Idea for your own business - franchising and agency activity

Are you thinking about starting your own business and looking for a business idea? There is no single simple and effective recipe for how to start an adventure with running your own business. For some, it may be a continuation of their experience of working as an employee. Others will choose the company to pursue their passion. Still others, when observing the market, will notice that it lacks a specific product/service that could be found by potential customers.

Your business idea doesn't have to be unique at all - another grocery store, if it has lower prices, better service and a better range of products, has the same chances as a start-up company from the area of modern technologies.

Looking for a business idea you should observe the environment and, what is important, talk to more experienced people. A good opportunity may be to participate in meetings, seminars and fairs in the fields that interest you.

If you already have a business idea, try to verify it. You may find, for example, that the products or services you want to sell already exist on the market in sufficient quantities. Another important issue is capital - even the best and most successful business idea requires appropriate investments.

Finding a good business idea, ensuring its development and promotion is a difficult task, particularly for the new entrepreneur.  One of the solutions which may make your chance is franchising. 

Ready-made business models - franchise and agency agreement

If you have an entrepreneurial spirit within you, but do not have a capital or an idea, you can use ready-made business models. There are business models on the market that will not require you to spend a lot of money, experience in business and travel a long way, which is building your own brand. Examples include franchising and agency activity.

Franchising

In short, franchising is an activity under the name of another company/brand and in accordance with its rules. More formally, the cooperation between independent entrepreneurs - the franchisor and franchisee (i.e. your company).  In this model, the franchisor with a well-known brand and business experience, grants the right to use the name, logo, concept of business, patents, or the support of promotion. In addition he shall assist with the choice of location for conducting the business, the purchase of equipment, appropriate stocking and in solving problems in the course of running business.  He also provides supply and even financial and administrative service.  This is known as the franchise package. 

Please note that by deciding to franchise, you are an independent entrepreneur, you are self-employed and responsible for staff issues, financial statement with tax office, the ZUS and you pay the costs related to the business (equipment,).  The turnover and profit will depend on your activity. 

The franchise systems are most common in catering, retail trade and services.

Costs of franchise

Possibility to work under the umbrella of a different brand will, of course, mean expenditures.  Entry cost (necessary investment) ranges from several thousand PLN up to several million.  The franchisor may set a minimum threshold of your investment, allowing you to act in his franchise system. 

Costs will also include: initial fee for the right to use the franchise and ongoing charges (typically a few percent of the value of sales) and contributions to the advertising fund (the franchisor is responsible for the promotion of the whole franchising chain).  In some systems there is no initial fee.  The way of calculating the fixed fee can vary depending on the franchisor (it can be determined in advance exact amount)

Benefits of franchise

Franchise model of cooperation is potentially of great benefit.  First of all, it gives opportunity to use brand, knowledge and experience, distribution channels, sales model, cooperation with suppliers, the system of promotion of the franchisee, who has gained market experience  for many years.  In addition, large franchisors are able to negotiate better conditions  providers than if you need to negotiate by yourself. 

Please note that building and maintenance of the brand by yourself and the acquisition of entrepreneurial experience is a long-term process, with significant costs.  If you choose to franchise, you will not have to bear these costs.

Obligations

Prior to the decision to run a business in the franchise model, you should know that it has many advantages but also obligations.  A large number of issues related inter alia to the concept of a company will depend on your franchisor.  In addition to the regular payment for the franchise, you will have to provide the franchisor, inter alia, with financial statements.  The franchisor will expect certain range of products, e.g. in your shop and certain look of your facility and the method of sales.   

A further obligation will be to take part in promotion laid down by the franchisor.. 

In the course of cooperation, you will have access to a wide range of practical information, which is not patented, but is the result of a longstanding experience and presence on the market.  It is know-how that you must keep secret. 

Agreement

A franchise agreement is so-called unnamed agreement.  This means that its form and components are not strictly regulated by law.  It should, however, contain the fundamental elements such as:  the subject matter of the agreement, the parties to the agreement, the duration for which the agreement is concluded, the franchisor and franchisee's obligations, the conditions under which an individual franchisee can sell or transfer legal title to franchise operations, exchange of information/confidentiality, the review of the activities of the undertaking of the franchisee, method of dispute settlement and competent bodies.  Important elements are the provisions governing the early termination of the contract. 

It is also important that the franchisor has ensured that, where you work, there will be no other competitive point of the same chain. 

Your franchisor usually will have a template for the signature, it is important to check whether you are able to meet (often stringent) conditions and whether the costs of cooperation will be to viable for you. 

The basic elements of a franchise agreement were listed in the European Code of Ethics for Franchising.

Settlements

In addition to charges under a franchise agreement you will settle taxes, social security and other duties so as in any other business.  You are still an independent entrepreneur, you have to choose the form of taxation and settlement. 

Doubts concerning settlements involve initial payment to the franchisor.  In accordance with the tax interpretations, a one-off initial fee is expenditure on the acquisition of a licence and it is an intangible asset and legal entity subject to depreciation.  For further information, see the guide Depreciation of fixed assets in the company. 

The periodic payment may be included in the costs of activity.

Setting prices in franchise

Can the franchisor impose on his trade partners, fixed and minimum price of goods?  No.  Acting in the franchise you are still an independent entrepreneur who on his own and in accordance with the rules of the market sets prices.  The franchisee may not impose a fixed minimum prices throughout the network: to do so would be a breach of the competition rules.   

In accordance with the law, on the other hand, is recommending certain prices, provided that they are not binding for the franchisee.  It is permitted to fix also maximum rates, provided that the trader can offer consumers a less expensive products or services.

Where to look for good offers of franchise? 

The internet is obviously the most useful source of franchise offers. You portals or professional magazines, where offers are published and where you can find a list of the franchise systems in Poland.  On the Internet you can also find information on the franchise fairs - you can speak there face to face to a representative of a franchisor.  As in the case of other industries, seek advice from a trade organisation.  In the area of franchising this is Polish Franchise Organization.

Try to cooperate with experienced and known companies that before starting cooperation will be able to give you a reliable calculation of your future turnover, information on the network condition, sales model, a sales promotion strategy.  Don't be fooled by promises of an easy profit.  Franchising will require work from you, as any other business.

Agency agreement - what is it about?

What is an agency agreement about? When concluding an agency agreement, the entity accepting the order (agent) undertakes, within the scope of his/her business activity, to act as a permanent intermediary, for remuneration, when concluding contracts with clients on behalf of the entity issuing the order or to conclude them on behalf of the entity (if the entity has a power of attorney). In practice, this means that you, as an entrepreneur, sell goods or services on behalf of your principal, for example, for a fee.

Agency cooperation is most common in services such as: insurance, financial services, postal services, tourist services, retail sale, or hotel industry.

Benefits of the agency agreement

When you do business as an agent, you will not sell your products/services but ordering party's products. So you will not have to bear the costs connected with e.g. purchasing the goods. If you have a land based business, your client will often provide you with suitable premises and equipment to sell goods or provide services. In addition, it provides you with the right training to help you run your business on a daily basis.

Your remuneration

As an agent you will receive a commission on goods/services sold (although you should be aware that the remuneration model may vary depending on the client - for example there may be a fixed amount plus commissions).

Costs

As an agent you will not have to worry about securing funds for the purchase of goods or store equipment (remember, however, that you will be responsible for e.g. theft of goods in your store). Your costs will be, for example, fees for utilities, accounting services, social security contributions or employee costs. Remember, however, that as an agent you will be economically dependent on the customer and you will have little influence on, for example, what goods you sell.

Agency and franchise

The agency is one thing, and the franchise is another. Before you decide on any of these forms of cooperation, it is a good idea to find out what the differences are between them.

• As an agent, you act on behalf of your client. In franchising you act in your own name and on your own account.
• If you cooperate on the basis of an agency agreement, your profit will be the commission on sales of the products belonging to the ordering party. In the case of a franchise, the profits from the sale go to your pocket, but it is your duty to pay a fixed fee (usually a specified percentage of sales) to the franchiser.
• The agency agreement is clearly defined in the law (Civil Code), whereas franchise belongs to the so-called unnamed contracts, which do not have strict regulations (although the standards of the franchise agreement are established in many years of practice).