Everything you need to know before investing in a franchise

A franchise is a system of selling products of a commercial firm in a store of another owner and under certain economic conditions
A franchise is a system of selling products of a commercial firm in a store of another owner and under certain economic conditions

Investing is the next step of financial education when you have achieved savings to meet the goals, however, the undertaking is sometimes complicated, so franchises are an option for extra profits.

According to the National Commission for the Protection and Defense of Users of Financial Services (Condusef), a franchise is a form of business for the commercialization of goods and services in which one person grants to another, for a specific period of time, the right to use a trademark or trade name in exchange for an amount of money.

The Condusef reported in its monthly magazine that according to the Mexican Franchise Association (AMF), there are more than 85 franchise deals in the country; restaurants and food and beverage businesses are the most common.

The issue of investments is not something that should be taken lightly since it is about the future and the stability of our finances.

Therefore, he recommended that before investing, four points should be analyzed: yield, which is the profit obtained by investing; the risk, which is the possibility that something may go wrong.

As well as the term, the time during which the money is kept in an investment instrument; and liquidity, which is the facility for the money invested at the time it is required.

In this way, listed the steps to follow before opening a franchise such as analyzing the profile as an investor, that is, not all people have the same risk tolerance, you must think how willing you are to face a financial loss when looking a greater gain.

In this sense, there are three types of profiles, the conservative who does not want risks although he earns less, the moderate, who seeks good returns without the high risk and the aggressive one, who seeks high returns and focuses on the long-term objective.

In this context, you should also identify the most favored franchise, and take into account that being a business owner will be dedicated most of the time.

As well as investigating the chosen company where other aspects such as seniority, reputation and that their profits are above the investment are considered, in addition to evaluating the legal aspects, reviewing the legal contract, confidentiality agreements and articles of incorporation, for which It is better to consult with a lawyer or notary.

13 Peruvian franchises arrive in Mexico franchise market

Mexico franchise market has become one of the main destinations to invest and shows the arrival of 13 new Peruvian franchises that will seek to expand in the country, said the ambassador of Peru, Julio Garro.

During the presentation of Peru at the 42nd International Franchise Fair 2019, he said that Mexico has become a "spearhead" for the 21st-century economy, due to the progress of its industry and services. In addition to being one of the most complete markets in the region to which companies throughout South America seek to open representations in its major cities such as Monterrey or Cancun, to name a few. Therefore, he said, Peru opened last week two business centers in Guadalajara and Mexico City, protected by PromPerú and the embassy of that country in Mexico, to boost the entry of Peruvian companies into Mexican territory.

The diplomat stressed that thousands of Peruvians live in Mexico, from university professors, engineers and all kinds of professionals, who with their families are happy to live in this country that has opened the doors to study and work.

"There are people linked to the academic world and many executives of international companies. It is a very settled community, and now it has intensified the arrival of more Peruvians to this great and unequalled nation," said Garro.

The commercial exchange between both nations amounts to two thousand 500 million dollars, with an annual growth of 4.0 percent. Mexico's investments in Peru amount to 17.5 billion dollars, and those of the Andean country in Aztec soil range between 500 and 600 million.

The ambassador of Peru in Mexico highlighted that another favorable aspect is tourism since his country receives about 80,000 Mexicans each year. For its part, Mexico receives about 160 thousand Peruvians annually. In this context, he noted that the arrival of 13 franchises that were presented to the industry's maximum event in Latin America, such as the 42nd International Franchise Fair that was held in Mexico City and concluded on Saturday, March 9.

These franchises are Peruvian fast food and textiles. Peruvian cuisine is ranked among the most exquisite in the world and its acceptance in different palates worldwide has increased in recent years. Since the entry into force of the Commercial Integration Agreement (AIC), in February 2012, the exchange not only commercial but also cultural and friendly between both countries have registered sustained growth and strengthening, the diplomat reiterated.

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An expectation of 10% growth in the franchise industry

In the 42nd edition of the International Franchise Fair (FIF 2019), a new aspect will be exposed. The social franchise, a business model that has not only a profitable part of it as an objective but also a model focused on the sustainable development of the country, said the director of the event, Jude García.

In this regard, he anticipated that the sector will grow between 8.0 and 10% this year, according to a statement.

30 years after creating this Fair, being the oldest Expo in Mexico, it is renewed with new aspects such as social franchising and collective financing called "Crown Founding" that is incorporated into this edition, said the executive.

Education, health, drinking water, sustainable energy and food franchises are an integral part of a new aspect that is called social franchises that will be an integral part of the 42 FIF.

These franchises, he pointed out, such as water sanitation, health such as dental clinics or medical services, no longer seek only the business aspect, but contribute to society through models that contribute to sustainable development.

The event will be held this week in Mexico City at the WTC International Convention and Exhibition Center in Mexico City, where more than 38,000 entrepreneurs will be attending from March 7 to 9, in search of their own business. or trends in commercial and service lines that guide the expansion of what they already have.

Jude García stressed that in its 42nd edition and 30 years of being in force, the FIF has been an ally of the government in turn. When it started, there were only ten franchises in Mexico, now there are more than 1,200 different models, of which 75% are Mexican and the rest come from abroad.

He considered that the sector will grow up to 10% in a number of units and in new franchise brands an increase of 6.0% is expected.


Franchises will create one million jobs by the end of 2019 in Mexico

The International Franchise Fair will promote the creation of new business units in its edition; at the end of 2019, they would generate one million jobs.

The franchises are "a pillar of the economy and a sign of the confidence that exists in Mexico," said Jacobo Buzali, president of the Mexican Franchise Association. He stressed that the challenge for the sector is to be more accessible to those interested.

"The sector will continue to grow. Last year it did it to 9.8% and this 2019 can surpass that figure, which is four times more than the percentage of growth of the national economy, "said Buzali.

Speaking to the press, stressed that this year is expected to exceed one million jobs generated by more than 1,200 existing franchises in the country, so it will be the highest event of the year and the main source of contracts and investments in the national industry of the franchise.

The franchises are "a pillar of the economy and a sign of the confidence that exists in Mexico," said Jacobo Buzali, president of the Mexican Franchise Association.
The franchises are "a pillar of the economy and a sign of the confidence that exists in Mexico," said Jacobo Buzali, president of the Mexican Franchise Association.

Jude García, director of this fair that starts tomorrow March 7 at the WTC International Exhibition and Convention Center in Mexico City, said that they will gather more than 365 national and international exhibitors and 38 thousand visitors.

He recalled that this fair was born 30 years ago when there were only 10 franchises in Mexico and this year it is expected that new ones will emerge that will add to the strengthening of this business sector in the country.

For its part, Aicha Bascaro, founder and president of the American Academy of Franchises, said that these businesses give 50% of what is required for a successful business.

The other 50%, he said, must come from the franchise himself in his learning of operation and administration of the firm in which he has invested.

Juliet MacBride of the Steagsex platform said that in the world there are 3.5 million people living with less than the equivalent of 40 pesos per day; it is they who must be offered services and food through health franchise models and basic services.


There are about 1,500 brands that are franchises in Mexico

The franchise business model offers advantages for investors and currently, in Mexico, there are about 1,500 brands that are franchises, of which 85 percent are national.

Enrique Alcázar, Vice President of Franchising of the Confederation of National Chambers of Commerce, Services and Tourism (Concanaco-Servytur), told Notimex that there are Mexican franchise brands that are exported and operate in other countries around the world.

He mentioned that of the 1,500 brands that offer franchises in Mexico, some 275 are of Mexican origin and the rest are foreigners mainly from the United States, Spain, France and Central America. Likewise, he added, there are 150 national franchise brands that operate abroad in some countries in Asia, the Middle East, Central and South America, as well as in the United States, which has become an important market.

The president of Grupo Alcázar y Compañía said that franchises in Mexico generate some 900 thousand direct jobs in about 70 thousand points of sale, which consider ten categories and 90 business lines.

"Virtually what you can think of, today is franchise or franchiseable," he said. He argued that the franchise business model offers many advantages for those who have surplus capital flow, for entrepreneurs who do not have operational experience or creativity.

Through a franchise, he noted, risks are minimized, resources and benefits are optimized, as well as generating greater profit and profitability, "it is convenient for many senses to invest in a franchise instead of going for free."

There are 1,500 brands in Mexico that offer franchises
There are 1,500 brands in Mexico that offer franchises

The Concanaco-Servytur, which has representations in different regions of the country, offers guidance, support and management, mainly with capital, for people interested in this business model.

Alcázar said that for a business to become a franchise, it must be a proven model that is profitable to share, attractive and sufficiently differentiated. From there, it abounded, manuals are developed, strategic planning, financial models and commercial strategy, among other activities around the company.

He added that, for a company to become a franchise, does not exclude the size or the turn of the mass, it can be from a micro that has a proven, attractive, profitable and differentiated model.

When referring to a proven model, exemplified, it could be three locations in two years, although there are businesses with more than 50 years and they continue to struggle, there are also some that since its creation is designed to become franchises.

The vice president of franchising of the Confederation of National Chambers of Commerce, Services and Tourism pointed out that there are no rules to convert companies into franchises, but the main requirement is that it be a successful model.


Logiscool franchise reaches Mexico

The Hungarian company Logiscool opened its first franchise in Mexico, considered the only platform in the world of teaching programming for children and young people, to create from video games, animations, and websites, to applications and Minecraft.

Logiscool franchise opened its first school in Interlomas in Mexico City and is expected to soon be in Guadalajara and the main cities in the country. Image: company's website
Logiscool franchise opened its first school in Interlomas in Mexico City and is expected to soon be in Guadalajara and the main cities in the country. Image: company's website

Logiscool was born five years ago in Hungary and already has a presence in 12 countries such as Spain, Germany, and Serbia, while it has been recognized as one of the most successful in Europe, responding to a current need: the management and knowledge of digital programming.

Logiscool won the "Franchise Network with Successful International Expansion" award at the Awards Ceremonial of the Hungarian Franchise Association and has received other awards, which give it the guarantee of success, said Julieta Gómez.

She said in an interview that there are statistics that describe that 65 percent of children who currently attend primary school, will work in their adult lives in professions that do not even exist yet and that will have to do with computing.

"We live in a digital world where the use of devices and computers has spread significantly. What we are doing is to promote digital literacy in Mexico, and move from being passive users to creators, " she said.

She pointed out that there is currently a world revolution in digital matters. Programming has become a more important language than mastering two languages.

In industrial matters, digitization has become a tool for progress and many companies are entering what is known as Industry 4.0 or Fourth Industrial Revolution.

She referred to as an example that the German Siemens, the world leader in industrial digitalization, is introducing this technology to various economic sectors in Mexico, making them more productive and increasing profits.

Even this German multinational promotes dual education for Mexican engineers to master the digital language, a theme that the current federal government will promote in this six-year term.

Another example is General Motors that has started a project so that 8 percent of its workforce, especially engineers, learn the language of programming.

In the near future, all professions will be related to computers, which is why 21st-century programming skills must have all the children of our era.

Therefore, students must be allowed to understand the logic behind programming and, on the other, they will serve as a pillar to learn traditional programming languages used in the professional world.

Logiscool discovered this need and that children learn the language of programming, so it has become in a short time one of the most profitable franchises because their unique method of teaching allows young people to learn by playing, says Marc Clingaman.

"Our own educational platform is based on fun, 90-minute after-school classes once a week. Learn to design and create video games, applications, animations, design and assembly of robots, among others," she said.


How to acquire a franchise in Mexico in seven steps

1. UNDERSTAND A DIFFERENCE BETWEEN FRANCHISE AND FRANCHISEE

The agreement that exists through a franchise entails a series of obligations; On the one hand the franchisor is the owner of the brand and product, he is obliged to grant all the facilities when assigning the business model. On the other hand, the franchisee is the one who acquires the business model, he is subject to several conditions for the operation of the business.

2. LEARN THE RETURN ON INVESTMENT

Also known in English as Return On Investment, it is a metric that expresses the investment in a business and the benefit it will bring; It helps to calculate if the investment will be worth or not financially.

3. DETERMINE IF A FRANCHISE IS PROFITABLE

The Mexican Franchise Association (AMF) determined that the ROI is not all important to know, because it will indicate the time it will take to recover the investment. It is also extremely important to determine profitability and performance; The latter is analyzed after reviewing the average annual performance of a franchise and comparing it with some investment portfolio.

4. KNOW THE LAWS

Article 142 of the Industrial Property Law refers to the obligation that the franchisor has. It states that a franchise is considered as such when, through the license to use a trademark, technical knowledge is transmitted and technical assistance is provided. This will serve so that the person to whom it is granted can produce and sell the products of the business, equal to the original. Therefore, the same article states that the franchisor must deliver to the franchisees all the basic information of their company and franchise, 30 days before the signing of the contract. 

The document that includes all this information is called a Franchise Offer Circular (COF), Pre-Contract Information Dossier (DIP) or Franchise Information Dossier. Do not forget that the franchise contract must be signed by both parties and registered with the Mexican Institute of Industrial Property (IMPI), as this is how trademark use licenses are registered.

5. YOU MUST KNOW WHAT DOES THE FRANCHISE DOSSIER OR CIRCULAR FRANCHISE OFFER CONTAIN

Article 65 of the Regulations of the Industrial Property Law states that it must include technical, economic and financial information of the franchise, such as the age of the company; Industrial property rights must also be found, as well as the estimation of the amounts and concepts of the payments that the franchisee must cover and the technical assistance that the franchisor will provide to the franchise.

6. THE LETTER OF INTENT MUST BE RECEIVED

It is a pre-contract of purchase commitment, which gives security to the franchisor to give information about your business. Many times an amount called "guarantee of seriousness" is requested, which far from being an advance, is an amount that provides security to the deal.

7. DEMAND TRAINING PROGRAMS

It can be a video, manual or continuous technical assistance, but they should facilitate the work in support and technical assistance, otherwise, it could not be operated properly.