Pros and cons of franchising in Ukraine and how to develop a franchise agreement

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Launching a franchising business in Ukraine can offer numerous advantages for entrepreneurs, as this business model allows for the efficient utilization of a well-known brand and a successful business model.

Recently, a client approached us who had already scaled their business to a certain level in Kyiv and was seeking to enter the regional market. After conducting market research in Ukraine, they realized that their product would also be popular in another region. However, the client was not prepared to invest heavily in launching a business in another region.

As a result, our client decided to explore the franchise model, which would provide better insight into the feasibility of expanding into other areas or perhaps continuing their expansion in Kyiv. However, they had a number of questions about how to successfully launch franchising in Ukraine, what the advantages and disadvantages of franchising were, how to avoid risks, and how to properly negotiate a franchise agreement.

After discussing with the client and identifying all the necessary conditions, taking into account the specifics of their business and needs, we prepared a franchise agreement (commercial concession) that the client continues to use to this day. In this article, drawing from our experience, we will explain why considering launching a franchising business in Ukraine is worthwhile and what factors should be taken into account when negotiating a franchise agreement. After all, we know exactly how to open and run a business safely and effectively.

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Why Choose Franchising as a Business in Ukraine?

Franchising has become an important tool for those who dream of owning their own business while seeking to minimize initial risks by using an already established brand. So, what are the advantages of franchising, and what exactly attracts entrepreneurs?

Brand Support and Successful Business Model

Franchising allows for the use of an established and recognized brand, ensuring visibility among consumers. Additionally, franchising companies typically provide support in marketing, management, and training, which helps entrepreneurs successfully run their businesses.

Risk Reduction

Franchising businesses sometimes have better chances of survival compared to starting a new business from scratch. Most franchising companies already have a proven business model and management system, which helps reduce the risks of financial losses and failures.

Network Development

Launching a franchising business allows for expanding the network of establishments or stores, as franchise partners, who purchase a license to operate the business, independently set up new sales points. This enables entrepreneurs to capture a larger market share more quickly and generate more profits.

Access to Knowledge and Experience

Franchising companies typically provide support in the form of training and consultations, helping entrepreneurs acquire management skills. Additionally, franchising companies can share their knowledge and experience in procurement, marketing, and brand development.

Opportunity to "Learn" the Business

Franchising is essentially a ready-made business model with regulated processes. You don't need to create processes from scratch; it's enough to use those already established and adapt them.

What is Required to Start a Franchise Business in Ukraine?

First and foremost, it's essential to find a brand that fits your needs and has a high potential for success in the Ukrainian market. What should you consider when selecting a brand for franchising

  • Its popularity among consumers;
  • The terms of the franchise agreement;
  • The support provided by the franchisor.

Financial preparation also plays a significant role. Typically, initial investments are required to launch a franchise business. You should assess the cost of the franchise license, equipment, rental space, and other expenses. After all, the entrepreneur must have sufficient financial resources or obtain financing to start the business.

Developing a marketing plan is essential, as it will help promote the brand and attract customers. Here, you should consider the specifics of the Ukrainian market, competition, and target audience. It is also important to ensure effective business management and attract qualified personnel. You need to define management processes, train staff, establish a control system, and ensure service quality.

Of course, legal support is crucial when launching a franchise. To conclude a franchise agreement and comply with all legal requirements, you need the assistance of a contract law specialist. Our company's lawyers have years of experience and will help you conclude and verify the agreement, as well as resolve any legal issues related to launching a franchise business.

Disadvantages of Franchising: What to Consider?

The franchise business model can have both advantages, as we have already mentioned, and disadvantages for both franchisors (brand owners) and franchisees (entrepreneurs purchasing a franchise license).

  • High initial costs. When purchasing a franchise, the entrepreneur usually has to pay the cost of the franchise, as well as invest in premises, equipment, and initial stock. This can amount to a significant sum of money, requiring appropriate financial planning.
  • Restrictions on activities. The franchisor usually imposes certain restrictions on how the entrepreneur can conduct business. These may include restrictions on choosing suppliers, terms of marketing campaigns, and accepted products or services. Entrepreneurs should carefully study these restrictions and ensure they align with their business needs.
  • Dependency on the franchisor's reputation. If the franchisor's reputation suffers due to negative events or scandals, it can affect the franchisee's reputation and business. Entrepreneurs should consider this risk and plan their actions in case such a situation arises.

Naturally, these aspects – both the advantages and disadvantages – should be taken into account when concluding a franchise contract.

How to Incorporate the Advantages and Disadvantages in a Franchise Agreement?

When entering into a franchise agreement, it's essential to thoroughly consider all the advantages and disadvantages for the franchisee. Here are several ways we recommend our clients to approach this:

  1. Financial Terms: The agreement should clearly define the initial expenses required to acquire the franchise, as well as any future regular payments such as royalties or contributions to marketing campaigns. It should also allow for the possibility of revising these terms in the future.
  2. Degree of Autonomy: The agreement should reflect the level of autonomy granted to the franchisee, particularly regarding the choice of suppliers, marketing campaigns, and other critical business decisions. This allows the franchisee to maintain a certain level of control over their business operations.
  3. Support and Training: The agreement should specify the support provided by the franchisor in terms of training, marketing, and management. Clearly defined support programs, training sessions, and consultations will assist franchisees in developing their business effectively.
  4. Reputation and Brand: Provisions in the agreement can address the protection of the brand's reputation and its impact on the business in case of negative events. It should also include conditions regarding the possibility of terminating the agreement in the event of a serious breach of the franchisor's reputation.

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Legal Support for Franchising as the Key to Business Success

If you've decided to pursue business development through franchising, we're ready to provide a full range of services to help you achieve your goals. Here's what we can do for you

  • Thoroughly review the existing agreement and provide a clear legal assessment so you can make informed decisions.
  • Conduct an analysis of potential risks and propose strategies to mitigate them, while adhering to all Ukrainian legal norms and regulations.
  • Make necessary amendments to the franchise agreement and develop all the documentation required to ensure compliance and clarity.
  • Create an individualized contract tailored to your specific needs and business requirements.
  • Provide expert consultations on franchise matters and share our knowledge regarding its potential benefits and drawbacks.
  • Guide you through every stage of the agreement process, ensuring transparency and reliability.
  • Conduct effective negotiations with your partners and provide comprehensive legal support in all aspects of concluding the agreement.
  • Guarantee reliable protection of your interests in transactions with counterparts, including possible legal defense if needed.
  • Handle all legal and administrative tasks related to the successful utilization of the franchise both domestically and internationally.

With our assistance, you can have confidence in reliable legal protection and partnership, creating conditions for sustainable and successful business development in the franchising world.

Learn more about our franchise legal support services here.

Publication date: 25/01/2024

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