Spanish Real Estate forum - Spanish property - Estate agentsSpanish Real Estate forum - Spanish property - Estate agents

barsinspain.com · 06-11-2007, 01:53 PM

Many people move to Spain with the dream of running their own business but are wary about starting from scratch or buying an unknown entity. There are many risks associated with buying a business in Spain that are far from obvious when you have lived in the more regulated environment of the UK.

For example, many small businesses in Spain do not keep proper accounts so it is very difficult to assess the viability or value of a business as far as turnover and profitability. Additionally, there are many different types of opening licenses, rental and lease contracts, invariably with different laws for each different town. So starting your own business in Spain can be a potential minefield

For those facing this type of dilemma the ideal solution may be Franchisingâ€¦., but what is Franchising really about and how can you be sure it's the right business option for you?

Q. A lot of friends have been advising me to buy a franchise as opposed to my own businessâ€¦. But what exactly is a franchise?

Good question, let's go back to basics. What is a franchise? To put it simply, Franchising is the granting of a license by a business owner (the Franchisor) to another person or persons (the Franchisee) allowing them to trade under the business name and logo of the Franchisor and to have access to and use of the entire business package including products, materials, training and support.

So in the case of a famous franchise chain such as Burger King or Pizza Hut, becoming a franchisee would allow you to open a branch of Burger King using the name, colours and logo's and to trade under the reputation associated with that name. As part of the franchise package the franchisee should receive some degree of training and access to the company â€˜toolsâ€™ and â€˜know-howâ€™. In other words, all the proven systems and processes created and used by the company. In the case of a restaurant chain franchise, this would most likely include marketing and promotion materials, food production equipment and those all important burger ingredients!

So, why might you buy a franchise of a company such as Burger King, instead of buying your own burger outlet and working solely for yourself?

Firstly, you don't have to come up with new and original business ideas and sell them to your bank manager! Someone else has already tested the market and established a successful brand name with a good reputation. Becoming a franchisee means that instead of starting your own business from scratch you are

able to 'buy into' an established company and begin trading from day one with the added advantage of that companyâ€™s reputation, market presence, â€˜toolsâ€™ and â€˜know-howâ€™.
Secondly, while opening your own burger outlet might be a great idea, do you have enough in your budget to finance the buying of the business, the premises, the production equipment, products, marketing materials, graphics, logos etc â€¦ and do you have experience and knowledge in this business sector?

Good franchisors will be able to offer you access to successful advertising materials and comprehensive training in all the necessary areas. Most franchisors are happy to offer franchises to those with little or no experience as long as they meet the required selection criteria and complete the training programme. The advantage here is that instead of having to learn by trial and error, you gain from the knowledge and experience of a larger and well established organization and thereby avoid potentially costly mistakes!

Thirdly, this larger organization should always be there to advise and help you. The benefit of this is that while you are essentially â€˜your own bossâ€™, you'll be able to refer to your franchisor when you need advice, information or even help. Of course not all personalities will suit being in this type of business arrangement so before even thinking about buying a franchise, you need to think about whether you are the type of person who would be happy running their own business under someone else's umbrella, or whether in the long run you might prefer to simply go it alone without the support cushion!

Sounds interesting! But what are the cost implications of buying a Franchise and how do you go about finding the right Franchise to buy in Spain?

Well financially speaking, franchising can make a lot of sense. With the cost of the average small business in Spain costing around â‚¬100,000, without added start up costs, understandably many people don't have the finances to buy as big a business as they would like, but they do have enough to buy into a franchised business and of course this way you are investing in an established company, with a good name and many added benefits.

The way it usually works is that the franchisee will pay an initial fee to the franchisor and will then pay an ongoing royalty at an agreed period and based on an agreed percentage of the expected annual turnover. In return the franchisor is obligated to support the franchisee. To give you an idea of cost here in Spain, a Bars in Spain A-Plus Franchise would cost around â‚¬45,000 plus I.V.A., and includes extensive business, sales and real estate training, a substantial property portfolio, ongoing sales leads, website and marketing materials. Essentially therefore with a franchise you should be able to cut out many of the start up costs you would incur when buying your own business plus you also benefit from the corporate and co-operative advertising and marketing campaigns of a larger organisation.

What else can I do to find out more about the different types of Franchising and all the pros and cons?

We would advise anyone thinking about buying a franchise to really do their homework. As well as several UK and European trade publications and franchise exhibitions, there are several excellent sites on the internet which not only advertise franchises for sale, but also give you information and advice about what to look for and what questions to ask when contacting franchises.

If you are considering purchasing a franchise in Spain it's worth checking out the European Franchising Network website which gives excellent detailed information in English about the different franchising rules and regulations in each country.

If you are thinking about doing something youâ€™ve never done before, itâ€™s very important to find out as much as you can about the industry you will be entering and any changes that may affect that industry over the coming years.

Once you've highlighted some 'potential franchisesâ€™, it's important to devote some time to really getting to know the company. A good franchisor will invite you to the companyâ€™s head office, introduce you to company employees and other franchisees and of course answer all your questions! You are entitled to ask to see business plans and forecasts, to find out what sort of training you will be given and what materials you will be provided with after training.

Ask to see a copy of the franchise agreement and ensure you know exactly what you are expected to do and pay each month and what you will receive in return.

You should also research any potential franchisors credentials. Make sure they are a legally registered company and research the geographical area where you are planning to set your franchise up, (A good franchisor will supply you with geographical data). You need to find out what the population demographics of the area are, what the business potential for the area might be, how many other competitors are operating in your area and how well established they are as well as taking other factors into account such as social, cultural and political issues that may have a potential effect on the proposed franchise.

Overall you must have a clear idea of what you are paying for, and how your franchise will operate. You have obligations to your franchisor, but they also have obligations to you, and before signing anything you must be clear as to what these obligations are.

At the end of the day franchises can offer a much lower risk factor to a potential business owner, along with a lower initial investment and potentially faster returns.

One thing is for sureâ€¦ as with starting any business, you tend to get out what you put in and just like any other business a franchise requires dedication, commitment and hard work â€¦ but the rewards can be every bit as rewarding as starting a business from scratch â€¦ once your business starts to grow, running a franchise can be a hugely exciting and rewarding option and a sound financial investment for the future!