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What is a franchise: the principles of franchising

When you open your own business, a person is faced with many tasks. It takes a lot of time to promote a brand and develop a technology. The ability to realize management talents, gain financial independence and make a business a profitable investment is the goal of every entrepreneur. However, due to inexperience, novice businessmen often make mistakes and feel insecure. What is a franchise and how does it work? Why is a franchise business justifiable? We will try to answer simply and easily.

What is a franchise and how does it work?
A franchise is the right to use the name of a company, that is, a brand. In addition to the name, the franchise buyer as a business partner receives from the franchisor – the franchise owner:

corporate standards
right to patent and invention
the right to use technologies and strategies
business plan
core business model
business support
In other words, a franchise is a complex of relations between two parties, regulated by an agreement that provides all the conditions for cooperation and indicates which franchise the franchisor provides. This document is called a franchise agreement.

If you give a simple example, a franchise gives you the opportunity to open a branch of a well-known company for your money, which will ultimately be your property.

The franchise buyer for the first time receives equipment, suppliers and assistants, if this is regulated by the contract.

What is lump-sum payment and royalties?
To buy a franchise, you need to familiarize yourself with two payment methods. A lump-sum payment is a one-time payment of a franchise. Most often used for small projects and enterprises. After payment you have the right to use the brand name and technology of doing business.

Under another payment option franchises mean royalties. This is a systematic payment (monthly, every six months, every year). Royalty often amounts to a fixed amount or percentage of revenue. Franchise conditions allow two ways to pay royalties: for a limited time and throughout use. In most cases, royalties are chosen for large projects.

Major franchise types
There are many types and types of franchises. Their classification depends on the terms of the agreement and purpose. Here are the basic types of franchises you should be aware of.

Business franchise
The most common type of franchise in which an independent entrepreneur is offered an established business, name and trademark. Since the buyer receives all the necessary help and support from the company, the type of business franchise is often called a “turnkey business”. An ideal example of such a business would be the opening of a famous brand fast food restaurant.

Commodity Franchise
It provides for the purchase of the right to distribute the product that the franchisor makes. The buyer must purchase a certain amount of products, after which he receives national advertising campaigns, a trademark, a logo. A good example would be any car manufacturer brand.

Production franchise
The manufacturer granted the right to manufacture and sell the product under its trademark. Covers a wide range of products. For example, all food and drinks are produced using this franchise.

What are franchises?
Direct franchise – the right to open one enterprise in a particular place. The simplest type of relationship. If you have the opportunity and desire to open another institution or store, a new contract and payment is required.
Multi-franchise – makes it possible to commit to open several trading places in a certain territory for a specific period of time.
Master franchise – implies clear obligations, but to all that, franchisees can sell franchises in their region.
Free franchise – the owner of the rights does not control the buyer after the sale of the brand name.
Silver franchise – the company organizes the operation of an open branch and only then transfers the right to temporary use.
Gold franchise – transfer of ownership of a business in a particular region with a monopoly of further development decisions.

The main advantages of buying a franchise
The pluses are that you do not start from scratch. You have a plan and technology of work. All advertising materials are ready. You are famous, have potential customers.

You adopt the experience of the company, which makes the business productive. You take little risk, as the company is interested in your success and guarantees you support.

The main disadvantages of buying a franchise
Of the minuses a little, but they are more than significant. The first is the cost of the franchise. Of course, if the sum is successful, it will pay off, but at the same time, you can lose more than you would have spent on opening an independent business. Secondly, constant monitoring and lack of freedom of action. Project conditions often pin the buyer into a tight framework for business development. Any idea for change must be consistent with the company and can often be rejected.

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