Perhaps everyone wants to start their own business. But, unfortunately, not all small entrepreneurs manage to win the competition and take their place in the sun. That is why more and more businessmen prefer such a type of activity as franchising.
What is franchising? It means that you will work under the auspices of an already promoted large company. But let's talk about everything in more detail. So...
Franchising - what is it?
Due to the saturation of the market and a high level of competition, not every sane entrepreneur will decide to promote a newly created brand. That is why franchising is becoming more widespread. What is rent, perhaps, everyone knows. We are used to the fact that this concept refers to property. in this case, we are talking about renting a trademark or brand.
Thus, it can be said that franchising is a form of entrepreneurial activity during which large enterprises (franchisors) transfer to businessmen (franchisees) the right to use a trademark on certain conditions and for an agreed amount of remuneration.
All details of cooperation are reflected in the franchise agreement. The main of its items is the size and procedure for paying royalties. Also, this document may display conditions and some restrictions regarding the use of the brand and trademark. Also stipulated is the amount of the initial contribution, which is a prerequisite for starting a partnership.
How franchising developed
The development of franchising has a long and rather interesting history. So, the founder of this type of activity is considered to be Singer, who, starting in 1851, began to conclude contracts with certain companies, transferring them the right to sell and service their sewing machines.
By 1920, the so-called commodity franchising began to develop in the United States. It consisted in the fact that large manufacturers established sales of their products through large retail chains. In return, sellers received some privileges in terms of price, as well as the opportunity to use a well-known brand to attract buyers. By the 30s, this phenomenon had spread to oil refineries, which led to the formation of large networks of gas stations.
Franchising in its modern form was born in 1945. Then the founder of the McDonalds brand bought several successful restaurants and combined them under one brand. Soon, a popular network spread around the world.
When franchising appeared in Russia
Franchising in Russia originated in the 90s, when large entrepreneurs began to cooperate with well-known foreign companies. A pioneer in this matter was the Planet of Hospitality. Well-known companies for the manufacture of sports uniforms and equipment are widely used. Also from abroad came the first tour operators. In 1997, it was decided to establish the Russian Franchising Association.
The most famous representatives of this line of activity are the McDonald's, Subway and others fast-food restaurant chains. Also, cooperation in terms of the manufacture and sale of clothes and shoes was widespread. Unfortunately, crisis moments and fluctuations in the economy contribute to the departure of foreign representatives from the Russian market.
Contract
A franchise agreement, in accordance with legislative norms, is called a commercial concession agreement.It implies that one party transfers the other a specific list of rights to use a trademark for commercial purposes. The document may be unlimited or have a specific end date.
The right to use a trademark may provide for unlimited use of the brand or establish a certain framework. It is also worth noting that some obligations of the parties are prescribed in the contract. In particular, the user is responsible for maintaining the reputation of the company, as well as the use of its attributes for the intended purpose.
Parties to the contract may be legal entities or individual entrepreneurs who are registered in the manner prescribed by law.
Types of Franchising
Regarding this form of activity, there are several classification methods. In accordance with the most common, the following types of franchising are distinguished:
- By field of activity:
- trade (involves the sale of goods of a particular brand with the possibility of using its marketing system);
- service (the franchisee transfers full or partial rights to the provision of services in accordance with the patented method);
- production (the franchisee gets to use the technology of manufacturing goods);
- mixed.
- In accordance with the know-how:
- distribution (sale of goods or the provision of services under a certain brand);
- business format (the methodology of doing business, as well as the marketing concept, is added to the previous paragraph).
- On the organization of the system:
- direct (direct agreement between the franchisor and the franchisee);
- development (the right to open points on the basis of a franchise agreement strictly within a certain territory);
- master (implies an almost complete transfer of rights and obligations).
Forms
The following main forms of franchising are distinguished:
- direct - implies direct contact of the parties to the contract in determining key conditions;
- sequential - lies in the fact that the recipient is vested with a number of additional powers;
- sub-franchising - implies that the franchisee has the right to conclude concession agreements as a copyright holder.
Main conditions
Franchising is causing increasing interest among domestic entrepreneurs. The proposals on this issue are quite numerous and tempting. Nevertheless, deciding on such a deal, you should be prepared to fulfill the following conditions:
- You will have to fully comply with the point of view of the franchisor and accept his philosophy regarding doing business;
- from the moment of signing the contract, you will be required to strictly observe all its conditions (therefore, if you have some comments or suggestions, it is better to discuss them until the transaction is concluded);
- You will have to stay in constant communication with the franchisor, discussing with him all the key issues;
- the business management mechanism will be similar to that adopted by the franchisor’s parent company;
- you cannot independently turn rationalization ideas into life without a long discussion with the franchisor (there is no guarantee that you will be given the "go-ahead" to make changes to the organization of production).
Franchise Benefits
Already many entrepreneurs have resorted to this type of activity as franchising. What is the lease of a trademark, in general terms, is clear to everyone. But it’s also important to know what benefits a deal can bring you. So, franchising is characterized by the following positive aspects:
- when you start your own business, you don’t have to work out management and production mechanisms, because with the acquisition of a franchise you get a streamlined business system;
- despite the control by the franchisee, you will have a sufficient degree of both legal and economic freedom;
- information on the activities of large firms is often laid out in the public domain, and therefore you have the opportunity to get acquainted with the activities of your potential partner even before the transaction
- you are practically not affected by the risks that young enterprises often face, because the parent company is already well known in the market;
- if you choose the right field of activity in accordance with the needs of consumers, then your business will be successful from the very beginning.
Thus, franchising is an ideal option for your own successful business.
