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What you need to know about franchising


What you need to know about franchising

Today people are looking out for opportunities to do business. There are different ways of doing business. One of them being “Franchising”. However, to a common man or to a novice this field of business is altogether new and he/she has no knowledge about it at all. Therefore, a number of questions arise in their minds about the same. If we look into the history of franchising it started only after the World War II. Today there are many reputed and credible franchises. Below there are a few questions about franchising to which I have given the answers. I hope it is of the help to you.

What is Franchising?

Franchising is one of the popular ways of doing business. There are two levels of people involved in this; they are the franchisor and the franchisee. Here the franchisor gives the license to use his business model, brand and rights to sell its branded products and services to the franchisee. In return, the franchisee would have to pay royalty as initial fees and/or a continual royalty payment based on the percentage of that franchisee’s sales, and agrees to comply with certain obligations, typically set out in a Franchise Agreement.

Advantages and Disadvantages of Franchising

Advantages of Franchising

  1. As a franchisee, you could first check the credibility of the franchise and then decide. If it is a good reputed one your risk of failure is considerably reduced.
  2. The need for marketing and advertising is not much if you are franchising a reputed brand.
  3. The franchisor gives you a complete package of training, setting the business, a manual telling you how to set up the business and ongoing advice.
  4. There would be a marked territory where it would be only you having that franchise and the franchisor would not sell another franchise in that territory.
  5. Due to the reputation of the brand, getting loan from the bank to franchise would comparatively easy.

Disadvantages of Franchising

  1. The initial cost to buy the franchise would be high. Apart from that, the regular management service fees could be a burden just in case the business does not take off within a certain period.
  2. Due to the inflexible nature of the business or restrictions in running the business there is no possibility to bring in changes to suit your local market.
  3. Sometimes the franchisee finds it difficult to maintain the quality that the franchisor requires.
  4. To maintain the quality of the service that you need to provide, getting the right people could be a great challenge. If we do not get the right people in spite of the name of the brand, due to the wrong person there could be a problem in your business.
  • If I want to buy a franchise, what should I do?

  1. Decide on which franchise you would like to purchase. For this, what I would recommend is to know what your passion and capability is. If you are not passionate about something you would do it for the sake of doing it and you have to push yourself or someone has to push you to do it. With passion, you also need to see whether you are capable or gifted to do so. Based on that you choose the franchise as there are various types of franchises, like automotive, business services, children’s services, cleaning, food and restaurants, travel and lodging etc.
  2. Survey your market. Business done just for the sake of money will never be successful. If you meet the needs of the people or if there is development/improvement in them due to your franchise, they would go all the way out to either purchase your product or avail your services.
  3. The number of hours required to run the business. You need to commit yourself to a number of hours to be involved in the business. If you are not able to give that time you would have to hire someone to do the job for which you have to consider your financial situation.
  4. Once you decide on what franchise you want to buy, enquire about the brand, which companies offer franchises, their credibility, and reputation, how other franchises are doing, enquire about their track record.
  5. Look at the investment involved. Prior to the initial fees there are a few things that you need to consider as far as the cost is concerned, like the requirement of storehouse, office (in the market or residential) or will it be mobile etc. You need initial fees and after that to sustain and grow the business, you need more money.
  6. If you need to purchase any product or services from someone, who is going to be the party and how is it going to be done.
  7. What are the terms and conditions under which the franchise can be terminated or renewed.

One of the very important things to be done is to hire a professional to go through the terms and conditions and get professional advice about the same, even if you need to shell out some money on this it is always advisable or I would say it is a necessity. The people you would have to consult would be the lawyer (to understand the franchise, applicable state laws, terms and conditions etc.), accountant to examine the anticipated expenses, by when you would achieve the desired profit, ongoing financial requirements to run the business etc.

  • Can I have a partner in franchising business?

Ans. Yes, you can have a partner. I think the need of a partner would arise due to two reasons, one being the finance and other to operate the business. If you are financially not sound you could have a partner to partner in the area of finance with the mutual understand of deciding how you would divide the profit amount yourselves. If you alone are not in the position to run the business you would like a partner to operate the business or you could also have a partner who not only partner with you financially but also in operating the business. However, you need to be careful when you have partners. Unfortunately, due to partnering with the wrong person the whole franchise has affected. In addition, another important thing is for you to be the major shareholder to speed up the decision-making.

  • Can a franchise be taken away from me?

Ans. Yes, a franchisor can be taken away from. Bu the possibility of it would be when there is a breach in the contract or if the operations manual was not followed properly by the franchisee and the initial fee would not be refunded. However, at the same time if the matter is not serious then there is a possibility for the franchisor to give you another chance with a warning.

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