Building a franchise business is a good start for small businesses. According to statistics, eight out of ten franchising companies operate without loss. It is very difficult to independently achieve such indicators. By acquiring a franchise, the head of a small business receives not only recommendations and a business plan for building commercials, but also a well-known well-known brand. Creating a business from scratch, you need to use a huge amount of resources: time, money and effort.
There are franchises with low cost. An inexpensive franchise costs no more than five hundred thousand rubles. Such options can be easily found independently.
Franchise Definitions
Inexpensive franchises in Russia are becoming more and more popular every year. In order to understand what is at stake, it is necessary to understand the definitions of franchising.
Franchising is a type of partnership between a seller and a buyer of a business.
The franchisor is a renowned company that sells its brand, trademark and technology for building and developing a business.
A franchisee is a company that wants to open a company under a famous promoted brand in a certain territory.
Initial (lump-sum) installment - This is a one-time entry fee to the franchisor from the franchisee.
Royalty - this is monthly (a different payment period may be used) payments (fixed or percentage) that the franchisee pays to the franchisor.
The development of relationships in franchising business is as follows:
- the franchisee makes an initial (lump-sum) installment, thereby securing the right to use the brand and tactics for building commercials;
- the franchisor provides personnel for analysis, selection of a place for a point, staff training and implementation of a development plan;
- the franchisee, under the terms of the franchise agreement, pays royalties and reports to the franchisor.
The entire business is under the control of the franchisor. More detailed aspects of cooperation are stipulated by the franchise agreement.
Franchising Benefits
At the initial stage, the franchisee is provided with franchisor support. The second helps the first to solve problems and make the right decisions. Inexpensive franchise, support and the right advice bring a novice entrepreneur to profitability.
The main advantages of franchised relationships:
- The franchisor helps with the choice of location, the interior of the room, with the training of employees in accordance with corporate requirements.
- At any time in the business, the franchisee may ask the franchisor for support and advice.
- A well-known brand helps the development of business in the initial stages. Advertising costs are reduced, which is very important for a novice businessman.
- The conclusion of a franchise agreement helps to specify the relationship between the parties.
- The franchisor can act as a guarantor when obtaining a franchisee loan, providing the bank with a plan for the development of the company and a forecast of future profits.
Features of franchising business
Franchise offers for small businesses with an investment portfolio of up to 500,000 rubles have a number of features. A small investment in a franchise entails a significant immersion of a novice entrepreneur in all the subtleties of running and developing a business - from management to service.
Inexpensive franchises with quick paybacks allow faster return on investment than franchises that are expensive. However, the monthly profit of expensive franchises exceeds the profitability of low-cost franchises.In addition, it takes much more time to build an inexpensive business.
You should be prepared for the fact that at the initial stage the franchised business will not make a profit, so you should provide yourself with a financial pillow.
It is necessary to take into account the additional costs of enterprise registration, repair, accounting support, Internet connection and other services.
An inexpensive franchise for small businesses can be associated with a sign of seasonality, so you should consider this factor when opening an enterprise.
In order for the business to bring constant profit, it is necessary at the initial stage to draw up a financial budget taking into account all expenses and planned profits.
What to look for when choosing a franchise?
Modern franchisors should have a number of factors that a beginner franchisee should rely on when choosing a franchise.
- The site of the franchise network should contain conditions, a detailed description, contacts and a list of locations of points that are already open and planned for opening.
- Franchise reviews. You should not rely on all reviews on the Internet and the media. However, a large percentage of negative reviews indicate dishonesty of the franchisor.
- Sustainable business franchises. Inexpensive franchise offers should have a point closure threshold of no more than 15 percent in 5 years. But in this matter, you should not blindly trust the franchisor, you need to carefully monitor and analyze the reasons for the closure of points.
- Commercial franchises must deliver on time.
- It is important to continuously communicate with the franchisee network. The openness of this aspect indicates the prestige of the franchise and the franchisor’s interest in developing a common network business.
- If the franchisee is not in a hurry to open a second point and develop in this direction, it means that not everything suits him in relation to the franchisor.
- The fact that tax costs are not taken into account in the financial budget indicates the transparency of the advertised financial indicators of the franchisor.
It is worth paying attention to the fact that the level of transparency of franchises in the Russian market is very individual. When choosing a commercial, you should spend time analyzing and more thoroughly studying the activities of the franchisor.
Franchise Business Organization Example
An inexpensive clothing franchise is a pretty profitable business. An important criterion when choosing such a commercial is the quality of the products. Consider the example of organizing a franchised business with a Button Blue chain of children's clothing stores. This brand produces casual clothes for children from three to twelve years old.
The investment portfolio, taking into account all the costs of opening a store, is 2 million rubles. The return on investment is 2 years. The recommended size of the premises for the outlet is 60 square meters. The amount of monthly royalties is 150,000 rubles.
The low pricing policy of the brand guarantees a good frequency of purchases, which entails high turnover and quick profitability. The franchisor provides franchisees with support in organizing and promoting the store.
Cheap franchises for a small town. Short review
Franchise buyers are provided with support, advertising materials, individual calculation of financial investments and payback periods. Franchisees are provided with an expert in charge of the company’s activities at the initial stage. An inexpensive franchise is usually sold by little-known franchisors in order to reach the federal level. Below you will find the cheapest franchises for a small town.
1. McDonald's:
- down payment - 60 thousand dollars;
- deposit for training - 10 thousand dollars;
- Royalty - 5% of sales;
- profit margin - 15%;
- advertising expenses - 5%;
- payback period - 1 year.
2. Lukoil:
- down payment - 360 thousand rubles;
- the cost of using the brand is 12 thousand rubles per year;
- Royalty - 5% of sales.
3.Baby Potato (three development formats: food courts, street points, stationary restaurants):
- down payment - 400 thousand rubles;
- Royalty - 7% of the turnover;
- payback period - 2-3 years.
4. Franchise ZARA:
- down payment - 30 thousand dollars;
- deposit for training - 10 thousand dollars;
- city monopoly - 90 thousand dollars;
- regional monopoly - 150 thousand dollars and the right to sell a franchise.
5. "Victoria Secret":
- down payment - 25 thousand dollars;
- monopoly - 35 thousand dollars and the right to sell a franchise;
- payback period - up to 9 months.
6. Franchise Fix Price:
- down payment - 25% of the total investment fund (3 million rubles);
- Royalty - 3% of the turnover;
- payback period - up to 1 year.
Where to get funds for the franchise business?
A good help to raise funds is a loan offer "Business start" from Sberbank.
The condition for such a loan is the guarantor-franchisor. After analyzing the business plan, franchisees can receive up to 80 percent of the amount to start a business.
Similar loan portfolios are provided by Rosbank and Transcapitalbank.
It is also possible co-investment from the Life Franchise Fund. The franchisee can receive 90 percent of the investment capital, and is also not burdened with monthly loan payments.
Currently, proposals for attracting investment capital are growing, so you can choose the most successful way to obtain funds for building a business.
The practice of building a franchise business in a shopping center
When opening a store for a specific trading platform, the category of its visitors, their requests and requirements for the goods are already known. However, some parameters should be taken into account when organizing a business in a shopping center.
- The choice of a franchisor should be based on the target audience of a particular shopping center.
- It is important to monitor the growth dynamics of network retail outlets in the selected franchise.
- You should find an existing franchisee and talk with him about the development of the company.
- An inexpensive franchise sometimes hides the true size of the investment, so finance planning should be carried out independently and not blindly hoping for the numbers provided by the franchisor.
- It is important to set aside time for doing business.
- Choosing the right area for the organization of the store will save on rental space.
- When organizing the interior of the store, you should use leasing services or purchase used equipment.
Pitfalls when using an inexpensive franchise
The disadvantages of franchised transactions include a high down payment, as this increases the size of investments. Also, the franchisor brand itself may become a minus. With a good reputation, the franchisee can feel relaxed, but as soon as hype develops around the franchisor’s name, the franchisee will also suffer.
An inexpensive franchise does not guarantee a franchisee a quick financial gain. So when opening a franchise business, you need to be prepared for a possible reduction in personal income.
Before purchasing a cheap franchise, you should make sure that the information provided by the franchisor is open. Very often, additional costs are hidden.
But in any case, the development and construction of a business according to a franchise scheme is a good solution for starting!
