What is a franchise?

What franchises are and how they work are common questions which we'll answer in detail as well as discussing their advantages.

Despite other definitions or technical descriptions, for us a franchise is a business model based on the silent trust between the collaborating parties who decide to start the process.

According to official definitions, we can understand a franchise as being:

  •  “The granting of exploitation rights of a product, activity or commercial name, granted by a company to one or several people in a given area.'' The Royal Academy of the Spanish Language (RAE)./li>
  • "A system for marketing products and/or services and/or technologies based on a close and continuous collaboration between legally and financially independent companies, the Franchisor and the Franchisee, in which the Franchisor grants its Franchisees the right, and imposes the obligation to operate a company in accordance with the concept of the Frachisor." Eurpoean Deontological Code of the Franchise.

It's important that we don't consider a franchise as an independent business since this business model is based on the investment, by the franchisee, in an operating methodology and brand established by the franchisor.

How does it work?

Once the investor makes the payment for the franchise right, it becomes a franchise of the brand.

In this way, the franchisee acquires, with the license, the Know How and the support of a brand recognized in the market. The franchisor ensures that the business model follows the quality standards necessary for the image of the company. This is carried out through the signing of the franchise agreement between the two parties.

From this moment, all processes and procedures for the premise search where the services will be operated and its subsequent adaptations and opening begin.

The franchisee must take the requirements into account set forth by the brand when searching for and conditioning their premises. Because all Stores must have the same characteristics, the customer can always recognize the brand and feel comfortable in the Store.

One of the main and most important parts of the agreement between the parties are the terms and conditions of the business relationship. This includes clauses such as:

  • Initial feee
  • Periodic fees or royalties
  • Exclusivity zones
  • Operation support
  • Duration of franchise license, as well as renewal details

It's important to be clear that the ownership of the brand will always belong to the franchisor who transfers the rights to operate under its name.

In conclusion, a franchise will be considered as an optimal model to implement a business with a low failure risk.

What are the advantages?

The main advantage of acquiring a franchise model is not having to start a business from scratch which requieres previous market study, brand development, a financial plan etc., all the tasks prior to creating a business.

This principally helps in reducing the costs and risks which threaten entrepreneurs and startups in their early years.

Next, we deal with the biggest advantages of acquiring a franchise.

  • 1. Know How

"Know How" is the set of knowledge, experiences and techniques of the company, its DNA. All this information is set out in the Operations Manual which is given to the franchisee which we will discuss later.

This set of decisions and tasks must be carried out by the franchisee to run the business, satisfying customers and achieving profit.

The brand builds up their ''know how'' through experience in the market and it continues to develop and adapt to all changes to ensure success for the brand and its franchisees.

  • 2. Brand recognition

Another advantage of investing in a franchise is being able to operate your business under a brand which is recognized by customers nationally and internationally, depending on the franchise. As well as saving you years of transitioning from an unknown brand to a recognised one, you also save the large sum of money you would have spent on brand positioning.

Customers will already know your business and the services or products it offers, you just have to worry about providing a good service.

  • 3. The support of a consolidated brand

As well as operating under a recognized brand name, the brand gives support to its franchisees, under the agreement, to guarantee the success of the business model.

The franchise offers franchisees the opportunity to benefit from powerful marketing and advertising strategies, as well as engineering teams with constant R&D. The franchisee has the resources of a large company which aren't avaliable to the individual.

  • 4. Operations manual

All clauses and obligations of this agreement are included in the Operations Manual. This manual includes all the guidelines to help the franchisee run their business without having to make their own strategic plan. The aforementioned document allows the franchisor to detail what is needed in order to offer the franchisee a structured business project in each part of the company's value chain.

Within the Operations Manual, we find specific details about the business model such as:

  • Logistics of the business
  • Marketing strategy
  • Store setup and design
  • Service/product processes
  • Accounting
  • Hiring and training staff

Training is a fundamental part of the franchisor-franchisee relationship because it ensures that the business model is carried out according to the methods necessary for its success.

Characteristics of a franchise

Not everyone has the perfect franchisee profile. For this reason it's important anaylise yourself and know how to tell if you have all the necessary characteristics to run this type of business.

Basic characteristics of a franchise:

  • A person who is capable of adapting to norms and rules established by the franchisor. In other words, being able to follow certain management rules, products and suppliers established by the franchise in question.
  • A hardworking person who is eager to grow. Only then will you have a successful business. EFFORT!
  • To want to start a business in the market under the protection and security offered by a leading company in the sector with a proven business model.
  • Have the capital investment needed to start the entrepreneurship project.
  • Keep in mind that the business model has an expiration date but can be renewed.