evaluate the solidity of the contract with the Law;
  • Check the clauses concerning possible disputes between the parties, namely:
  • The termination clauses of the deed;
  • The failure to execute the actions;
  • The negligence of the parties;
  • Disregard of the promises undersigned.

Particular importance will be placed on the articles concerning the exclusivity of the zone, the imposition of minimum purchase obligations and the withdrawal clauses. Through the area exclusive, the parent company reserves the exclusive use of the brand in a territorial area at the affiliate point of sale, an area similar to a circle on the map with your shop in the center.Franchise For Your Business Advantages and Disadvantages

The imposition of minimum purchase must be scrupulously evaluated and if possible removed. It is difficult to fully predict the trend of the activity and for this reason, it is more appropriate to adjust the constraints to the success of the point of sale. Clear but flexible obligations based on the results obtained.

The withdrawal clauses should be evaluated with double attention. On the one hand, the one placed on its intention to withdraw from the agreement, paying attention to what are the terms and times to be able to rise from any commitment. On the other hand, the termination of the licensor should be assessed: the company that manages the franchise. This must not be able to withdraw from the contract without adequate notice and, above all, without the economic conditions being such as to justify the closure of the project, therefore the decay of the notoriety and of the promised assistance.

Once the contract of affiliation to a brand is signed, it becomes in effect a true franchise and from this moment on, it is important to work in concert with the parent company to reduce the standard form in the reality of the point of sale.

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