Franchise : Nowadays, more and more people are committed to making the leap to entrepreneurship with the help of a business model with guarantees called a franchise.
In this post we are going to explain what it is, how it works and what its advantages and disadvantages are.
What Is A Franchise?
The franchise is a business model in which a natural or legal person offers the right to a third party to use their brand and work under their commercial system.
Therefore, the franchise is a commercial relationship between two parties: the franchisor, that is, the company that transfers the rights to market its brand and the franchisee, the entrepreneur or investor who acquires these rights.
How Does It Work?
The franchisor makes various aspects available to the entrepreneur: his know-how (knowledge necessary to carry out the activity), his experience in the business, as well as the recognition of his brand.
In order to carry out the commercial relationship, a franchise usually requires, on the one hand, a contract of about 5 years that can be extended and, on the other, an entry fee. This canon is an initial investment that includes the different aspects of starting up the franchise mentioned above ( know-how, brand)
Sometimes these two obligations are added to those known as royalties (copyright), among which are the exploitation rights, to pay periodically for the services provided, or advertising royalties.
Advantages Of Launching A Franchise
The franchisee reduces the risks that entrepreneurship can entail when allied with a brand of proven and already developed success.
Before starting their activity, the franchisee receives prior training and advice to set up their premises.
Communication and marketing
The entrepreneur can take advantage of the communication and marketing tools already implemented in the franchise.
Belong to a community
Being part of a network of franchisees, the entrepreneur is not alone. He can ask other entrepreneurs about their experience and resolve their doubts about the business.
Disadvantages Of Setting Up A Franchise
Although starting a franchise can have many advantages, there may also be some drawbacks that must be taken into account and weighed:
The franchisee must pay a percentage of their profits for the rights to training, experience and knowledge offered to them. Depending on the franchise network to which it belongs, these costs vary, so it is important to know all the information in advance.
The franchise avoids risks but also implies that some freedom of decision is lost. When accessing this system, you have to accept a series of requirements such as the color of the premises, the way of producing the products or the way of selling them, among others.
A final drawback would be the dependency on the rest of the network’s franchises. This means that, if one of the stores lowers the quality of its services, the image of the brand will not only go down for that location, but it may also affect the rest of the franchisees.
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