In recent years the term franchises has acquired an important meaning in Costa Rica, because every day there are more large, small and medium-sized entrepeneurs who decide to turn their business into a franchise.

Only in Costa Rica, the 278 franchises currently existing employ more than 28 thousand people.

78% of all Costa Rican franchises have an international origin, while the remaining 22% are Costa Rican franchisors, according to the “VI Estudio del Mercado de Franquicias”  (VI Franchise Market Study), conducted by the Chamber of Commerce and the National Center for Franchises (Cenaf in Spanish).

What is a franchise?

A franchise is a model of business expansion, where the owner of a brand or business (franchisor) grants another party (franchisee) the right to commercially exploit a brand, according to PYME.go.cr, a project of the Ministry of Economy of Costa Rica, the Instituto Nacional de Aprendizaje (INA), and other institutions that are part of the SME Support Network.

Within the franchise are included, as well, trade procedures or practices related with the operation of the business (know-how), in exchange for a payment (canon and/or royalties) within a physical territory and time period.

Business and markets covered by franchises:

• Food sector: fast food restaurants, ice cream shops, etc.
• Specialized services: Hotels, car rentals, language institutes, etc.
• Beauty and personal care.
• Food supplements

What do you need to take the big step?

• The business must be financially successful.
• The business must be replicable in different markets and countries.
• The business must have a well-defined and solid target market.
• To have operations and procedures manuals, always updated.
• The franchise has to be capable of functioning without your direct participation, in other words, without the original owner of the business. But you must be willing to train and provide technical, strategic, operational, administrative and commercial advice to the franchisee.
• To register the brand of your business at the National Registry of Costa Rica.

Requirements:

• According to the Cenaf in most cases the down payment for a franchise in Costa Rica is less than $50.000 (about ₡26 million colones), but in less than 2 years, in 64% of the cases, there is a total recovery of the initial investment.

Having accessible franchises in terms of investment allows the people to have options to generate self-employment and to fulfill the dream of owning their own business, told to Summa Magazine, Karol Fallas, Executive Director of Cenaf.

• If you want to acquire an international franchise, the amount ranges between $100.000 and $250.000, but the number will depend on the type of business.

• It will be necessary that the franchisor and the franchisee establish a contract for at least 5 years. The contract will define the down payment to purchase the franchise and the ongoing payments or royalties for the use of the franchise.

Legal advice

An integral legal advice is recommended, both to turn your business into a franchise or to purchase one.

At ERP Lawyers & Associates, your boutique law firm in Costa Rica, we will conduct a study to analyze the viability of the franchise: Profitability, finances, legal framework, target markets and trademark registration, among other areas. Contact us.