FRANCHISING

Accelerate your business with these expert tips on "Franchising". Take a look and discover this TIP!

Franchising is essentially a validated business model that is a good option for entrepreneurs who want to get up and running quickly.

The franchise isThe Commission has also validated business knowledge. It is developed by an entrepreneur "Franchisor A" who creates a successful business model in several markets.

Franchisee A seeks out other entrepreneurs and offers his model to other entrepreneurs, "franchisees B", in exchange for an entry fee and other concepts such as a percentage of future sales or royalties.

In case of an agreement, the franchisee sets up the business in a specific territory/market, where the franchisee believes the franchise is likely to be successful. Under this agreement the franchisee pays the franchisor an entry fee plus a percentage of future sales. The quid pro quo in favour of the franchisee consists in obtaining a profit on the sales obtained.

Advantages and disadvantages for the franchisor:

Franchising is a very interesting entrepreneurial formula for the franchisor. Firstly, it allows him to grow faster than if he were to do it with his own resources and with a lower risk.

As a consequence, it creates a model scalable and makes it more invertible.

On the other hand, the franchisor increases its competitive advantages by improving economies of scale, strengthening its bargaining position with suppliers and reducing its costs.

It also extends your brand awareness to new markets while ensuring the distribution of your products without having to rely on others. distribution channels.

On the disadvantages side, it is worth mentioning the effort that the entrepreneur franchisor must assume in the development of a franchise. business model sufficiently solid and attractive for other entrepreneurs to decide to become franchisees.

Advantages and disadvantages for the franchisee:

The franchisee avoids having to cover the initial stages of the venture, as he or she is given the rights to a model that has already been created and validated.

Therefore, you can get your business up and running much more quickly with the support and expertise of the franchisor.

Other benefits:

• Franchising allows the franchisee to enter a sector in which he/she has no previous experience.
• It also has easier access to sources of finance. 
• You benefit from the franchise's generic marketing campaigns. Advertising, promotions, SEO, SEM, etc.
• Good negotiation can lead to favourable prices and purchase conditions and lower initial investment.

The disadvantages include the fact that the franchisee entrepreneur is not sovereign over his business.

Franchising is a kind of marriage in which a series of conditions, sometimes abusive, are laid down that the franchisee must respect. Franchise contracts are often complex and sometimes there may be loopholes in the law.

In addition, the franchisee will have regular financial obligations and will have to share in the profits for the duration of the franchise. On the other hand, franchising does not always guarantee success and, in case of failure, the risk is on the franchisee.

Therefore, it is important that before acquiring a franchise, the entrepreneur should analyse in depth the counterparts that he/she obtains: marketing, training, administrative services, assortment, etc.

You should not make any decisions until you are very clear about the franchise's contribution. The cotton wool test is to know the experience of other franchisees.

Some interesting facts about franchising in Spain:

Franchising in Spain and Europe:

Barbadilo and Associatesa Spanish consultancy firm specialising in the world of franchising, has made the following analysis of the situation in Spain and the most important trends in the sector.  

Franchising in Europe is a well-established entrepreneurial formula and is recognised as an investment system. Europe is currently ranked number one, ahead of even the United States, in terms of the number of franchises.

Nearly 10,000 plants operate in 20 countries, representing an increase of 30% between 2005 and 2019. According to recent data, the number of franchised outlets in the old continent is close to 500,000. 

The most important countries in the sector are Great Britain, France, Spain, Germany, and Italy which account for 65% of franchises with 6000 franchises in round numbers. 

In terms of franchising trends in Europe, the most important ones are outlined below:

• Strong international expansion: Entrepreneurs see the European Union as a single market, which makes the internationalisation of European brands almost automatic, thanks among other factors to the establishment of regional master franchise development agreements.

Moreover, Europe is an increasingly attractive market for US franchises.

• Co-branding: the high cost of rents means that agreements to open corner franchises within other establishments are becoming more and more frequent.
• Specialisation: is a very evident trend, the fact that more and more franchises are specialising in specific market niches, to which they provide effective answers with business models well-defined. 
• Multi-franchisees: there are more and more cases of franchisees with more than one business of the same brand. 
• Common legislation: the regulatory framework for franchising is EU-wide. However, differences emerge between countries as regards the provision of information to the franchisee. 
• Development of new sectors outside the traditional ones: the market is expanding with the creation of new franchises that franchise such innovative concepts as positive psychology or robotics centres (in Spain) or building rehabilitation services (in the UK).

Sources of information on franchising in Spain: 

• World-franchise.
• 100franchises.
• Direct Franchising
• Spanish Franchisers Association.
• Info-franchises.

Specialised consultancies:

At mentorDay we have agreements with experts who specialise in setting up franchises and have a wealth of experience. You can meet with them free of charge by participating in the acceleration programme.

• Tormofranchise Consulting
• Barbadillo and Associates

Fairs:

• Expo-franchises.
• Valencia franchise exhibition.
• Astur-franchise.
• Franchise Expo South (Miami, Florida).
• The British and International Franchise Exhibition London: International Franchise Exhibition.
• Virtual Franchise Fair.

Success story: 

Mr Jeff is a Spanish startup that washes and irons clothes at home in 48 hours. As simple as that. But behind such a simple idea, there is a business model It has been very well designed, tested and successfully proven in many regions, and has been growing steadily since its inception.

At the moment, the startup is spreading across the globe. We recommend this interview with Mr. Jeff's franchisor.

It is one of the ways to create a new company. They are business models already validated in other markets.

It is very scalable for the franchisor, since, once the brand and know-how have been developed, we sign an operating contract with an entrepreneur who receives the right in exchange for a royalty and a % of the income or results.

In short, it is a type of contract in which one company (the franchisor) grants another (the franchisee) the right to market certain products or services within a given geographical area and under certain conditions, in exchange for financial compensation.

There are two main figures within the Franchise model:

• The franchisor: which provides the marketing rights to use its brand, the trade name and the design of the franchisee's establishment.

In most cases, these elements cannot be modified to maintain the franchisor's standards of quality and form.

In addition, it also provides the know-howThe company's business experience and technical and commercial assistance for the duration of the agreement.

• The franchisee: who is the owner of the business and who makes the necessary investments for its start-up, as well as paying a royalty to the franchisor for the use of the brand name.

This fee is like a "right of entry" into the business, in addition, periodic amounts may also be established in the contract according to the volume of sales and/or technical and commercial assistance.

In addition, the franchisee has exclusive franchise rights for a specific geographical area and type of products.

An inherent benefit of this type of business is undoubtedly brand recognition, as the customer is already accustomed to the brand's services in other establishments.

This means that the entrepreneur can, to a certain extent, save a significant part of the time and money spent on advertising and marketing.

Types of franchises

The types of franchises will depend on the type of activity and the level of integration to be achieved by signing the contract.

• Distribution FranchiseThe franchisor assigns the rights to market manufactured products made by himself or by third parties.
• Service FranchiseThe idea of a service and a way of providing it is transferred together with the brand, the franchisor's prestige and his know-how and experience.
• Industrial Franchising: In a mixture of licensing and franchising contracts, the rights to both manufacture and market products under certain characteristics are transferred.