How to buy a franchise in 2017

The essence of franchising

Franchising is a special type of economic relationship in which one party (the franchisor) transfers to the other (franchisee) for a certain fee (royalty) the right to a certain type of business. In particular, the franchisee receives the right to work under the brand names of the franchisor, as well as use a proven business model.
Despite the fact that while the number of firms operating under the franchise scheme in Russia is relatively small, this line of business is becoming increasingly popular. There are several reasons for this trend.
The advantages of buying a franchise is the ability to use a proven and tested for years model of business organization, which has already proven its cost-effectiveness in practice. The franchisor can help with the arising difficulties in doing business, in particular, to form an optimal range, provide a streamlined logistics system, etc. At the same time, the franchisee has economic and legal independence.
By opening a franchise business, an entrepreneur already has a pool of brand-loyal customers, which reduces the company's marketing costs.
It is easier for an entrepreneur to plan his own business, because he can receive from the franchisor the amount of investment costs, as well as a detailed business plan.

How to choose a franchise

Before deciding to purchase a franchise, it is necessary to carefully analyze the franchiser's business proposal. In the public domain presented a huge number of proposals for opening a business franchise. It should be initially determined with the desired direction of work (trade, restaurant business, etc.), and then choose from the presented companies based on their own investment opportunities.
Further analysis should be based on an assessment of the market potential of a business idea in the region, as well as the franchisor itself. At the first stage, it is worthwhile to consider the perspectives of the idea based on the size of the population, the competitive environment, and the availability of appropriate retail space. After all, the profitability and return on investment reported by the franchisor may be relevant.only in relation to large metropolitan areas, and in a small city such a business may not enjoy success.
Evaluation of the franchisor should be carried out comprehensively, based on a number of criteria:
- experience of the company in the market;
- the number of franchised enterprises, their financial indicators, the dynamics of opening and closing;
- the presence of a registered trademark;
- conditions of exit from business;
- requirements for suppliers of materials and equipment - many unscrupulous companies seek to make money on this as well, offering obviously unprofitable, enslaving conditions for the franchisee;
- what kind of support is provided by the franchisor.
Finally, it is worth assessing the overall impression of communication with the franchisor.
It is also advisable to contact the companies already working on this franchise in order to find out possible pitfalls associated with running this business and the difficulties they have.

What makes up the cost of a franchise

The cost of a franchise consists of several components. As a rule, the contract provides a one-time fee for the right to use the brand.It is also called a lump sum.
Also, the contract may be spelled out the amount of deductions for the use of the franchise (fixed, one-time or a percentage of sales). These payments are called royalties and are a kind of trademark rent. But such a requirement may be replaced by a regulated number of monthly purchases from the franchisor.
Some franchises also provide for monthly or annual payments to a marketing fund.
In addition to these payments, the entrepreneur also bears all standard costs - rental payments, repairs to the premises, the purchase of equipment, the salaries of employees, etc.

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