franchise rights
definition
The definition of franchising by EuropeanFranchiseFederation is that franchising is a system of marketing products, services or technologies, which is based on the close and continuous cooperation between the franchisor and his single franchisee, who 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.
In China, franchising refers to the franchisor's right to use registered trademarks, corporate logos, patents, proprietary technologies and other business resources. In franchising, brand and technology are the core, and brands are generally represented by registered trademarks, trade names and corporate logos owned or authorized by franchisers. Technology includes proprietary technology and management technology granted by the franchisor to the franchisee.
trait
It is a strategy for marketing management of a product, which is used to speed up the circulation and distribution of the product. Operators buy and join, and set up specialty stores. Each specialty store has a unified image, including pavement design, products and prices. Specialty stores are small enterprises, but they have the image and business model of big companies, which makes customers more confident in products or services.
form
In China, franchising, also known as franchising, usually has two forms:
First, authorized by government agencies, some enterprises are allowed to use public property, or enjoy the right to operate a franchise business in some areas, such as allowing airlines to use state-owned airport facilities to operate passenger and cargo services on routes designated by the government;
Second, an enterprise grants its own trademark, trade name, patent right and know-how to another enterprise for a certain period of time or permanently, engages in business activities under the unified business model of the franchisor according to the contract, and pays corresponding fees to the franchisor. This paper discusses the latter form of franchising.
Franchising is a group of rights, and different franchise combinations constitute different types of franchising.
◎ The calculation of franchise value is of great guiding significance to the practice of franchising, because any franchisor must answer how to calculate the franchise fee and equity fee.
Franchise portfolio has extremely high knowledge composition, and the value measurement of franchising is an important theoretical research topic in franchising industry. The study of franchise portfolio will surely lead us to establish the closest relationship between franchise industry and the most advanced knowledge economy, knowledge management and other disciplines.
According to the theory of knowledge economy, any enterprise is creating knowledge while providing products and services to consumers. In this sense, the development process of franchising is a production process of knowledge goods, and franchising enterprises are enterprises engaged in the production, sale and use of knowledge goods. Therefore, the contribution of franchising enterprises to the formation and development of a country's knowledge economy is no less than that of IT enterprises and other knowledge-based enterprises, and the development of franchising industry will certainly make its special and great contribution to a country's economic take-off.
Franchise evaluation
Franchising, as a special tangible intangible asset, plays an important role in the production and operation of many enterprises. With the development of market economy and the increasing frequency of foreign exchanges, there are more and more opportunities for domestic enterprises to contact, understand, develop and utilize franchise rights. From the perspective of asset management and capital management, the understanding and application of this kind of intangible assets in domestic business circles is still in its infancy, especially the understanding and grasp of its asset value has not yet reached a unified and standardized conclusion. In order to further develop and utilize various franchise rights to serve the production and operation of enterprises, it is necessary to systematically explore the formation mechanism of the value of franchise assets and how to determine their value fairly according to the actual situation of assets.
I. Definition of Franchised Assets
According to the traditional view, franchising refers to the special rights granted by the state or government to enterprises to produce and operate a certain commodity or service (business) exclusively. These rights include franchise, import and export right, production license, etc. From the development trend of market economy, the scope of authorized subjects of franchising has gradually expanded, extending from the national government to various economic organizations and social institutions; Its business scope has also expanded from the production and circulation of commodities to the organization, management and supervision of various economic and social activities. According to this view, the exclusive agency right of enterprise A to enterprise B's products, the right to develop a tourist area and the right to operate a highway obtained by the enterprise can all be classified into the category of franchising.
Not all enterprise rights that meet the above requirements can eventually form franchise assets and be included in the scope of asset management by enterprises. From the characteristics and nature of intangible assets, only when exclusivity, superiority and profitability are satisfied can the rights attached to enterprises become franchise assets. This statement has two meanings:
(1) It is a prerequisite for an enterprise to use the acquired rights to become intangible assets, because only by using (or being able to use) an asset can it generate income, which meets the requirements of asset definition. Therefore, the rights that enterprises have put on hold for a long time or can no longer be used for reasons such as policies are generally not recognized as franchise rights and as asset management.
(2) If a right becomes an essential item in the business operation of an enterprise, and it is common to ordinary enterprises due to the development of the enterprise or government policies, it is no longer an intangible asset of the enterprise. For example, the acquisition of franchise rights of public enterprises such as aviation and railways has almost become a necessary condition for the operation of such enterprises, and the operation of such enterprises is closely related to the national economy and people's livelihood. Therefore, the prices they provide must be dispersed and strictly supervised by the public, and their original monopoly rights are completely restricted. In this case, its franchise can only be regarded as a general enterprise right. Therefore, whether it can bring benefits to the enterprise, whether it is an exclusive interest (monopoly interest) beyond the general profit level of the enterprise, often becomes the final condition for determining whether a certain right of the enterprise belongs to the intangible assets of the franchise. In addition, many franchises obtained by enterprises are limited in time, and the rights beyond the authorized operation period are of course no longer regarded as intangible assets.
Second, the value formation mechanism of franchise assets
Franchising, as a special intangible asset of rights, cannot be explained by simple labor theory of value, but should deeply analyze the causes and inevitability of franchising phenomenon (or economic behavior). At least we can examine the formation mechanism of franchise asset value from three aspects.
Accounting recognition and measurement
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 franchisee for providing training, receiving services and franchising the right to use intangible assets. Franchise fees are 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.
accounting treatment
Practical form
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.
Recent development
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.
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. Operating records of directors and key management personnel
These records 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. Franchisee's obligations in the network
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.
Advantages and disadvantages of franchising
1. Advantages
1. can give employees more detailed and comprehensive vocational training.
2. Franchisees benefit from the existing reputation and image of the brand in the public mind when operating franchise stores.
3. Compared with establishing a new brand independently and developing the market for it, joining is easier to operate, because the product already has a customer base, so it needs less investment.
4. The mutual support and competition between franchisees will contribute to the faster development of products.
5. The head office indicated that the profits were used for the research and development of new products, so that the licensed products were constantly updated and kept competitive.
2. Deficiencies
1. Joining must pay a high joining fee, including material fee and employee training fee.
2. Franchise stores are limited by the head office and have no right to independently develop new products, so there is not much room for development.
3. Every franchisee is very dependent on the head office.
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.
Concepts related to franchising
The legal relationship of franchising-although the franchisor and franchisee belong to the same franchise system, they have no subordinate relationship in property rights. Franchisees and franchisees, as independent economic entities, enjoy rights and undertake obligations independently. From the perspective of legal relationship, the legal relationship of franchising is a civil legal relationship between equal subjects, and the rights and obligations of franchisor and franchisee are stipulated in the franchise contract. Franchise contract is the foundation and key to the existence and development of franchise system, which is related to the vital interests of both franchisees and the fundamental basis for solving franchise-related disputes.
The ownership of franchise-the ownership of franchise is decentralized, but it should form a consistent image of the same capital operation. Franchising means that the franchise headquarters licenses its products, services, trademarks and business models to franchisees, and franchisees have to pay the corresponding royalties. So headquarters and franchisees are not a capital. Generally speaking, in the franchise chain system, franchisees have ownership of their own stores, and the management rights are highly concentrated in the franchise headquarters. Franchise headquarters should provide franchisees with franchise licenses and related business guidance, and franchisees should pay franchise fees for this.
Franchise contract-the relationship between franchise stores and franchise headquarters is based on the signing of franchise contracts. Through the contract, the head office allows franchisees to use their own complete sets of software, and requires franchisees to operate in accordance with their own models to the letter. They have the right to supervise and guide franchisees, and also have the obligation to train franchisees and provide them with the help and services stipulated in the contract.