The European Franchise Federation believes that franchising is a system for marketing products, services or technologies. It is based on the close and continuous cooperation between the franchiser and his single franchisee, which are legally and financially separated, and relies on the rights and additional obligations granted to him by the franchisor, so as to operate according to the franchisor's philosophy. This paper holds that franchising is a business form in which the franchisee entrusts its intangible assets such as trademarks, trade names, products, patents, technical secrets, formulas and management models to the franchisee in the form of franchise contracts, engages in business activities according to the franchisee's unified business model, and collects fees from the franchisee.
Franchise is:
This is a product marketing management strategy.
Accelerate the circulation and distribution of products.
Operators buy franchises and set up exclusive stores.
Each store has a unified image, including pavement design, products and prices.
Every specialty store is a small enterprise, but it has the image and business model of a big company.
Let customers have more confidence in products or services.
In China, franchising, also known as franchising, usually has two forms:
First, with the authorization of government agencies, specific enterprises are allowed to use public property, or enjoy the management right of vegetable franchise business in a certain area, such as allowing airlines to use state-owned airport facilities to operate passenger and cargo business on routes designated by the government;
Second, an enterprise grants its own trademark, trade name, patent right, proprietary technology and other exclusive use rights to another enterprise. Within a certain period of time, engage in business activities under the unified business model of the franchisor in accordance with the provisions of the contract, and pay the corresponding fees to the franchisor. This paper discusses the latter form of franchising.
[Edit this paragraph] Accounting confirmation and measurement of franchise rights
The confirmation of franchise mainly solves the problems of what elements and when to confirm. According to the international franchise model, the franchisee gets income from its independent business, and the franchisee gets income according to the services it provides for the franchisee.
The joining service fee includes joining fee, renewal fee and advertising fee. Franchise fee is the value compensation given by the franchisor to the franchisee for providing training, receiving services and franchising intangible assets. The franchise fee is usually drawn according to the proportion of 5%- 10% of the investment in franchise business. Follow-up expenses include management service fee and price increase of sales products: management service fee is the fee charged by the franchisee to maintain various follow-up services provided to the franchisee, which is usually determined according to a certain proportion of the franchisee's gross income; The price increase of products sold refers to the price increase charged by the franchisor or the price discount given by the supplier when it is stipulated in the franchise contract that the franchisee needs to buy products from the franchisor or the supplier designated by the franchisor. Advertising fund is the fee charged by franchisees for planning product advertising or publicity. Usually in the franchise system, advertising and promotion are the responsibility of the headquarters, and franchisees have to pay a fee for it.
[Edit this paragraph] Accounting treatment of franchise rights
The essence of franchising is the paid transfer of intangible assets, which mainly takes the following forms in practice:
L, general franchising, that is, the head office will grant franchise rights to franchisees, and franchisees will use these franchises to operate;
2. Entrust franchising, that is, the head office sells the franchise to an agent, who is responsible for granting the franchise in a certain area;
3. Develop franchise chains, that is, franchisees have purchased franchise stores from the head office and established several branches in a region. If they need to build branches in the future, they don't need to apply to the head office.
4. Ownership cooperation franchise, that is, the head office and the franchisee are joint ventures, and both parties hold shares in the branch;
5. Distribution franchise. The head office not only grants franchisees franchise rights, but also grants franchisees the right to set up wholesale warehouses to supply and distribute goods to other franchisees.
In recent years, there are more and more chain, joint venture and cooperative operations in the form of franchising. The United States, Britain, the Netherlands, Japan and other economically developed countries regard franchising as intangible assets. Franchise has been included in the definition of identifiable intangible assets in China's Accounting Standards for Business Enterprises-Intangible Assets. However, it is not stipulated in the Accounting System for Enterprises. For the accounting treatment method of franchising, this paper thinks it is necessary to refer to the treatment method of tangible assets to make it comparable; It is also necessary to consider the particularity of intangible assets and the specific situation of franchise transfer.
1. Accounting treatment of transferring franchise. The transfer of the right to use the franchise right does not lose its ownership and use right, and its use right can be transferred many times. Therefore, it is not necessary to write off the original value and amortized value of the franchise, but only debit "bank deposit" and credit "other business income-franchise transfer income" when obtaining the transfer income. For the franchisee, when obtaining the franchise right and paying the franchise fee, the "intangible assets-franchise right" is debited and credited to the "bank deposit".
2, franchise investment holding account processing. Franchise shares are invested in the form of investment, usually with the right to use, and the franchisor will not lose ownership and right to use. This situation is more complicated. There is no clear stipulation in the current accounting system.
3. Accounting treatment of amortization of franchise rights. Whether the franchise right should be amortized in installments within its validity period after it is recorded as intangible assets mainly focuses on the amortization period, amortization method and accounting treatment. This paper holds that if the franchise contract stipulates the term, it shall be amortized according to the term stipulated in the contract. The amortization method adopts the straight-line method, and the accounting treatment of amortization should set intangible assets, accumulated amortization and net value of intangible assets, and refer to the depreciation method of fixed assets to reflect the original value, amortization amount and amortized value of intangible assets respectively; If the franchise contract is permanent, it will not be amortized by ledger method.
4. Handling of follow-up expenses and advertising expenses. Follow-up expenses and advertising funds are equivalent to obtaining business income for franchisees, so "bank deposit" should be debited and "other business income-franchise transfer income" should be credited. For the franchisee, if the management fee is paid in the form of annuity, the "management fee" shall be debited and the "bank deposit" shall be credited; If the product purchase price increase is paid, it will be recorded in the product purchase cost; If the advertising fee is paid, the "sales expense" is debited and the "bank deposit" is credited.
[Edit this paragraph] The characteristics of franchising
First of all, we should know that joining is just another business opportunity. When evaluating franchise opportunities, the usual business considerations are still needed, which means that common sense is still important. However, franchising does have some differences that potential investors need to understand. Some differences are briefly introduced as follows.
1, fixed franchise terms. Almost all franchise agreements have a fixed term, usually 10 year. Unless franchisees are seriously unable to fulfill their obligations, most franchisees will extend the time limit when it comes.
2. Development schedule. When the franchisee obtains the franchise right of a specific region or country or region, which is usually called regional franchise right or general franchise right, the franchisee usually insists on asking the franchisee to fulfill the regional development schedule agreed by both parties. This means that the franchisee must open a specified number of franchise stores within a certain period of time.
3. Intellectual property rights. One of the main terms of franchising is the use of intellectual property rights. Most franchisees have very special and specific requirements on how to use their intellectual property rights. This includes the franchisee's adoption of the franchisor's company logo in its operations. Sometimes, in order to achieve unification, franchisees may be forced to buy goods and equipment overseas.
4. Sub-concession. Those who have obtained regional franchise or total franchise may not have sub-franchise. This means that franchisees who have not obtained sub-franchise can only directly own and operate all the stores in their fields. It is very necessary for potential franchisees to consider the above situation and put forward it at the early stage of negotiation. Many misunderstandings are often due to the lack of understanding of western-style franchising by Asian franchisees. Although the success rate of franchising is high, it is not suitable for everyone.
Select a franchise company
When you choose to join a company, you should look at the joining instruction document, which states the sale and history of the franchise of the company. If anything is missing from the document, you should ask the franchisor for it. The potential franchisee should decide whether to join the franchise system after knowing all the relevant information. Specifically, what aspects should potential franchisees pay attention to?
1, the key to a good business. These elements should include the following aspects:
Established name or trademark, good business philosophy, good business image, excellent operation system for testing products or services, very effective marketing plan and unique technology. These elements are helpful for potential franchisees to evaluate the competitiveness of franchise business in a specific region. So it is absolutely necessary to visit the franchisor's office and several franchise stores.
2. The real investment cost. What needs to be determined is not the estimated investment cost. It is necessary to accurately check various cost items, such as rent, deposit, transportation, wages, insurance, etc., especially if potential franchisees are unfamiliar with the business.
3. The operating records of directors and key management personnel can answer some important questions, such as:
Is the founder still running the company?
Is CEO a major shareholder?
How long have the directors and main managers joined the company?
Have they ever been involved in a failed franchise industry?
Who is the real expert in the company?
In addition, it is necessary for the potential franchisee to meet with the personnel of the concessionaire. In any case, there must be a very comfortable and trusting relationship between potential franchisees and franchisees.
4. The history of the franchisor. A franchise company should not only show that its business is good, but also show that it is a good franchisee. Some basic information and statistical data that franchisees should provide include: years of joining, number and location of direct stores; The number and location of franchisees in the network; If there are foreign franchisees, the number and location, the number of stores closed or changed, the growth rate of joining networks, and litigation records, good franchisees are willing to meet with existing franchisees to understand the situation. The current franchisees are a barometer of the franchise network to a great extent. Potential franchisees should not miss any opportunity to meet existing franchisees.
5. The level of training and support provided by the franchisor. This is probably the most controversial place in the franchise relationship. If the franchisor's actions are inconsistent with the commitments, then the potential franchisee will easily misunderstand the level of training and support to be provided. Unfortunately, many franchisees promise too much, which is difficult to achieve. The franchisor's commitment should be in writing. Therefore, potential franchisees must clearly understand the level of training and support that franchisees can actually provide, and these franchisees are usually thousands of miles away.
6. Another possible dispute is the franchisee's obligations in the network. In some cases, franchisees have many obligations, and it is better for franchisees to operate by themselves. The obligations of the franchisee are usually included in the franchise agreement, so they are legally binding. The franchisee must agree and understand the meaning of these obligations.
Obviously, investors should try their best to seek help and advice before joining the franchise industry.
Help and advice
If a potential franchisee needs help and advice, he should listen to the advice of those who are closely related to the success or failure of franchising. It is worthwhile to spend money to consult him. These people include:
1, join the association. If there are such associations in your area, potential franchisees can get good advice and information from them at any time. If there is no such association, then check the franchisor's local franchise association. Most good and established franchisees are members of domestic franchise associations.
2. Reliable franchise consultant. Joining consultants are just ordinary brokers. They know little about franchising and can sell anything in order to get a commission. Good consultants keep in constant contact with franchisees, franchisees and others in the franchise industry. Their experience and information are very helpful for franchisees and franchisees who are far apart to bridge the gap in expectations, language and culture.
3. Experienced licensed lawyers. You should get legal advice about the franchise agreement from a reputable franchise lawyer. Not many lawyers can handle complicated franchise agreements. The agreements prepared by many franchisers in their own countries simply do not work in foreign legal environment. A good franchise lawyer can help draft a franchise agreement that is beneficial to both franchiser and franchisee. In addition, check the lawyer's history and reputation.
Most investors can be divided into three categories:
1. The boss or senior manager in charge of business development is looking for new business opportunities to diversify their business portfolio.
2. Senior managers who are no longer willing to report to their superiors for various reasons, including: office power struggle, budget consideration, psychological crisis in middle age, retirement, etc. They want to buy a franchise and be their own boss.
3. Businessmen who are not satisfied with their existing business hope to get higher returns through the franchise system.
conclusion
Investing in franchising requires potential franchisees to have keen insight and thinking about business opportunities. Before purchasing the franchise, the potential franchisee should understand the benefits and risks of the franchise. He must be satisfied with the information provided by the franchisor and fully understand that even if various preventive measures are taken, the purchase of franchise is still risky, although the risk has become smaller. A good franchise may fail, but a bad franchise may flourish. Unfortunately, there is no absolute certainty in this world, even franchising.
Not all franchises are equal, and franchise contracts have their own similarities and differences. A business that seems certain to succeed may fail because of declining demand, economic recession or poor management by franchisees. Looking at many franchise industries, it is an arduous task to distinguish the advantages and disadvantages. The best tool to find a successful franchise or avoid a poorly managed franchise is research and knowledge.