You have probably heard of the term franchise. A franchise is a legal business agreement under which an entrepreneur obtains the right to use an existing (often internationally known) business concept and trademark under specified conditions in the franchise agreement. In return, they pay periodic usage fees (royalties), a one-time initial fee, and/or advertising fees. The franchisee also has the right to receive necessary training, information, and guidance to operate properly within this business concept.
I believe that franchising is a good opportunity for a beginner entrepreneur to test themselves. Why?
You don’t have to invent everything from scratch.
A franchise minimizes beginner mistakes and reduces the risk of failure.
The franchisee’s control over business operations is minimal because the system is already developed and functional.
Franchising provides access to many contacts, including suppliers.
By purchasing a franchise, the franchisee joins a controlled advertising system or so-called joint advertising.
It’s like you’re not starting from zero; your product is already recognized.
It may sound like a miracle now—no, it’s not! If you don’t control revenues and expenses (as in any business), owning a well-known franchise name alone does not guarantee profit! But it’s like running your own business based on a proven, reliable business model—possibly simpler and more secure in some ways.
Within this proven business model, you can control your product range, prices, employees, wages, and other costs—thus influencing your profit.
What are the advantages and disadvantages of franchising?
Advantages:
- Since the brand is already recognized, it provides a significant competitive advantage.
- You don’t need to invent anything—the production process for goods or services along with all components is written into the contract.
- An established business model and plan significantly reduce risks.
- The franchisee can utilize the franchisor’s knowledge, skills, and experience based on long-term practical success.
- Training and support from the franchisor help reduce failure risk and prevent management mistakes.
- The franchisor may also offer financial support or act as a guarantor.
- The joint advertising system benefits all franchisees across locations.
- Access to a global customer base.
- Access to supplier networks.
- Market analysis information can often be obtained from the franchisor.
Disadvantages:
- Control by the franchisor means less independence for the franchisee.
- Reporting obligations are required regularly.
- Creativity is limited because everything is specified in the contract.
- Price policy must be coordinated with the franchisor.
- Franchise, licensing, and advertising fees apply regularly.
- Initial investment can be very high.
- The list of suppliers is strictly defined in advance.
- Non-compliance with contract terms can lead to losing the business altogether.
- Risks associated with dependence on the franchisor.
If you already have an idea of what awaits you (fees and strict control but valuable experience), it’s time to choose a franchise.
Where to start?
First, select an industry that genuinely interests you! Be sure to research whether there is strong competition in that field and if there are enough customers.
Calculate how much you are able to invest without risking or taking out loans.
Begin selecting franchises—where? You can find 60 offers at [https://www.franchising.ee](https://www.franchising.ee) or see more options here: [https://www.franchiseeurope.com/european-franchises/estonia/64/](https://www.franchiseeurope.com/european-franchises/estonia/64/).
When choosing a franchise, pay attention to:
- The background of the franchisor;
- Initial start-up costs;
- Ongoing franchise fees and what they include;
- The expected payback period;
- Estimated financial results (ROI).
If you select a specific franchise, check whether it includes:
- An already established business concept that has been on the market for a long time;
- A well-known brand registered in Estonia;
- Training programs;
- Daily management manuals;
- Marketing support and other assistance (for example, during store setup);
- Proven experience exchange with other franchisees.
Additionally, consider:
WHAT ARE THE REQUIREMENTS FOR A FRANCHISEE?
How important is adherence to the concept? How much decision-making authority do you have?
How does reporting work with the franchisor? What key performance indicators are monitored?
What are this franchise’s competitive advantages?
You can request introductory materials such as brochures, sample contracts, or questionnaires for getting acquainted with potential franchisees.
Also consider:
How can contracts end? What happens afterward?
What fines or sanctions may apply?
In summary: I believe that franchising is an excellent way for an aspiring entrepreneur to test themselves while gaining valuable experience from industry professionals who have already succeeded.
Good luck with your choice and testing! If needed, we are always ready to assist with financial, business, or tax advice.
