What is involved in opening a franchise

Franchising: What franchisees need to look out for

Franchising works: The concept of expanding the parent company via franchise branches is particularly popular and proven in the catering sector. The corporations are dependent on willing partners who take over the business on site. You? In any case, franchisees have a good chance of jumping headlong into a gold mine. However, if you don't plan well, you're more likely to end up in a trap in which you struggle endlessly. We tell you what to consider when choosing a franchise.

➠ Content: This is what awaits you

➠ Content: This is what awaits you

Definition: what is franchising?

Franchising is a business model based on partnership, with which legally independent companies enter into a cooperation. A license is granted: An existing company allows the business partner to use their own business idea and operate a branch. The goal is a win-win situation in which both the franchisor and the franchisee benefit.

The parent company grants certain rights and uses to its own business model. Franchisees pay a fee for these options. The agreement is precisely regulated in one Franchise agreement.

At its core is the permission and, at the same time, the obligation for the franchisee to set up and run a business based on the exact model and ideas of the franchisor. The specified standards must be adhered to accordingly. How closely and extensively the two franchise partners work together depends on the respective agreement.

The aims are different, but are still related: While the franchisee wants to build a successful business in order to reap profits and enable independence, the franchisor tries to spread his brand and earn money through the licenses granted.

Franchising: So check who is bound (forever)

As Günter Wallraff A few years ago, he set his sights on the large franchisor Burger King and reported on hygiene deficiencies in branches, he subsequently launched the largest franchisee in the burger chainwho have favourited Yi-Ko Holding, in distress. Burger King then terminated the franchise partner without notice due to alleged breaches of contract and prohibited the use of brand names. The negotiations and disputes dragged on for years - including the franchisee's filing for bankruptcy.

No matter how such unsavory affairs end, the case shows: franchisee are not immune to colossal anger. The feeling of having enormous security and being able to hide behind a strong parent company at any time is quite strong - and one reason why many people can imagine a career as a franchisee.

In the general perception, will Franchising in any case mainly associated with this:

  • lower risk
  • Planning security
  • strong brand in the back

Another benefit is that you are eligible for the Step into self-employment and start-ups do not need their own business idea. You are using a model that has already proven itself. This is how you know about the potential for success.

Especially American fast food chains have written success stories with the franchising model over the past few decades. And new ones are constantly being added. In addition to established veterans such as McDonald’s and Burger King, newcomers such as Domino’s, Dunkin ‘Donuts and Joey’s are now pushing their expansion plans. There are of course many other franchise chains, including German ones, be they self-service bakeries or fish restaurants.

If you are one of those people who have always thought about opening a franchise branch, you must therefore first make a preselection. Which franchise is actually the right one for me? What should I pay attention to before I sign the franchise agreement?

Answering the following five questions, which you should definitely ask yourself beforehand, will help you with this.

5 questions to ask yourself before starting the franchise

  • Which franchise do I identify with?

    This is important in that you are usually dealing with a franchise agreement bind to the company for a longer period of time. Depending on the partner, it can be up to 20 years. So, if all goes well, you will be spending a significant part of your life in and with your franchise. The question from McDonalds in the application form is indicative: “Would you - if your application was successful - McDonalds Your full time dedicate it? ”So pay attention to the length of the contract and choose a franchise that is worth your daily commitment - and which, in case of doubt, does not bind you for so long.

  • How much money do i have?

    With an empty account, your venture has no chance. you need Seed capitalwhich, however, differs from chain to chain. In any case, one thing is clear: Hardly anyone has enough savings lying around to start a franchise. Depending on the franchisor, equity capital of 30,000 euros may be required, with some the required capital even exceeding 200,000 euros. There is also a negotiated one Franchise fee over a negotiated percentage of net sales. In addition, it is agreed what percentage of sales must be invested in advertising. The financial framework conditions are therefore extremely complex and different - and very important for which franchise is suitable for you.

  • Does my franchise fit here?

    Mobility is often the first quality required of a franchisee. McDonalds writes, for example: "Please consider that you will probably have to change your place of residence, so the willingness to move is essential." Of course, the companies will help you with this Location search for a suitable branch. But you can do market research on your own so that you are sure of yourself. This basic knowledge is important: Franchises, unlike online retail, are still a regional concept. So local peculiarities are extremely important. It is possible that a donut joint in a city with an above-average density of senior citizens will not bring you long-term success. If you do not want to move at all, many franchises fall out of your preselection.

  • How experienced is my franchise?

    Franchisors with many years of experience in the German market often have proven processes, professional support and training. You should definitely pay attention to this in advance. How good is the franchising program? How intense is the training program? What is its content? With younger chains that do not yet have any experience in the German market, there could be problems here due to poor experience. This aspect is especially important for start-ups who in their first franchise branch invest. You should therefore also go into detail during negotiations and request detailed information. If a franchisor cannot meet these requirements, caution should be exercised.

  • How much control do I want to give up?

    As a franchisee, you are an independent entrepreneur, but you do not have unrestricted freedom of action. Marketing, for example, is not in your own hands. The specifications from the head office are a logistical advantage for start-ups, but on the other hand they can also cut your breath. Building a brand, developing a new product, making a name for yourself as an entrepreneur, changing the world with a startup: With all due respect, that is not possible as a franchisee - with all due respect.

Franchise Programs Checklist: What To Look For

There are around 900 franchise systems in Germany alone. But they also harbor dangers: disadvantageous contractual clauses, insufficient support from the head office, but above all the Achilles heel location endangers the existence of some franchisees. Because of aggressive expansion strategies, the chain members often compete with each other or are assigned locations where fewer customers appear than monsters in Loch Ness.

Almost 13 percent of all franchisees therefore fail after four years, according to a study by the University of Münster. However, the quality varies greatly from chain to chain. Whoever chooses this route should therefore pay attention to the following points:

  • Property rights

    Request written evidence from the franchisor that the brand name and company logo are registered with the German Patent Office. Otherwise there is a risk that a competitor will claim them and the business base will be lost.

  • added value

    The franchise chain must have a clear competitive advantage that goes beyond the product: atmosphere, service, product quality and shop design create a distinctive identification with the brand that attracts customers.

  • running time

    The contract should run long enough to raise the capital employed. It is customary for up to ten years, with the option of extending it by five years.

  • Price maintenance

    The headquarters are not allowed to dictate to the members at what price they have to sell the products. This violates the law against restraint of competition (§15). Non-binding price recommendations are allowed.

  • Services

    The fees must be offset by specific considerations such as location analyzes, marketing, training and controlling. In addition, there should be a network that supports each other with advice. A sure indicator of quality are several satisfied partners, who at the end of the day are left with a decent profit.

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