Franchise pros and cons. Prospects in Russia.

Not many businessmen can answer the question what franchise or franchising means. Although all over the world franchising perfectly proved itself as the way of rapid advance in trading. If what statistics said is true, then in 80% cases using this system of doing business gives an opportunity to pass a five-year milestone in development of the company and to continue working with high economic indicators, whereas the majority of self-developed companies rarely come to two years.

Franchise or franchising is the way of partnership when a copyright holder (franchisor) grants a user (franchisee) the right to use in its entrepreneurial activity a range of exclusive rights owned by the franchisor on a fee basis, such as trademark, service mark, know-how and etc. In other words, it’s a business-system that allows making money out of brand name selling. In Russia franchises are mostly common in service industry, retail and public nutrition.

Companies have long ago started to use franchising for branching out and coming into new markets. For a franchiser it is a good way to save on initial investments, and for a franchisee - on advertising and promotion. At the same time, franchisee pays holding company initial installment (lump-sum payment) and periodical payments (copyright royalties) except initial investments.

Certainly, franchising wins in the speed of the business development. It is profitable for both sides. There is a so-called «grass effect», i.e. the initiative of business development comes from below, and it isn’t planted from above. Franchisee is interested in the development of his own enterprise, the success of the company brings the profit, and the failure - serious losses. Rationally organized franchise is the symbiosis: some get an opportunity to branch out without key investments, others – to have a ready-made business with recognizable name. But Russian reality makes changes in this rose picture.

Many experts note that the biggest problems in Russia arise due to the fact that the difference between franchise and own business start-up from greenfield is understood by halves. Franchisees come across the limitation of their freedom in all things: from selection of premises to company’s development strategy, along with constant control on the part of franchisor. However it’s not infrequent that rich people buy franchises. But due to lack of experience in business dealing even well-known brand can’t help. Smashup of “Pyatyorochka” in Perm is an example.

Despite essentially opposed profits from franchise for franchisor and franchisee, it’s important for both to minimize the possible business smashup risks. Therefore before making a deal it’s essential to check the prospective partner for trustworthiness and solvency.

Information and analytical system GLOBAS-i ® helps to find all the necessary information about the company you are interested in on-line. The Solvency index helps to estimate the financial position of the company and the Reliability index reveals fly-by-night companies.

Incomings into budget system of the Russian Federation by basic economic activity types

According to the Federal Taxation Service of Russian Federation, for the first six months 2013 in comparison with the same period of 2012 incomings into consolidated balance of the Russian Federation reduced on (-0,5%) and made up 5432 bln. RUB, 2655 bln. RUB of which arrived in federal budget. That is 1,9% more than in previous year.

It is important to mention, that the biggest part of incomings into consolidated budget of the Russian Federation accounted on mining (23%), income tax of individuals (20.6%), profit tax (18,3%) and value added tax (18%).

Reduction in incomings occurred solely through income tax, for the first six months 2013 the payments reduced on 0,7% - to 160,6 bln. RUB. This is unfavorable, but predictable trend in case of observed stagnation of industrial production. The significant growth, in turn, was shown by excises – on 38,6 %, the growth is connected with the adoption of the corresponding rates for the products.

Herewith the head of the Federal Taxation Service Mikhail Mischustin reported, that the incomings into consolidated budgets of the Russian Federation territorial subjects by income tax of individuals increased on 11,2%, that outpacing inflation growth.

Total debt in budget system of the Russian Federation for the first six months 2013 increased on 0,5% in comparison with the beginning of the year and made up 1136,7 bln. RUB. Herewith unregulated debt grew on 3,3% - to 562,3 bln. RUB (49,5% from total debt). Unregulated debt consists of uncollectible debt, which impossible to collect due to certain circumstances (death of debtor, inability of establishment of residential address, elimination as bankruptcy etc.) and shortages, in other words tax, which hasn't been paid in due time.

According to the Unified Interdepartmental Statistical Information System (UniSIS), incomings into consolidated budget of the country in January-July 2013 increased on 0,19% in comparison with the same period of previous year and made up 5498,5 bln. RUB. Herewith there was reduction in tax incomings into budget system of the Russian Federation in following types of economic activity: mining (-0,82%), wholesale and retail trade; repair of vehicles, motorbikes, household goods and subjects of private use (-18,57%), fishery and fish breeding (-14,14%), transport and communications (-22,63%). The same negative trend is observed in proceeds from individuals, who aren’t businessmen and don’t have OKVED code: (-17) bln. RUB for the first six months 2013, while (-9) bln. RUB for the same period in 2012.

Negative decreasing trend of profit tax incomings is confirmed by the latest data of the Federal Taxation Service about profits of the largest Russian companies. In January-July 2013 Rosneft profit decreased on 13%, Lukoil – on 30%, Gazprom – on 34%, RZD – on 70%.

Many experts note that the current situation signals again about necessity of reforms in various areas of the country’s economic development. Primarily, it is said about necessity in co-financing projects which are aimed for the development of infrastructure (roads, transport), that will give impulse to the development of new territories and creation of new working places.