How To Find The Right Franchise in 2021
Franchising is actively developing and spreading. As of January 2021, there are more than 250 franchisors operating in Ukraine. But are they all conscientious? We went all the way to understand the truth and write an article for entrepreneurs who are just starting their franchise path.
What is a franchise, and what are its types?
Franchising involves the transfer of the right to conduct a certain branch of business from the owner (franchisor) to a new “owner” (buyer – franchisee). At the same time, a ready-made business model is given.
There are three types of franchising:
- Business Format Franchise. The business format franchise is the most popular type of franchise system. By many franchisors it’s it can be also called a ‘typical’ franchise. In return for a royalty fee, franchisees get the right to use the brand name and receive all the franchise company operation standards. There are usually lots of rules that franchisees need to follow, covering everything from marketing to staff uniforms to opening hours.
- Management Franchise. This kind of franchise opportunity would see you manage a team of people that carry out your work, while you look after less customer-facing tasks like marketing, job allocation, and business strategy. It can be a virtually passive investment if you choose, or you can just choose to handle the behind-the-scenes tasks while remaining fully involved.
- Product Distribution Franchise. This is a much less common franchise system, in which a franchisor will provide products for the franchisee to sell on.
So how to choose a good franchise?
Finance
Step 1: Objective assessment of your opportunities in terms of investment
You need to think over and calculate in advance how much of your funds you ready to invest in the business? Will you need additional investments? If so, how much? After you have precisely determined the amount that you will invest in the franchise, you can start choosing it.
Step 2: find interesting franchises and analyse them.
If you have a budget, and you have already found the option you like, it’s time to start a detailed study of the franchise offer. What kind of company and when the franchise was launched, how many points do they have open by now? Pay special attention to the geography of the company. This means that in more remote regions these establishments may be unclaimed and unprofitable. There is the standard of living, population, income, habits, and many other factors that play a role.
Step 3: Financial analysis of the selected franchise
– Investment budget (how much you need to invest to start a business)
The more details and nuances will be taken into account in this investment business plan, the better, the more reliable the company is, and the more responsibly it approaches its business.
Step 4: ROI (return on investment)
This data must be provided by the side of the business owner. Moreover, the numbers should not be vague (“Invest so much, return in a year”), but specific. It is highly desirable that there is a clear financial plan on when money will be got back: are there seasonal downturns and growth in production/sales, when this happens, how does this all affect the final payback of the business.
The normal ROI period for full-fledged restaurants and coffee shops is about 1-2.5 years, says, Kyryll Ushakov, founder of Proriat Hospitality Partners.
Study the concept.
A unique selling proposition. It is necessary to determine what the emphasis is on in the business, what is its unique selling proposition (USP), what its advantages in relation to competitors. This is the data that will attract future customers.
The most valuable thing about the franchise is its ability to change and improve. A good franchise takes on tasks for which the owner usually does not have enough time and money since he is busy with operational management. The franchise updates the menu, develops new products, redesigns, and improves business processes. Ask what has changed in the company over the past 3-5 years, and you will understand what approach your franchisor is taking.
How to choose the right premise for the franchise project?
In order to find the right location and negotiate favorable lease terms, you will need real estate experts to help you with it. Proriat HoReCa Real Estate is exclusively focusing on hospitality estates helping restaurateurs to get the best locations.
Support
Now you need to find out who and how will support you throughout all stages of opening, development, marketing, and sales. If you receive a clear answer, then it is a good sign to trust the brand.
Geography of the franchise
If the geography of the business is wide, specify where there are points, what are the sales results of at least the nearest branches. Next, you can compare the indicators – which are indicated in the business plan, and which were named as an answer to the sales question.
Legal part
Step 1: Contract
Request a commercial concession agreement. Ideally, it is best to consider it with an experienced lawyer in order to understand it thoroughly.
What else to look for when choosing a franchise
- Look for a franchise whose goals and concepts resonate with your interests.
- Be sure to pay attention to the suppliers. It often happens that the business owner himself supplies the goods.
Now let’s summarize. The more detailed, concretely and clearly the business plan is written with all the numbers and statistics, the more clearly the concept is formulated (difference from competitors, the goals of development and market entry), the more open the legal state of the business, the better. The more reliable the franchisor is, which means that you can have a business relationship with him.
We hope the article “How to find the right franchise in 2021” will help you to make the best decision. If you have any more questions, feel free to contact us.
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