How does a franchise work?

Legal definition. Ley del Instituto Mexicano de la Propiedad Industrial. Article 142.

“There will be a franchise, when with the license of brand use technical knowledge is transmitted or technical assistance is given, so that the person to whom is given can produce or sell goods or lend services in an uniformed way and using operational, commercial and administrative methods established by the title holder of the brand, tending to maintain quality, prestige and image of the products or services distinguished by this title holder”

What is a franchise?

“Franchise is an expansion alternative for business through which an operational tested business is documented, and in which the owner relinquishes the rights of brand use and all the operational and individual service manuals, in exchange of an initial payment, and subsequent bonuses, with the compromise of fulfilling the standards which are set previously by the owner”

And who intervenes in this relationship?

The Franchisor

It is the physical or moral person, owner of a business, holder of a brand and a concept and its technology, who, through a franchise contract, relinquishes all the rights to a third person, followed by a compromise with the buyer of assistance and technical and administrative support.

The Franchisee

It is the physical or moral person who acquires the rights of use of a concept, technology and brand, who takes the compromise of operating and commercializing them according to the standards and specifications determined by the owner/holder, receiving technical and administrative support that guarantee the observance of those determinations. A franchise is not for everyone, it is necessary to follow exactly the Franchisor´s instructions, which limits the Franchisee´s creativity and independency, nevertheless, this guarantees the operation of the whole system.  A franchise presents an interesting ambiguity in which: it is our own business but we cannot whatever we want with it.

The advantages of acquiring a franchise
  • Permanent consultancy and assessment
  • Online monitored and proved computer system
  • Permanent and documented training
  • Solid image due to a commercially recognized name
  • Reduction of financial uncertainty and lower bankruptcy risk, because you are investing in an already proved business
  • Economy of scales (the bigger the volume the better the prices)
  • Access to promotion and advertising programs
  • Technology development
Franchise myths in Mexico

To buy a franchise is guarantee of success. The success of the business will depend on the dedication and efforts from the investor.

Franchises are not only for fast-food businesses. Franchises cover more than 60 areas, food is only one of its industries. There are different types of franchises in Mexico, and services and the children sector represent the biggest growth for the past years.

Franchises are expensive. There are franchises for all investment ranks. In Mexico, more than 50% of the offered franchises are in an investment rank of approximately 100,000 usd., however, we can find franchises from 10,000 usd.

Do I have to invest a lot of money to have a business that can bring me a lot of money? There is no connection between the amount of initial investment and potential income.  Profits are the result of a lot of factors like location, operational efficiency, and the market, among others.

Do I need experience in business administration to own a franchise? Franchises come with training systems and technological support that allow operating efficiently in every business aspect, even without previous experience.

Most franchisors are big companies. Approximately 6.5% of the existing systems have more than 100 franchises operating.

Franchises are the same as any other business opportunity. A franchise is a legal figure. It is ruled by law, when others like multi-level, commercialization, distribution, and other forms are not.

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