In the 21st century, Franchising has attracted a lot of people and rightfully so. The franchising industry in India has witnessed a growth of around 30-35% over the last four to five years and overall turnover is estimated at around INR 4 lakh crore. At present, the franchising sector contributes more than 2% to the Indian GDP and is estimated to contribute around 4% by 2022. It can be a gateway for new entrepreneurs to learn how to start and operate their own business.
However, selecting the best franchise for you can be a little overwhelming. There are more than 1.7 lakh franchisees operating in India and choosing the right franchise out of the many on offer, is a difficult task.
Selecting the right franchise
A good franchise is the one where the franchisor considers the franchisees as partners and takes care of them with the same level of care as their own business. However, there are several other points an investor must consider before selecting the right franchise.
Setting up as a small business or franchise
The first decision an entrepreneur should make is whether they would prefer to be a franchisee or a small business owner. Small business owners enjoy complete freedom in making decisions and have no hindrance when doing so, whereas in a franchise outlet there is a comfortable environment, and everything falls in line with the franchise brand’s overall requirements and guidelines. For people who are new to the business world, a franchise is a highly recommended strategy as it allows the entrepreneur to learn and experience the internal workings of the business world with the support of the franchisor and minimum risk.
Amount of Fixed Capital
Most franchises require a certain amount of fixed capital to start the business. The amount covers the costs for equipment, training, advertising, supplies and software in certain cases that are required to start the franchise. This amount differs from one franchise to another and franchise costs would generally vary greatly depending on the industry and specific business model. For example, an online or service franchise would require far less capital outlay than a franchise in the manufacturing or F&B industry. A franchisee must clearly define their investment limit before deciding to take up a franchise opportunity to ensure that they get the best franchise in line with their requirements.
Before researching franchise opportunities, it is important to study the market. Understanding which industries are currently thriving in the market or are growing at a rapid rate would help in selecting a franchise with high potential and long-term growth opportunities. After identifying the key markets, make a list of franchises that you want to begin a business with. Good market research is the secret to a successful business plan and an understanding of the market will help you choose a franchise that will drive profits. Not researching the market increases the risk of failure and losses when selecting a franchise. For example, in the current market conditions due to Covid, selecting a restaurant franchise may not be the best opportunity in the short-run however online and finance businesses have been showing tremendous growth.
Franchisor Objectives and Information
It is important to connect with the franchisor and clear all your queries with regards to the ROI, P&L, growth plan of the franchisor, freedom of operation, and responsibilities as a franchisee. It is extremely crucial to understand the terms of the agreement before getting started with the franchise business. Make sure that you are able to connect with them so that you can get a clear understanding of their mission and vision. If both the franchisor and the franchisee are on the same page, then a good success and profit-driven deal are made. This is an important step to make sure that there is no friction in the future between the franchisor and the franchisee. Any difference in values and objectives could lead to an unsuccessful partnership in the long run.
Franchise Reputation and Feedback
The final step in selecting a franchise is to gauge their reputation and get feedback from people who are already involved in some way with the franchise. You may ask about details such as the franchisor’s support system, licensing fees and any other exclusive benefits that the franchisor might be offering. Before purchasing a product, it is always best to refer to its reviews. In the same vein, it is always a good idea to learn about a franchise from the people who currently work with them to get internal feedback on how the franchise works.
Avenues for Selecting a Franchise
Today there are numerous physical and online channels that exist to choose a franchise from. Physical channels offer the advantage of being able to directly interact with the franchisor from the initial stage. However, online platforms have started to grow in popularity as they offer an easy method of filtering franchises, conducting your research, and finally getting in touch with the brand owners, all from the comfort of your own home.
One major source of franchise opportunities is franchise expos that are open to the public. A franchise expo is remarkably similar to job fairs or education fairs where representatives from the various franchises gather in a particular location and present their investment opportunities. You can look up the upcoming events or in newspapers to see when there will be a franchise expo near you. However, due to current circumstances such as lockdowns and the pandemic, this may not always be the most attractive option for people who are looking to buy a franchise.
Another great option is to register yourself on online marketplaces for businesses and franchises. Such websites offer a directory of franchise listings from across the world and are one of the most convenient ways of searching and shortlisting franchise brands. People looking for franchises can utilize such platforms to shortlist and connect with a range of franchisors based on their specific requirements in a safe, easy, and quick manner.
Franchise Brokers or Franchise Consultants
Franchise brokers are hired by and appointed by franchise brands to sell their franchise to prospective investors and are paid a commission/referral fee. While a relatively smaller number of companies appoint such brokers, it is easier for a franchise buyer to connect with such consultants and get a quick overview of the best deals in the market. While consultants are often deeply knowledgeable about the market giving you great insights into the franchising world, keep in mind that the options they may offer will be limited to their network of franchise brands.
A franchise is a proven recipe for growth and offers franchisees the opportunity to run a business with an established brand name and is a lower source of risk than starting its own venture. One of the world’s largest franchises includes Subway with more than 45,000 franchise units and McDonald’s with more than 38,000 locations worldwide. Some of the world’s largest businesses, especially in industries such as Food & Beverage, Education, Beauty & Wellness, Retail, Manufacturing, have made use of franchising to quickly expand their reach and it has become an integral part of their business growth strategy.
For a franchise buyer, selecting a franchise would largely depend on their criteria and objectives. There are a few things that a franchisee should decide even before looking at franchise opportunities. They must have a clear understanding of their goals, strengths, desired business area, how involved they would want to be in daily operations and most importantly – how much money they are willing to invest in the franchise. In developing these criteria, the franchisee is far more likely to succeed in their endeavour if they fully understand what they are looking for and the steps they need to undertake to achieve it.
By Vishal Devnath, CEO and Co-Founder, SMERGERS