Franchising – Lower Risk, But Not Responsibility

Franchising is, in a narrower definition, a way of running your own business under the name of a well-known brand. Many consider it the simplest way to start a business because there is already knowledge and established, proven successful business models that are transferred and applied. This is further supported by the fact that the risk of failure in starting a franchise business is significantly lower than in entrepreneurship, which is why it enjoys such popularity. This form of business is particularly interesting to students and young people who have an entrepreneurial streak and want to start their own business but lack know-how or do not want to take too much risk.

How does franchising work?

In franchising, two parties are involved: the franchisee who uses the name, know-how, experience, knowledge, and methods developed by the franchisor who owns the trademark and the name of the franchise.

Although it is one of the least risky forms of business, it still requires a great deal of responsibility. When you buy a franchise, you operate at your own risk and with your own resources, but under someone else’s name, that is, brand. The well-known name under which you operate is only a guarantee for greater recognition and interest from people in your products, which ultimately results in a lower chance of failure in business.

This, although it is a faster and simpler path to business success, does not necessarily represent a solution to all your problems. If you do not take this form of business seriously enough, you could quickly find yourself in a very unfavorable situation.

Can we equate the franchisee with an entrepreneur?

Franchising does not only imply the sale of a name but the entire business model of an already established company. It is true that the franchisee will receive all the necessary training, experience, and knowledge about the company’s operations before they even start working, but they can also expect to take care of continuous procurement and sales, employee training, accounting and finance, and even marketing.

Before starting operations, there are some basic investments such as the costs of opening and equipping the sales space and procuring goods. Thus, the franchisee does everything that a micro-entrepreneur does and operates in their own name for their own account and possesses their own economic entity, but in this case, you have concrete guidelines. Also, their interest and profit come from business operations.

But this knowledge is not free. Upon taking over the franchise, an entry fee is paid, and during the contract period, a regular fee is paid, which is most often expressed as a percentage of the achieved turnover, but it can also be a specific monetary amount and a marketing fee. Sometimes, other fees arise depending on the form of business or the agreement between the franchisee and the franchisor.

Where can we find information and education about franchising?

When the term franchise is mentioned, for most, the first association is the fast-food restaurant McDonald’s. The recently held project ‘Cinema at EFZG’ organized by the Economic Clinic revealed to us how McDonald’s was created and how their business model developed through the screening of the film ‘The Founder’.

‘Cinema at EFZG’ is a project designed to expand students’ knowledge of economic topics and concepts through film screenings. The main goal is to increase student and public interest in current events in the environment and raise awareness of the changes brought about by modern times. Before each screening, a panel discussion is organized on the topic addressed by the film. This time, the discussion topic was franchising, where participants had the opportunity to learn what a franchise is, how the entire franchising model works, and hear firsthand experiences of running a franchise from experts in the field of franchising.

In addition to this project, various education, books, consulting, and many other projects and lectures are more accessible to us today than ever before, where we can educate ourselves about franchising.

Although franchising is a form of business that implies much lower risk compared to traditional entrepreneurship, it still requires continuous monitoring of operations, responsibility, and business activities that we also find in entrepreneurship. Before entering the world of franchising, it is necessary to be well-informed about all aspects of the business and the obligations of all parties involved, which is very easy to do today through numerous consultations, projects, and education. This is an ideal alternative for people who do not like to take risks and do not have a concrete entrepreneurial idea but have the desire to open and run their own business.

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