Day: November 9, 2022

Launching a franchise network is an excellent way to grow your business by partnering with motivated entrepreneurs. In this article, you’ll find everything you need to know about franchising to get started on the right foot. How to Choose Between a Branch, a Subsidiary, and a Franchise? When expanding your business, it can be difficult to choose between a franchise, a branch, or a subsidiary. To help you better understand your options, we’ve detailed the differences between each model below. The Branch A branch is a separate entity from the parent company due to its geographic location. It has a certain degree of autonomy in its organizational structure, particularly in terms of leadership and management. However, it remains dependent on the parent company, as it is legally owned by it. Only the branch’s geographic location makes it independent. A company generally chooses to establish a branch when it wants to expand into a new catchment area. All of the branch’s activities are then conducted in the name of the parent company and not on its own behalf. In this sense, the inventory belongs to the parent company, and the revenue generated goes directly to it. Thus, the branch manager is an employee of the company and is therefore bound by an employment contract. The manager receives a fixed salary, with a possible performance-based bonus depending on results. The Subsidiary A subsidiary is a model that is somewhat closer to that of a franchise, although they remain distinct. In a subsidiary, the parent company holds at least 50 % of the equity. The manager of a subsidiary is therefore an employee of the company. The transfer of know-how in the case of a subsidiary is made to the manager but is not enshrined in a legal framework. Furthermore, the subsidiary’s manager may serve solely in an administrative or managerial role, while another employee of the organization may handle the technical aspects. Support for the manager is not mandatory in the case of a subsidiary, but it is in the brands’ best interest to provide such support to ensure the subsidiaries’ long-term viability. Regarding revenue and royalties in a subsidiary, the manager generates revenue that covers the subsidiary’s operating expenses, including his or her compensation (based on a fixed and a variable component). However, the subsidiary does not pay royalties: the manager—who is an employee—must be accountable for its results and management. It is the subsidiary’s majority shareholder who decides how the business’s profits are used. The Franchise A franchise is run by a franchisee, who is an independent business owner under contract with a franchisor. The franchisee is an entrepreneur who chooses to adopt the business model of a brand in which they have demonstrated an interest, rather than starting a business on their own. Unlike a branch, the franchisee is fundamentally responsible for their business and owns their inventory. A franchise agreement is drawn up between the franchisee and the franchisor, setting forth the terms of operation as well as the obligations of each party. It is therefore a partnership rather than a subordinate relationship, since both signatory parties are legally independent. As with a branch office, the franchisor supports and assists the franchisee during the startup phase and throughout the term of the contract. In return, the franchisee pays an initial fee and periodic royalties. Compensation is based on revenue, with royalties deducted. Why choose to switch to a franchise? Franchising is the most reliable business model. However, it comes with certain requirements. Franchising my business concept offers numerous advantages for both the franchisee and the franchisor. Let’s review the main benefits for the franchisor: 1- Shared Expenses In exchange for a turnkey concept, the franchisee is responsible for setting up the retail location. By choosing franchising to develop their brand, the franchisor shares the overall financial burden of expanding their network. In return, they must cover costs such as recruitment, training, marketing, and day-to-day support for franchisees. 2- Rapid market penetration Franchising accelerates the development of a business concept, which can quickly become a competitive advantage—particularly in terms of visibility, brand awareness, and customer loyalty. 3- Greater visibility Each retail location showcases the brand’s distinctive elements and adopts its branding, which helps expand the brand’s reach and visibility.  4- Employees More Committed to Commercial Success Working with legally independent franchisees means they are naturally motivated by their own success, which ultimately benefits the brand’s success. The growth of each retail location benefits the network as a whole. 5- Greater financial strength The volume of orders from all the network’s retail locations becomes a decisive factor in the negotiation process. The larger the network’s central purchasing power, the more the network can benefit from attractive prices and high-quality partnerships with its suppliers. How do you go about creating a franchise network? Creating a franchise offers many advantages when developing your business concept, particularly in financial terms. However, there are a few steps you should follow to successfully build a franchise network. Validate the profitability of your concept Create a business plan for the franchise Draft the “bible”—the know-how manual for franchisees (the “manop”) Draft a pre-contractual information document (DIP) Draft a model franchise agreement Implement a communication plan to promote your network Major brands that have chosen franchising Franchising offers many advantages, which is why major corporations today have chosen it as a means of expansion—including some of our clients: POKAWA: with their famous poke bowls made[…]