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The top 5 questions and answers about franchising

Franchising has been a popular and resilient business model, especially since the Corona pandemic. While many companies saw their existence threatened by restrictions imposed by the Corona policy or even had to file for bankruptcy, the franchise industry, on the other hand, showed a positive development even in the crisis year 2020 (external link). We took a closer look at the subject of franchising and the most important questions on the topic answered in the following article.

What is franchising?

Franchising is a distribution system based on a partnership between the franchisor (owner of an existing company) and the franchisee (start-up company), in which start-up companies can use an already established business concept for a fee and become self-employed with it. Franchisee despite foreign business model self-employed entrepreneurs.

The period during which the franchise system is operated between the partners is determined by the franchisor. For this period, the franchisee may use the name, design and business idea to sell goods or distribute services.

What is special about the franchising model is that the business idea was successfully tested on the market and further developed by the franchisor in advance. Thus, when starting a business, franchisees can already working business model take over.

What costs do I have to expect as a franchisee?

For many, franchising is considered the so-called “silver bullet of self-employment” because of its low risk and high sales potential. But despite an already established business idea and extensive support from the franchisor, start-ups have to invest in franchising first. Here, for example, the entry fee is to be mentioned, which is to be paid to the franchisor at the beginning. This is considered a consideration for the system integration and can even amount to six figures.

In addition, monthly franchise fees are often due. With these, the franchisor pays off costs for the following services:

These franchise fees can be a fixed fee or calculated based on sales or profits. Nevertheless, there are franchising systems that waive these taxes. In this case, start-ups should hidden fees respect, think highly of. These include e.g. B. increased retail prices. In order not to experience any nasty surprises here, it makes sense to examine the franchise agreement thoroughly. It makes sense to seek advice on this subject from a lawyer who specializes in franchising.

How dependent am I on the franchisor?

All in all, franchisees benefit from the support of the franchisor when entering the franchising system. However, the close interlocking of franchisors and franchisees is often a thorn in the side of many founders, as they fear for their freedom of choice. But founders don’t have to worry about this, because franchisees are independent entrepreneurs and can make their own decisions in most areas. This relates in particular to the following points:

  • working hours and holidays: Franchisees can choose their own work and vacation times.
  • staff: Freedom to decide who should work for the company. However, the selection must be made according to the rules set by the franchising system.
  • company website: In addition, franchisees are responsible for the specific content of their company website as part of the corporate design.
  • Prices: Franchisees can set their own prices. However, the maximum prices set by the franchisor should be observed.
  • marketing: Franchisees also determine the specific marketing measures – but within the framework of the corporate identity.

How do I find the right location for my franchising system?

If you want to get into a franchising system, you have to find a suitable location for your business start-up. This decision should be carefully considered. Because the location is decisive success or failure of company formation. A location analysis, which is also part of the business plan, can help to find a perfect place to start a business. A distinction is made here between soft and hard location factors.

Soft location factors

Soft location factors play a decisive role in recruiting highly qualified employees and have a decisive influence on the success of the franchising establishment. After all, founders have to offer something to very good employees. These can usually only be won if the location of the company is also suitable. For example, if there are suitable housing options nearby and the location of the company offers a certain quality of life. The soft location factors include, for example:

  • shopping
  • Freetime activities
  • Cultural and educational offers
  • location

Hard location factors

The hard location factors, on the other hand, are used to determine the economic viability of locations. Hard location factors are therefore measurable in numbers and data, so that business founders can use them to orientate themselves and always see whether a particular location is also financially worthwhile. Hard location factors can be:

  • Steer
  • rent / additional costs
  • infrastructure
  • workforce potential
  • resource availability
  • transport connection

What points do I have to pay attention to in the franchise agreement?

An important point in the context of establishing a franchise is the franchise agreement. Because this forms the legal basis for all franchising systems. A franchise agreement sets out the rights and obligations of franchisors and franchisees. The contract must therefore be signed by both parties. The following points are regulated in a franchise agreement, for example:

  • advertising and property rights
  • Competition and Non-Solicitation Rights and Confidentiality
  • Liability and Insurance
  • Duration and Termination of the Franchise Agreement
  • franchise fees

It is important that franchisees check the contract carefully before signing it. This is the only way they can protect themselves from disputes and prevent nasty surprises. It makes sense when franchisees sign up for the exam professional help to fetch. A legal review of the franchise agreement is essential as part of good preparation for self-employment.

(reading tip: take the hurdle franchise contract correctly)

With business start-up advice, you can safely approach the entry into a franchising system

Getting into a franchise system can do many things hurdles and challenges ready. From finding a suitable location to calculating the costs and checking the franchise agreement. Founders are therefore on the safe side if they get professional help – in the form of business start-up advice – on board.