Finding the right franchise

1. Finding the right franchise •An entrepreneur invests a lot of time and money in refining a business model. •A franchise is a very good opportunity to leverage this investment and replicate a successful model. •Both, the franchisor and the franchisee can generate profits individually from this wealth of knowledge. •The franchise industry is growing world over as well as in India. •In India after liberalization, the franchise model of business took off and has never looked back since. •India has a huge market potential and it seems just the right way to expand business for Multi National Companies. •At the same time, it is a good opportunity for an entrepreneur to tap the brand equity of MNCs while relying on their scale of business. •The franchise industry in India offers a wide array of business models in almost all sectors ranging from education, food and health to wellness and beauty. •An entrepreneur must make an appropriate choice and select a franchise which would help him meet his goals. www.frantastic.in 1

2. •Once an option is decided on, an entrepreneur must find out as much as possible about the franchise and verify whether it leads towards the goals set by him and at a pace that he finds comfortable. •There are many ways to research about a franchise before you decide to actually go ahead with a deal. Location: •The location of a business matters a lot. •Find out if the franchise that’s interests you has enough market potential in the location where you are willing to operate. •Some markets are not ready or the socio economic demographics are not suited to that particular business. •Often it turns out that the market is already saturated and there are too many competitors. •The cost of operating varies according to area due to rental lease charges, availability of human resources and the size of market. Franchise trade fairs: •Make it a point to visit a franchise trade fair whenever possible. •It gives one the opportunity of getting a lot of details about the competing franchise or the near future of that particular industry. •You may have observed a certain franchise doing well and are interested in it but at a trade fair, new innovations and ideas relating to the same can be studied and hence get an idea of the future competition. •For example, when most petrol pump outlets were working in a similar fashion in India, shell came up with slightly upgraded service model and grabbed a large share of the market. www.frantastic.in 2

3. Website: •Most of the franchisors give a lot of information regarding their franchise on their own website. •There are many websites dedicated to giving information about franchises. •Depending on the investment required you can choose to avail of paid information from these online consultants who have already worked out the details. Franchisee Association: •You can approach a franchisee association of a particular franchisor to get a wider picture of the franchise opportunity. •From such a source you can know the actual maximum scope of business and many other factors which eventually come into play. •The attitude of franchisor regarding involvement with the association and response to its feedback speaks a lot about a franchisor. •One can also find out if any major problems are faced in general or in a particular area and how are they dealt with. •It is necessary to find out if problems are solved amicably or through lawsuits because a lawsuit can prove expensive to an individual entrepreneur. •Basically one gets an idea whether there is good faith and fair practice in dealings by the franchisor. Franchisee holder: •Who can help you better than a person who is already in the same business as you aspire to be? www.frantastic.in 3

4. •Definitely, talking to an existing franchisee can open a mine of information. Just ensure that you are approaching the right franchisee. •If you approach a franchisee in the same area where you wish to operate, he may discourage you so as not to lose his own market. •If you approach a franchisee operating in a market that is demographically, geographically and politically very different from yours than you may build baseless expectations or fears. •Prepare well before you meet a franchise so that you don’t waste his and your own time in understanding basic mode of operation while losing the chance to discuss actual challenges and opportunities. Make a list of points not to be missed out on during discussion. The list can be as follows: •Actual investment required •Return on Investment •Hand holding support in the starting phase •Regularity of supplies •Technical support to repair equipments •Training schedule and cost •All other costs (e.g. software enhancement, testing and evaluation) •Marketing effectiveness •Franchisor’s representative’s approach and efficiency at problem solving •Mode of problem solving (mutual agreement and joint resolutions versus lawsuits) •Remember to leave a good impression on the franchisee because the franchisor is sure to ask him about his opinion for you as a possible future franchisee. •Prior understanding about the model and a good grasp on the financial costs involved will definitely give you an added advantage. www.frantastic.in 4

5. Franchisor: •The same goes with the franchisor about doing your homework before you meet a franchisor. •You need to have the basics worked out and the challenges laid out so that they can be addressed precisely. •While you are assessing the opportunity, the franchisor is assessing you for the possibility of a successful franchisee. •Don’t be scared of asking uncomfortable questions. •The franchisor will appreciate you as a diligent businessman who wants to be confident of his enterprise rather than an unprepared and over enthusiastic businessman. •Most of the details are noted in the Franchise Disclosure Document or the Contract. Make a list of questions for the franchisor too. •Infrastructure, capital, resources needed •Franchisee fees and royalty and timeframe •Footfalls or number of transactions required for viability •The reasons for failure of a franchisee • Financial assistance •Available territories and policy for multiple outlets •Categories of franchisees •Extent of support by field staff •Trainings •Time taken to start operating •Marketing at national level and initial marketing leads •Taxation •Systems in place for conflict resolution •Jurisdiction •Expansion plans/product launches www.frantastic.in 5

6. •Exit strategy and post exit conditions (e.g. not getting into a competitive business in the same location) •Values and vision (You may not want to associate with a franchise that does not discern between healthy and unhealthy) www.frantastic.in 6

7. Annual report: •The financial strength of a franchisor becomes a very important factor in the future of the franchise business. •To make an assessment make a study of the annual report published by the business. •The annual report will give credible information on financial stability and future direction of the company through its balance sheets. •It is necessary to check the debt, background of investors and annual growth in revenues registered by a business. •With small and mid size entities it is very essential to make a background check on the promoters. National Consumer Forum: •If there are problems with quality, supply or pricing on a significant level then it will not be unusual to find complaints registered with National Consumer Forum. •Take note of the nature of complaints and time taken to resolve the issues. •When you have approached all possible sources of information, make a least of the prominent points to be kept in mind while deciding upon the venture. •Do not overlook the credibility of your source of information and cross check information and data. •When you have done detailed research about a franchise offer you will be able to plan and organize your business better. •This in turn will ease out the initial road blocks faced by entrepreneurs. •A dependable research will bring you one step closer to your goals. www.frantastic.in 7