What should the franchisee be careful about?
Franchise - the perfect solution for people who dream of their own business, but do not have a good idea of what to do. With a franchise agreement, both parties (the franchisor and the franchisee) remain separate companies that join forces to generate a common profit - one duplicates the idea of the other, while using its know-how. The second is benefiting as the number of distribution channels grows and is able to reach more customers. However, even the best business, proven by many, can turn out to be a huge flop. What are the pitfalls of a franchisee?
Lack of care from the franchisor
The greatest advantage for the franchisee is the ability to use a proven idea - to run his own business, he does not even need experience in a given industry. This is due to the fact that the base of reference for a starting entrepreneur is his partner, who should provide his knowledge, experience and materials. Therefore, the person of the franchisor is an extremely important point of reference on which the franchisee relies 100%.
When choosing his partner, the future entrepreneur should pay attention to what kind of help he can offer. The important issue is whether the franchisor runs its own points and if so, on what scale. The quality of assistance from a person who does not even run his own business in person can be questionable.
It should be remembered that when concluding a franchise agreement, the entrepreneur has the right to demand know-how from the franchisor - this is one of the main assumptions of this type of contract.
Lots of competition in the area
What the trader should pay attention to is also the issue of exclusivity in a certain territory. A good franchise agreement should contain a provision ensuring that no other distribution points of the franchise network will be created in a given area, which may compete with the already established business.
It is up to the franchisee to take care of this issue, because each franchisor is committed to the widest possible distribution network. It does not necessarily have to take into account single points. And it is hardly necessary to explain to anyone that the more competition, the more the profitability of the business decreases.
The franchisee must pay taxes
It should be remembered that an entrepreneur running his business on the basis of a franchise agreement is also an "ordinary" entrepreneur, obliged to pay all taxes. It depends on him how he will settle accounts with the tax office. In this regard, each distribution point can be different. It is worth enlisting the help of someone more experienced or seeking advice from a tax advisor.
The amount of profits the entrepreneur chooses may depend on the method of settling accounts with the tax office. What you should pay attention to when analyzing the method of paying the levy is the settlement of the franchise agreement - whether it is a one-time fee or a monthly fee, depending on the amount of turnover.
Poor with marketing
The entrepreneur has no influence on all aspects of the business conducted under the franchise agreement. Due to the fact that they are often international or domestic brands, it is important to analyze brand recognition on a national scale. Investing in a product that is little known and rather unpopular in a given region may result in a rapid collapse of the enterprise.
It should be remembered that with this type of contract, errors of the exchange hit the entire network. Lesser-known ideas have a chance to break through if their concept is really revolutionary. In this case, their development may be due to the so-called word of mouth marketing.
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Limitation of independence
Franchising is a poor solution for people who value independence and independence in running a business. With this type of contract, there is no question of extending or improving the franchisor's idea. However, it is worth stopping your aspirations, because statistics show that the most successful are networks in which adherence to strict rules is in the first place.
This type of contract is also quite frequent inspections - the headquarters must be sure that the specified level is maintained. Such control most often concerns the quality of services or goods. It seems legitimate, but on the other hand, it can turn out to be quite burdensome.
Missing target group
When planning a business, you should always define the target group. The place of business may determine who will visit a given place, i.e. who will be interested in a given product or service.
Two options can be considered - one, consisting in finding the right place for a given business, good especially for people who feel that a given type of activity will be what they will do. The second option is to act in reverse, i.e. analyzing what the residents of a given area may need and choosing the type of business depending on it.
As you can see, even using such an easy solution as a franchise does not guarantee success. When deciding to conclude this type of contract, remember that also in this case it will be necessary to put in your own effort and a lot of work. In addition, it is worth bearing in mind that even if an idea was successful in one place, it does not mean that it will catch on elsewhere.