Starting a franchise network is an excellent choice to develop your concept by partnering with motivated entrepreneurs. In this article, discover everything you need to know about franchising to get started under the best possible conditions.
Choosing between a branch, subsidiary or franchise?
When it comes to growing your business, choosing between a franchise, a branch, or a subsidiary can be challenging. To give you a clearer understanding, we’ve outlined the differences between each model below.
The branch
The branch is a separate entity from the parent company by its geographical location. It has a certain degree of autonomy in terms of management and organization. However, it remains dependent on the parent company, as it is legally owned by it. Only its geographical location makes the branch independent. A company generally chooses to create a branch when it wants to expand into a new catchment area.
All the activities of the branch are carried out in the name of the head office and not on its own behalf. In this sense, the stock belongs to the brand, and the revenue generated goes directly back to it. Thus, the branch manager is an employee of the company, bound by an employment contract. Their salary is fixed, with a possible performance-based bonus depending on results.
The subsidiary
The subsidiary is a model that is somewhat closer to franchising, although the two remain different. In a subsidiary, at least 50% of the capital is owned by the parent company. The manager of a subsidiary is therefore an employee of the structure. The transfer of know-how in the case of a subsidiary is carried out to the manager but is not framed by a legal agreement.
The manager of the subsidiary may also have only a managerial or administrative role, while another member 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 brand’s best interest to provide assistance in order to ensure its sustainability.
Regarding revenue and royalties in a subsidiary, the manager generates turnover that covers operating costs, including their remuneration (based on a fixed and a variable component). However, the subsidiary does not pay royalties: the manager-employee must report on their results and management. It is the majority shareholder of the subsidiary who decides how the company’s profits will be used.
The franchise
The franchise is managed by a franchisee who is an independent business owner under contract with a franchisor. This entrepreneur chooses to join the concept of a brand that has proven its value rather than creating a business alone. Unlike a branch, the franchisee is fully responsible for their activity and owns their stock.
A franchise agreement is established between the franchisee and the franchisor, outlining the terms of operation as well as the obligations of each party. It is therefore a collaboration rather than a relationship of subordination, since both signatories are legally independent.
As in the case of a branch, the franchisor supports and assists the franchisee at the start and throughout the duration of the contract. In return, the franchisee pays an entry fee and periodic royalties. The remuneration is based on turnover, with royalties deducted.
Why switch to a franchise?
Franchising is the most reliable business model. In return, it comes with certain requirements. Franchising my concept offers many advantages, both for the franchisee and the franchisor. Let’s review the main benefits for the franchisor:
Shared expenses
In exchange for a turnkey concept, the franchisee covers the costs of creating the point of sale. By choosing franchising to develop its brand, the franchisor shares the overall financial effort required to expand the network. In return, the franchisor must bear certain expenses such as recruitment, training, communication, and the daily support of franchisees.
Rapid market expansion
Franchising makes it possible to accelerate the development of your concept, which can quickly become a competitive advantage — particularly in terms of visibility, brand awareness, and customer loyalty.
Greater visibility
Each point of sale displays the brand’s distinctive features and adopts its branding, which helps to strengthen and extend the brand’s overall visibility.
Partners more invested in commercial success
Working with legally independent franchisees means they are naturally motivated by their own success, which ultimately benefits the brand as a whole. The growth of each point of sale contributes positively to the overall network.
Greater financial strength
The volume of orders from all the network’s points of sale becomes a decisive factor in the negotiation process. The larger the network’s purchasing center, the more it can benefit from attractive prices and high-quality partnerships with its suppliers.
How do you set up a franchise network?
Creating a franchise offers many advantages when developing your concept, particularly from a financial standpoint. However, it is important to follow a few key steps to successfully build a franchised network.
- Validate the profitability of your concept
- Create a business plan for the franchise
- Write the bible — the franchisee know-how manual (the “manop”)
- Draft a pre-contractual information document (PID)
- Draft a franchise agreement template
- Implement a communication plan to promote your network
Major brands that have chosen franchising
Franchising offers many advantages, which is why today major groups have chosen it as their development model — including some of our clients:
- POKAWA: with their famous poke bowls prepared right in front of customers, the network includes 75 restaurants in France and abroad, 43 of which are franchises.
- Mr. Bricolage: the local DIY store dedicated to both individuals and professionals, has a network of 925 branded or affiliated stores, including 72 abroad, across 10 different countries.
- Burger King: this major fast-food brand has 24,000 restaurants worldwide, including 250 locations in France.
Today, companies like Cerca help business owners who want to launch a franchise by supporting them in both their internal and external processes. Relying on experienced professionals with proven expertise is the key to successfully building your franchise network!
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