The franchising business has managed to weave its way into every industry ranging from simple food chains to well established educational institutions. So you can have your pick, and equipped with a thorough understanding of the industry and its scope, you can brace yourself for a fairly demanding and rewarding career.
How to set up?
Any business that offers franchising options will be happy to detail out their terms and conditions to you and also brief you on the investment required for the business. If you wish to set up a business solely on your terms, franchising is just not for you. You will have to conform to the franchisor’s general terms and conditions, business policies, business operation and marketing strategies, and not to mention even their design and interiors.
Your finances have to be strong at the outset. To begin with, you will have to present a bank statement to show that you have enough to cover at least a third or maybe even up to 40% of the required capital investment. In other words, this amount has to be your own and not a borrowed sum. The rest of the capital needed can be a borrowed sum.
Your franchisor will help you scout for locations or allow you to select one from their prepared list of chosen sites. You and your staff will be put through a training program to acquaint you with the business process. He will also introduce you to their suppliers, field consultants and other associates who are part of their business process.
Skills needed to start a franchise business
Interpersonal skills: Beginning from your first meeting with your franchisor right down to short listing candidates to work for you, your interpersonal skills play a huge part in setting you up in an administrative and authoritative role. Not to mention establishing good will and trust with your customers and other business contacts.
Capable of following leadership: The very essence of franchising lies in duplicating a tried and tested business formula without straying away from it. This means that you have to be able to follow leadership when required and not insist on doing things solely your way. Asking for guidance when needed to avoid any breach of terms is also high on the list.
Steering clear of risk factors and putting in your best work: One of the main reasons franchising businesses have a very clear framework to operate within is to avoid risks that could affect their overall brand image. So you have to understand the importance of playing by the book. But that doesn’t mean you can step back and expect the system to lead you to success: you should be willing to put in your weight where required as well.
Working closely with employees to make sure they understand what is expected of them, staying abreast of your new venture, and ensuring you’ve covered every aspect are some of the areas you ought to excel in.
The operational setup
As part of the terms of purchasing a franchise business, you may have to agree to stay on at a particular location for a mandatory term. And in addition to paying the initial franchisee fee needed for buying your franchise business, you will also continue to pay your franchisor a minimum percentage of your sales or profits, or an agreed sum every month. Your contract will be drawn up for a set period and will have to be renewed at the end of it.
The franchisee fee or the amount you initially pay to buy into the franchise does not include any physical items like furniture, real estate, fixtures, equipment of any kind or utilities. You will have to finance this yourself. Your monthly ongoing payments with your franchisor will include an agreed percentage of your sales or royalty payments, payment for supplies and in some cases it includes rent too if you are using your franchisor’s property.
Other miscellaneous payments to him may include training and marketing fees for employees and promotional activities respectively. Advertising fees may also be collected on a regular basis, which goes into a general pool and can be used periodically for advertising through any chosen media: print or television.
You may also have to consent to withdrawing or refraining from participating in any business activities that might be construed as limiting your franchise’s business opportunities. In other words, you cannot own or be employed by a business that can prove to be a competition to your franchise.
One of the most important deeds that will be part of your franchise agreement will be non disclosure of trade secrets, something akin to a confidentiality agreement.
Other criteria like investment and workforce needed depend largely on the kind of franchise you chose: be it a restaurant chain, clothes chain or a customer service chain. Depending on their set up, a real estate or computer servicing franchise may cost far less than an eatery. But typically, eateries show a much quicker profit margin than the other two, so it comes down to how much you can afford to invest.
Challenges and difficulties in the industry
When you have sufficient financial backing, a franchise business might seem a foolproof idea. A well known brand, great location, well trained staff and consultants to walk you through your start up phase: how can you possibly go wrong? You’re forgetting the competition. Most franchise businesses are located in key areas like malls and popular avenues. The downside is that so are all your competitors. They’re probably right next door or just adjacent, making it easier to lose customers even with the slightest oversight in service.
If competition outside the chain is heavy as it is, competition within the chain is just as tough. You are likely to see many businesses from the same franchises situated fairly close together. Further, if your products are available in other stores that promote several products under one roof, it has a better selling point than yours.
Owning a franchise business comes with a lot of responsibility as well since you would have invested substantially in it. Poor profit margins don’t help either as you will have to dole out a percentage to your franchisor.
Advantages of opting for a franchise business
Copying a set business model: This is the biggest advantage of franchising. While setting up a business, drawing up a business plan and strategizing your every move takes up a lot of time and money. In contrast, when you take up a franchise business, you are pretty much handed all the essentials on a platter. It’s up to you to make the best use of it by ascertaining your employees’ compliance to the same and ensuring quality service that is expected out of the franchise.
Reducing risk factors: It doesn’t take long to get started with franchises. And as the result of a reputed and well managed business, you start registering profits usually right from the beginning, unlike other businesses that break even first and gradually show profits later.
Store supplies at a better price: Since most franchises buy their supplies in bulk from a vendor and distribute it amongst themselves, they get a much better discount than if you are sourcing these supplies for an individual outlet.
Brand factor: Customers know what to expect out of your business even before they step in. For them, it’s a choice between the well known national or global chain vs. the unknown local outlets and they are more likely to go with the recognized brand. You just have to be sure you are meeting their expectations, both in terms of service and quality products.
Lesser promotional costs: Advertising and promoting your business as a chain will cost you far less than bearing the extensive promotional costs on your own.
Selecting a franchise business
A good rule of thumb is to choose a business that you have some experience in and something that you will enjoy. While the profitability quotient is also important, you are likely to be more vested and keen on one that interests you. Your lifestyle too helps you make the right decision. If you don’t enjoy a sedentary lifestyle, owning a clothes store is probably not a great idea. If you need fixed working hours and enough home time, then the food industry is not for you. If you love to teach, a training centre or a pre-school network could be perfect for you.
The upside to the franchising business is that you can choose your business based on the industry you are most comfortable with. If you are still not able to evaluate your choices, a franchise consultant can help you out.
Once you’ve chosen a franchisor, it would be best if you visit as many of their outlets as possible to get a firsthand knowledge of your franchisor’s operations and assess the requirements of the business. Conducting this market research yourself will give you a better understanding of your impending responsibilities.
Charting out a business plan
When you are applying for a loan, a business plan is usually one among the bank’s requirements. Creating a business plan for a franchise is a little different from creating one for any other start up business. Since a franchise business already has its plans and strategies in place, you will have to determine your role in this process and how you qualify for it.
Although it comes with its own set of challenges, a franchise business is one where you have an experienced group of people guiding you. So it stands to reason that with the right investment in the right industry and excellent service, you are likely to do well.
Websites to find a Franchise Business for Sale
There are a number of websites that you should start spending time on to give you an idea of what opportunities there are. In no particular order they are:
As always the above information is just a guide and we recommend you seek professional advice if you are serious about starting a Franchise business.