What Do You Need to Open a Franchise?

If you’ve already read the advantages and disadvantages to open a franchise in USA and know of some success stories that have inspired you, then you may be clear on wanting to start your own business project following this business model.

However, you may still need to answer some questions, such as the ones below.

What do I need to open a franchise?

Franchisor’s Requirements.

Whether you are the franchisor or the franchisee, it is important to know each party’s role in this business model.

If you have a company and want to create a franchise with it, the first thing you need to do is protect your brand. The aim of this is to prevent other people from using the idea, the image of the brand, or the name of it.

Therefore, the first step when you open a franchise should be to register the brand, the logo, as well as any other element related to the image of the company and its activity.

In the contract to be signed with the franchisee, some details will have to be made clear: what are the rights and obligations of the two parties, the assignment of rights and the duration of the contract, conditions for renewal, facts that could lead to possible sanctions, relationship with suppliers and other parties, as well as any other conditions that are desired to be detailed.

The franchisor must provide the following information to the franchisee: company details (such as name, business name, or address), the entity’s accreditation in the registration of ownership and use of the trademark, the description of the activity carried out, and everything related to confidentiality.

The costs of the franchise will also have to be made very clear: the contract must detail the existence or not of the initial payment, the payment of royalties, as well as any other expenses.

Franchise costs that will have to be borne by the franchisee

The franchisee will first have to think about the constitution form that might be of most interest to them: For example, whether you want to be a private individual (self-employed) or a legal entity. Of course, it must be kept in mind that some companies will demand certain formulas.

Once the required formula to be followed is known, it’s time to calculate and consider the expenses to be taken into account:

  • Fee per franchisee: may or may not exist. Keep in mind that this fee could be quite high, so you may want to reconsider switching franchises with one that has a lower fee.
  • Royalty: Using a brand that has been on the market for some time has a number of advantages (for example, it will have a consolidated track record and a good public reception). However, this comes at a cost known as royalties (usually between 3-5% of the turnover per month. It is usually required by all franchises, although this will not always be the case.
  • Machinery costs: these expenses are not always taken into account, and it could be a mistake. The costs of machinery are usually borne by the franchisee, so they will have to be included in the company’s plan.

Checking data in the contract

According to Royal Decree 2021/2010, the franchisor must provide the franchisee with certain facilities that guarantee the proper functioning of the entity. You will also need to provide support as well as technical and commercial assistance for the duration of the contract.

The following information should be clear in the contract:

  • The legal relationship to be established with it.
  • The texts and clauses that form part of the contract should be clear.
  • Another key feature of the contract is the company’s own policy. Here we can find more or less information, depending on how the entity does things.
  • In addition to the transfer of the trademark in the area in question, manufacturing licenses or technology transfer, the contract must include relevant information such as prices with suppliers, among other features.

It is very important that you know what you are signing before you make this type of commitment. If you have a lot of doubts, the best thing you can do is take the contract to an advisor to review it before signing.

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