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You can reduce many problems and risks involved in setting up a new company by yourself if you buy a ready-made business concept. This system is called franchising and is practiced in many industries nowadays. The franchisees use the benefits of a completely developed sales and distribution system with a reliable business and marketing concept, nevertheless they are self-employed.

Advantages and disadvantages of franchising

Franchising offers you many advantages as a founder of a new business, above all with regard to the success of the business. However, various characteristics of franchising can be assessed differently depending on the personality of the founder.

Possible advantages:

  • You use the expertise and the experience of the franchisor.
  • You have a relatively low risk.
  • The franchisor allows you to use a reliable or already developed business concept.
  • The franchisor permits you to use a brand which ideally is already established.
  • You get significant support from the franchisor, e.g. for business administration tasks or marketing.
  • Franchisors offer territorial protection which reduces the competition within your operative area.
  • Under certain circumstances, you will be supported by the franchisor in financing your business start-up.

Possible disadvantages:

  • The direction of the business is defined almost exactly and can only be influenced to a limited extent by you as the founder of the business. Your entrepreneurial freedom is limited.
  • You can be restricted by fixed purchasing quantities and procurement sources.
  • The franchise fee can reduce your income considerably.
  • The mistakes made by other franchisees or the franchisor can jeopardize your image or even your economic survival.
  • The business risk is nonetheless completely yours.

Assess the mentioned characteristics of franchising exactly and check whether they are beneficial to you or not.

Please note that with a franchise you have to take regular costs into account. Alongside a specific start-up capital as for any business start-up, in most cases the franchisor will request you to pay an investment amount and an entry free. Subsequently ongoing franchise fees are incurred, e.g. for uniform advertising campaigns, further development of expertise, ongoing counselling and system performance. In most cases, they are one percent of your turnover and are paid on a monthly basis.

Release note

The German original version of this text was drafted in close cooperation with the relevant departments. The Wirtschaftsministerium released it on 23.09.2019. Only the German text is legally binding. The Federal State does not assume any liability for the translated texts.

In cases of doubt or if you have any questions or problems, please contact the relevant authorities directly.