Business & Executive

Everything You Need To Know About Franchise Business

By Harshal Katre | Jun 27, 2019
Harshal Katre

Starting a new business is one of the toughest decisions you can every make. First, you need to find a good idea, then build a plan for marketing, branding, sales, hiring, etc. Then, you need to work on the product strategy and finally, raise capital to execute your plans.

Sounds like a lot of work.. right? This is where Franchise Business can help you.

In this article, I will cover what is Franchise Business, how it works, what do you need to start a Franchise and much more. Let’s dive in to see how you can benefit from Franchise Business opportunity and how good this is as compared to starting a business on your own.

What Is A Franchise Business

A business system in which private group of individuals is sold the rights of business logo, model, and the name of a much larger company, usually an MNC or Multinational Company by the owners or franchisors to run it in a different location is called as Franchisee Business. In simple terms, Franchise business is the extension of an existing successful business. It’s executed in an exactly similar way in which parent business works.

These private operators are called as franchisees. The relationship between the owner and seller is contractual. There are a lot of common examples of franchise business around us. For example, Macdonald’s, Subway, Cafe Coffee Day, Starbucks, Dominos, and Pizza Hut etc.

Process Of Setting Up A Franchise Business:

  • There is an initial fee for buying rights to the business, methods, equipment, marketing techniques etc. which the franchisee has to pay.
  • Once you buy the rights to the tested and the proven business system, you also get the access to trademarked things of the brand. For example slogans, brand name, logos etc.
  • In addition to these proprietary rights, the franchise might also be given a specific territory for the selling of the franchisor’s services.
  • Not only this, the time period for which the contract is going to be intact would also be specified in the agreement.
  • Generally, the tenure of the agreement is around 5- 10 years. Also, most of the times the right to renew the time period is also available.
  • As soon as the business starts off, there is then payment of ongoing royalty payment which might be on the annual basis or it depends.
  • The amount of royalty payment is calculated on the basis of total sales made by that franchise retail outlet.
  • Thus, a contract would be signed between franchisee and franchisor.
  • Points to remember:

  • The franchisee must be aware of the fact that he/she has not bought the rights to products of the franchisor but he/she has just bought the rights to use the name of an already successful brand for selling of the products.
  • The methods of the proven business system would remain same.
  • The methods involved in the process, the uniforms, the pricing etc. everything is going to be the same as the actual business model.
  • It is just going to be an outlet in the same city or in a different city with exactly the same representation of the already tested business operation.
  • In order to be more clear about the purchasing of the franchise, or to finalize the decisions, you can get in touch with the professional organizations that deal only with these type of things. Some of the companies are mentioned in later part of this article.
  • Pros And Cons Of The Franchisee Business

    It is very important to understand the advantages and disadvantages of franchise business before buying the franchise business rights.

    Pros:

  • Risk – The biggest advantage of owning a franchise business is investing into a business which is already tested and proven. The probability of the risk regarding the profits and growth of the business is likely to be very low.

  • Training – When you are buying the rights to the franchise business, you also get the advantage to get trained with the technology the proven business is already using, so that you get hands-on training on the methodologies of the already tested business system.

  • Marketing Strategy – There are a number of marketing techniques which are required in order to run a business. Franchisor’s already working business strategies and advertising pamphlets would definitely provide you with the push and grow off the business quickly.

  • Support – There are all kinds of support provided by the Franchisor to the franchisee. Not only franchisors would provide support through the technologies and methods they use, in the case of support is required in resourcing a good location, franchisors are going to lend support in that context as well. The importance of a good location is realized in terms of profits which would be shared not only the franchise alone but franchisor as well.

  • Connections and links – There would be another franchise who might have experienced the same troubles you might are experiencing. Of course, by discussing and sharing out your problems with other franchise people would help you a better vision of the business plan and strategy to be opted for.

  • Cons:

  • Initial fees – The initial payment which is required to be made in order to buy the rights of the business is a must fee. It is the cost of buying the license. The fees vary from brand to brand but at par, it is almost same. It costs a lot. Normally, it starts from couple of lakhs and go up to few Crores.

  • Payment of ongoing royalties – It is calculated on the basis of the total sales of that particular outlet. It must be pay at regular intervals, might be on the monthly or annual basis. They may range from 5% to as much 12% of the monthly sales.

  • You have to follow the rules – Even after buying the franchise, you have to follow the rules and regulations those are pre-decided. If rules would not have to be followed, then the taste of dominos or Pizza hut would not have been the same in different places around the globe.

  • Fund for marketing – Marketing strategies do not really come free of cost. There is a price for marketing funds as well. Of the total sales, the franchise might have to pay 1 or 2 % of the sales.

  • Selling you Franchisee – If you ever happen to sell your franchise to someone else, you must consider the fact that the buyer must be approved by the franchisor. You just cannot sell your business to any random buyer.

  • Before proceeding further with the investment in the franchise business, you must consider the pros and cons of this kind of business system and then finally make a decision. A franchisee attorney would help you further in finalizing your decision regarding purchasing of the rights in context to your investing business plan. Not only this, you must equally understand the franchise agreement before actually signing a contract.

    When Should You Consider The Franchise Business Opportunity?

    Another important question that comes to mind is when to start off with a franchise business.

  • Even when you are investing this big money, the probability of failing down business is low as already you would be running you business into a proven business system.
  • Another important fact is, even when you don’t have enough time to start off the business and the time to see it growing. With Franchisee business, you don’t have to worry about the growth.
  • With the support of franchisor and guidance, any problem that would come along the way would be solved and you would not be all alone to deal with the difficulties when starting off with this new venture.
  • Low-Cost Franchise Business Opportunities In India

    There are a number of websites that provides the links to start up low-cost franchise business in India. These sites would provide the different categories to choose from according to one’s requirement. Along with the categories, a price range would also be available to suit one’s investment plan. A category giving options for location is also provided to facilitate the buyer from the best possible locations.

    Some of the websites would also provide the options to choose from the brands available for starting the franchise business. Following are the list of few websites:

  • Franchiseindia.com
  • Startingfranchise.in
  • Fai.co.in
  • Smallb.sidbi.in
  • Franchisemart.in
  • Franchiseasia.com
  • You can find various franchise business ideas like starting a restaurant, setting up a cafe, open a Gym, start a beauty salon and much more..

    Why You Should Consider Low-Cost Franchise Business Opportunities?

  • After china, India is second most populated country and area wise it is the seventh largest country. Apart from these rankings, India is not lagging behind in the overall development. It is the second most ever growing consumer market in the world. Hence, the chances of investment from the different multinationals getting profit across the globe are very high.
  • Franchise industry in India has been ranked internationally as a very attractive international market.
  • Very good brands of the world are targeting Indian market for their further branching and growth of business opportunities.
  • Professional organisations deal with various problems the franchise have in their minds to help them start off with their business.
  • If anyone is planning to start a franchise business, with the freedom to choose from affordable cost business models, the websites listed above can help you.
  • Franchise Vs Own business

    One of the most common questions that come in the mind of an investor is that how franchise business is better than starting up on your business.

    The biggest positive attribute of a franchise business is venturing into already established business. Your risks of growth and profit related risks are lowered down to quite a good extent. It helps a lot specially if you do not have previous business experience.

    The initial years are difficult when starting it from scratch when opening your own business. In fact, according to a study, only 1% of new businesses in India have a chance of survival.

    So when it comes to choosing from freedom of starting your own business or sense of security when opting for a franchise business, one must take decision accordingly.

    Final Thoughts

    Idea of starting a new business sounds exciting but the chances of survival are slim. If you don’t have a good team to handle different functions of a business, it would make a lot of sense of go for a Franchise Business.

    Also consider investing in a good accounting software that can help you to manage finances from day one.

    This article originally appeared here
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