Starting a new business is one of the toughest decisions you can ever 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 you need to start a Franchise, and much more.
Let’s dive in to see how you can benefit from a 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 a private group of individuals is sold the rights of the 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, a Franchise business is the extension of an existing successful business. It’s executed in an exactly similar way to which parent business works.
These private operators are called franchisees. The relationship between the owner and seller is contractual. There are a lot of common examples of franchise businesses around us. For example, Macdonalds, Subway, Cafe Coffee Day, Starbucks, Domino, 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 proven business system, you also get access to trademarked things of the brand. For example slogans, brand names, logos, etc.
- In addition to these proprietary rights, the franchise might also be given a specific territory for the selling of the franchisors services.
- Not only this, the 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 time the right to renew the period is also available.
- As soon as the business starts, there is then payment of ongoing royalty payment which might be on an annual basis or it depends.
- The amount of royalty payment is calculated based on total sales made by that franchise retail outlet.
- Thus, a contract would be signed between the franchisee and the 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 the products.
- The methods of the proven business system would remain the 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 a different city with the same representation of the already tested business operation.
- To be more clear about the purchasing of the franchise, or to finalize the decisions, you can get in touch with professional organizations that deal only with these types of things. Some of the companies are mentioned in the later part of this article.
Different Types of Franchises
There are a variety of different franchises an individual can acquire following are some types of it.
- Fast Food Franchises: These are perhaps the most well-known franchise businesses. They include popular brands such as McDonald’s, Subway, Burger King, and KFC.
- Retail Franchises: Retail franchises encompass a broad category of businesses that sell products directly to consumers. Examples include convenience stores, automotive parts stores, clothing stores, and electronic stores.
- Service Franchises: Service-based franchises offer various types of services to customers. This category includes businesses like cleaning services, home repair and renovation, tutoring centers, hair salons, fitness centers, and printing services.
- Hotel and Lodging Franchises: This category involves franchises that operate hotels, motels, and other types of lodging establishments. Brands like Marriott, Hilton, and Holiday Inn are well-known examples.
- Automotive Franchises: These franchises provide services related to automobiles, such as car rental, auto repair, car wash, and gas stations. Companies like Avis, Midas, and Jiffy Lube fall into this category.
- Education and Training Franchises: Education franchises focus on providing educational services and training programs. This can include tutoring centers, language schools, preschools, and test preparation centers.
- Health and Fitness Franchises: This category comprises fitness centers, gyms, yoga studios, and wellness centers. Brands like Anytime Fitness and Snap Fitness operate through franchising.
- Real Estate Franchises: Real estate franchises offer services related to property sales, rentals, and management. These can include residential and commercial real estate agencies.
- Business Services Franchises: These franchises provide various business-related services, including accounting, bookkeeping, consulting, printing, marketing, and staffing services.
- Home-Based Franchises: Home-based franchises allow individuals to operate a business from their homes. They can involve a variety of industries, such as home-based travel agencies, home cleaning services, and online retail businesses.
Pros And Cons Of The Franchisee Business
It is very important to understand the advantages and disadvantages of a franchise business before buying the franchise business rights.
- Risk – The biggest advantage of owning a franchise business is investing in a business that 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 – Several marketing techniques are required to run a business. Franchisors already working business strategies and advertising pamphlets would provide you with the push and growth of 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, but in the case of support 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 by the franchise alone but franchisor as well.
- Connections and links – There would be another franchise that might have experienced the same troubles you might are experiencing. Of course, discussing and sharing out your problems with other franchise people would help you have a better vision of the business plan and strategy to be opted for.
- Initial fees – The initial payment which is required to be made 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 the same. It costs a lot. Normally, it starts from a couple of lakhs and goes up to a few Crores.
- Payment of ongoing royalties – It is calculated based on the total sales of that particular outlet. It must be paid at regular intervals, might be on a monthly or annual basis. They may range from 5% to as much as 12% of the monthly sales.
- You have to follow the rules – Even after buying the franchise, you have to follow the rules and regulations that are pre-decided. If rules would not have to be followed, then the taste of Domino’s or Pizza Hut would not have to be the same in different places around the globe.
- Fund for marketing – Marketing strategies do not 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 your 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 the rights in the context of 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 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 your business into a proven business system.
- Another important fact is, even when you dont have enough time to start the business and time to see it grow. With a Franchisee business, you dont have to worry about growth.
- With the support of the 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 with this new venture.
Low-Cost Franchise Business Opportunities In India
Several websites provide links to start-up low-cost franchise businesses in India. These sites would provide different categories to choose from according to ones requirements. Along with the categories, a price range would also be available to suit ones 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 is the list of a few websites:
- Startingfranchise. in
- Franchisemart. in
You can find various franchise business ideas like starting a restaurant, setting up a cafe, opening Gym, starting a beauty salon, and much more.
Why You Should Consider Low-Cost Franchise Business Opportunities?
- After China, India is the second most populated country, and area wise it is the seventh-largest country. Apart from these rankings, India is not lagging in its 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.
- The franchise industry in India has been ranked internationally as a very attractive international market.
- Very good brands of the world are targeting the Indian market for their further branching and growth of business opportunities.
- Professional organizations deal with various problems the franchise has in their minds to help them start 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 to the mind of an investor is how a franchise business is better than starting up your business.
The biggest positive attribute of a franchise business is venturing into an already established business. Your risks of growth and profit-related risks are lowered to quite a good extent. It helps a lot especially if you do not have previous business experience.
The initial years are difficult when starting from scratch and 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 between the freedom of starting your own business or a sense of security when opting for a franchise business, one must take a decision accordingly.
A franchise business or owning a franchise is a great way to get into the world of business. Once you are in the world of business, you will also understand the importance of accounting.
This is where ProfitBooks comes into the picture, with our easy-to-use accounting software, all your accounting needs will be taken care of comfortably, and with our “forever free” plan you can rest sure that your accounting needs don’t require capital investment.
so, next time you are enjoying a Yavala chai, in your own Yavala franchise you don’t have to worry about accounting.
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Frequently Asked Questions (FAQs)
Q1. What are the financial obligations of a franchisee?
A1. The financial obligations of a franchisee typically include an initial franchise fee, which grants the right to operate the franchise, and ongoing royalty fees based on a percentage of sales. Franchisees are also responsible for covering their startup costs, such as equipment, inventory, and initial marketing expenses.
Q2. How long does a franchise agreement typically last?
A2. The duration of a franchise agreement varies depending on the terms negotiated between the franchisor and franchisee. Typically, franchise agreements last for a specific number of years, often ranging from 5 to 20 years. It’s important to thoroughly review the agreement and understand the renewal and termination clauses before signing.
Q3. Can a franchisee sell their franchise?
A3. Yes, in most cases, franchisees can sell their franchise to another party. However, the franchisor usually has the right of first refusal or may impose certain conditions on the sale. The details regarding the sale of a franchise are typically outlined in the franchise agreement or a separate sale agreement approved by the franchisor.
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