Another popular alternative to start your own business is to participate in a franchise system. Here a proven business concept is adopted: An enterprise (Franchisor) grants the right to the existence founder (Franchisee) to sell its goods and services under its mark. Furthermore, the franchisor is typically obliged to advertise these products. Frequently, he also offers the franchisee support in setting up his business, for example in the form of advice and training as well as the provision of calculation aids and market tests. In some cases, he grants the franchisee territorial protection, i.e. no other franchisee is allowed to open a business in a certain environment.
In return, the franchisee is obliged to pay a fee to the franchisor. In most cases, the franchisee is also bound by guidelines that the franchisor has written down in a franchise handbook. These specifications relate, for example, to the purchase and presentation of goods and services, the type of business equipment (in particular store fittings), the use of advertising material, sales prices or participation in promotional events.
The advantage of franchise systems is in particular that the franchisee can rely on the franchisor’s reputation, know-how and experience. This enables a quick access to the market. The proven business concept also significantly reduces the entrepreneurial risk. It largely protects the founder of a new business from wrong decisions and useless investments. In addition, the franchisee does not have to pay the regularly high costs for advertising in the start-up phase, because he can profit immediately from the product’s popularity.
However, it must be taken into account that the specifications by the franchisor are sometimes very detailed and strict. In this case, the franchisee only has very limited entrepreneurial leeway.
Unfortunately, there are many black sheep in the franchise industry! They do not supply the products in sufficient quantity or not in time or they advertise them only in a small scale. In order to protect yourself from this, you should definitely get detailed information about the franchisor before signing a franchise contract!
An important source for this is the German Franchise Association, of which about half of all franchise providers are members. The federation provided strict guidelines in its admission order, which are to exclude dubious franchise providers. It is also advisable to inquire at the Chambers of Industry and Commerce, Chambers of Handicrafts and banks about your preferred franchise company and to contact other franchisees.
If you would like to join a franchise system, please explain the reason for your chosen option in your business plan. Typical criteria for this are:
- mature and proven product range,
- high brand awareness due to advertising activities of the franchisor,
- easy and fast market access by adopting a business model proven in practice,
- low entrepreneurial risk, in particular by entering into an existing supplier network,
- support from the franchisor in business management decisions, for example in cost and price calculation or the choice of location,
- maintaining relevant know-how through regular training.
If there are also negative aspects, you should briefly discuss how you want to deal with them. These can arise from the following circumstances, for example:
- Dependence on the business policy of the franchisor,
- the low influence on the franchisor’s business policy
- a long-term contractual commitment.