Opening a franchise: How to set up on your own becoming franchisor or franchisee.
Setting up on one’s own is one of the most important – and at the same time risky – work choices that exist. Opening a franchise is the ideal solution to start a winning business. Minimized risks and a well-established brand on the market are the winning features of the franchise business.
To start a new business it is not enough to have a brilliant idea and a capital to invest. In fact, it is necessary to carry out some essential activities such as drawing up a business plan, carrying out market analysis, planning launch, marketing and sales strategies. Many times not even the development of all these activities can guarantee the success of a business idea. The risks in the entrepreneurial field are many and too high! There is only one-way to reduce these dangers to a minimum and set up on your own in a simple way: to opening a franchise.
To start a business of its own from scratch, it will be necessary to design all aspects of the startup plan independently, assuming all the risks involved. Relying on a franchised business, on the other hand, it will be possible to work independently by profiting from an established brand and minimizing business risks.
Currently, franchising is one of the sectors that best contrasts the economic crisis and the competition of big digital players. The most profitable sectors in the franchising field are food, wellness and clothing.
But let’s take a step back. What is franchising?
Franchising, also known as “commercial affiliation”, is a form of collaboration between entrepreneurs: a franchisor, producer or distributor with an established brand, and a franchisee, an independent retailer who wishes to set up on his own. The franchising collaboration requires the distributor to make its products and its brand available to the franchisee. In other words, the franchisee markets the services of the parent company, benefiting from the brand and its experience. The retailer will have to periodically pay a percentage of turnover to the franchisor, often added to an entry fee to start the business. The franchisee will be able to start a new business, while the franchisor will expand its business thanks to the opening of the associated sales points.
After understanding the operation of the franchise, it’s time to find out how to open a franchise store.
Opening a franchise: How to become a franchisor or franchisee
A brilliant idea is not enough to become a franchisor. A true leader in the industry knows that there is no franchise without strategy!
To turn your business into a successful franchise you need to ask yourself a few questions …
- Is the business idea a winner?
- Is the entrepreneurial experience sufficient?
- Is the funding guaranteed?
- Has the idea already been tested on the market?
If the answer to all these questions is affirmative, it means that the company is ready to create its own franchising network. Let’s find out what are the steps necessary to opening a franchise …
1 – Start a pilot store
A franchisor, to create a winning franchise network, must test their business ideas. The European Code of Conduct for Franchising states that affiliating activities must have at least one pilot company, or a test store. The projects able to support a network of franchisees will be exclusively those active for more than one or two years and with considerable optimization margins. The “pilot” phase of the activity is often linked to the activity of trademark registration. Identifying a well-defined logo creating a visual corporate identity is essential to open a franchise. In fact, all affiliated stores will be able to recognize themselves in that particular brand.
2 – Define the communication plan
The strategy is fundamental in the process of creating a franchising network. To convince potential franchisees of the validity of their project it is essential to define an effective communication plan. A winning franchisor is able to communicate with the outside, enhancing their entrepreneurial and professional experience. A valid solution to make oneself visible to all potential affiliates is the Franchising Association. To register with the Association it is necessary to submit your idea and your company data to the judgment of the Board of Directors. Joining can be very useful as many franchisees consult the Association’s website to find business opportunities.
3 – Create the business plan
To intercept a potential affiliate it is essential to present all the economic-financial data of the company. A business plan could prove to be the ideal solution. In fact, the economic feasibility study would be a further guarantee for potential affiliates. In this way, all franchisees will be able to learn about the company’s economic conditions, potential earnings and real opportunities for growth.
4 – Define the rules in the operating manual
There are precise rules that every franchisee must respect. These rules concern business operating processes and are defined by the franchisor. The franchisor must draw up an operating manual, in other words a document capable of showing all the company procedures (more commonly referred to as “know-how”) to the franchisee. In this way a real network of affiliates will be created that operate following the franchisor’s business logic, thus avoiding possible problems and misunderstandings.
5 – Create the franchise agreement
The franchise agreement (stipulated in writing) is the indispensable part of the commercial affiliation agreement. To draw up a detailed contract, the franchisor should request the intervention of lawyers and industry experts. The franchise agreement must be delivered by the franchisor to the affiliated company 30 days before the date of subscription. The contract contains all the information needed to start the partnership …
- Period of cooperation;
- Requirements for the transfer of usage rights and licenses;
- Amount of investments and rights of entry;
- Royalties calculation method;
- Methods of transfer of know-how and assistance;
- Conditions for renewal, termination or termination of the contract.
6) Start the development office
The last activity to be carried out to create a network of affiliated franchisees is the activation of the development office. How does it work? Simple. This department carefully examines all the affiliation requests of potential franchisees, to then transform only the most valid and promising ones into real contracts. To ascertain the validity of the proposals it is necessary to rely on industry professionals: a specific sales manager or an outsourcing expert.
Opening a franchise: How to become a franchisor or franchisee
Any entrepreneur could decide to become a franchisee. But playing this role is not as simple as it seems. If on the one hand the franchisee can start its own business with minimal risks, on the other it will have to respect all the rules imposed by the franchisor.
Let’s find out what are the activities necessary to set up to opening a franchise …
1) Choose the franchise
The first activity to become a franchisee is the search for the franchisor. It is essential to choose an activity that is in line with your business idea. To find the perfect franchisor you can carry out research concerning the company: press releases, documents or informative texts on the activity are very useful. Many franchisees start their franchise journey thanks to the online portal of the Franchising Association. On this site, there are many franchisors – divided by sector categories – with their own proposals and company data.
2) Submitting the application
After identifying the business in which to invest, it’s time to get in touch with the company. Following the submission of the proposal, it will be possible to receive a first feedback, often consisting of a request for a meeting or a telephone interview. At this stage, the potential franchisee can ask all the questions necessary for the franchisor. The franchisor will be required to provide truthful information and to present all the company data requested. A meeting directly in the company, useful for showing the franchisee the working methods and the company spaces, can follow the interview phase. At the end of the comparison between the two activities, it will be verified whether or not to start the franchising collaboration.
3) Evaluation of the contract
In the franchising contract, presented by the franchisor to the franchisee before starting the collaboration, all the rules that the franchisee must commit to respecting are contained. Franchise collaboration does not provide absolute freedom for the franchisee, but rather adherence to strict company rules. The franchisor delivers an operating manual to the franchisee, which contains the guidelines to follow. The franchisor undertakes to guarantee training courses and updates to its franchisees to optimize work and align operating procedures. By standardizing the activities and the work method, the corporate image will also benefit. The affiliate will have to evaluate all the rules presented in the contract and provide a response to the franchisor to give life to the partnership.
4) Economic evaluation
Franchising is undoubtedly the cheapest alternative to start your own business, but it has some fixed costs that cannot be avoided. Before signing a contract, it is essential to know what these expenses are and to assess whether your business can support them to the fullest. First of all, there are the costs of opening up the business: from physical space to personnel to the necessary equipment. It is often the franchisor himself who asks the affiliate for a registration fee to cover the entrance fees. Furthermore, it may happen that some franchisors require a minimum level of equity capital to become part of their franchise network. Royalties are other fixed costs of the franchise, or the fixed percentages that the franchisee pays to the franchisor based on turnover and turnover. Finally, there are minimal advertising costs related to marketing and communication activities.
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