Ideal interaction between a franchisor and future franchisee

1. Ideal interaction between a franchisor and future franchisee Once a decision is made to invest in a franchise after thorough research, it is time to meet the franchisor in person. It is an opportunity to get all remaining doubts cleared. Do remember that it is also any opportunity for the franchisor to assess your capability as a businessman so be sure to put your best foot forward. Go through all available data and highlight your doubts. Rather than jumping from one question to another unrelated question make an effort to smoothly transition from one subject of query to another. This will save a lot of time for important discussions. Divide the queries into different topics such as opportunities finance, marketing, legal or operational. The answers to these questions should be able to help you to judge the reliability of the business model. www.frantastic.in 1

2. Introductory: Politely ask basic questions such as the authority and capacity of the person you are interacting with. Though you are familiar with the business model ask about the Unique Selling Proposition (USP) offered by the product or service. When you have more than one franchise businesses shortlisted in your mind, the USP can help you to come to decision. Along with existing products and services, ask for new products and services that are in the pipeline and would be launched soon. Find out how the franchisor views his business’s Unique Selling Proposition as compared to that of the closest competitor. Location where the franchisor is based. Ask if there are any special franchisee categories such as full scale or micro outlets, run by women only or such others. Due diligence: Ask if the trademarks are registered or if there are any existing disputes regarding ownership. Make sure that all legal compliance requirements are met. Financial details: Ask for the initial onetime cost of franchise which includes franchise cost, deposit, equipment, lease and other infrastructure. Also note the period for which the franchise will be enabled and valid. Ask for recurring charges such as franchise fees, royalty fees. There are many other fees like software upgradation charges and evaluation charges. Ask a franchisor about Return on Investment and the scale of business required to break even. He may be able to inform you of the minimum transactions required in a week for the franchise to be viable and also give a fair idea of time needed to break even. www.frantastic.in 2

3. Training: Find out all trainings required at the onset and what is the time and cost for the same. Find out the training required at the time of new product launch and frequency and cost of such trainings. Ask for the assistance given on field and the charges of such visits. This knowledge will help you to hire the right human resources and even develop your own policies for human resource management. Operations: Ask about the minimum cost of operations per day. Find out the working capital needed on hand before cash flows start. Many franchises have supply problems and long waiting periods so ask about the average time taken to deliver on an order. Ask what skill support is available in the event of technical breakdowns. Marketing: Most franchisors wax eloquent about marketing so understand the same and clear the implications on a franchisee. Find out the marketing fees, advertising fees and how they are determined. Find out the kind of support given for marketing at the time of launching the franchise. Get to know about promotional activities and who is responsible for execution. Understand if there are tie ups for marketing or provision of marketing leads at least in the initial phase. It may be a good idea to understand the positioning of a product or service from the franchisor himself. www.frantastic.in 3

4. Businesspolicies: Most of the businesses have stated and often unstated policies. It is better to know of the policies before making any decision because they have a direct impact on growth and profitability of your business. Find if the franchisor competes directly or indirectly with the franchisee in any way. Find if more than one territory can be held by a single franchisee and what are the limitations. Many franchisors have exit policies wherein a franchisor cannot do competitive business in the same territory even after exiting the franchise. www.frantastic.in 4

5. GrievanceRedressal: It should not be expected that there should not be any complaints at all but what matters is the manner in which these grievances are addressed. Find out the procedure established by the franchisor to solve problems. Find about the existence of a Frachisee Association and its interaction with franchisor through franchisee committee. The method adopted to solve differences and problems amicably. If it is only through legal route that it can become expensive and complicated. Find out if there is established customer care. Find if there are any existing lawsuits. The jurisdiction matters a lot in event of a dispute because of differing laws, nationalities and locations so know more about it. Introductory Due Finance Training Operation s Cost of operation Marketing Business Policies Competin g with a franchisee Grievance redressal Interactio n with franchisee associatio n Addressin g a problem diligence Regulatory compliance Existing and new products and services Initial cost of franchise such as investment cost and fee cost Continuing costs of franchise such as royalty Initial training component s Marketing and advertising fees Locations available Ownership of trademark and disputes if any Environmen t and health hazards New product training Time frame for supply Promotiona l activities Exit policies USP Annual or regular costs such as training, soft ware enhancement, advertising fees Return on Investment Frequency of training Support for equipment break down Tie ups and market leads Limitation s of territory lawsuits Categories of franchisee On field assistance Working capital Positioning and branding Business launch marketing assistance jurisdictio n Minimum transactions required to break even Customer care www.frantastic.in 5

6. One should ask a franchisor’s opinion on failed franchisees if there are any. The franchisor’s attitude towards the problematic areas will be a subtle indication of the franchisor’s involvement and ownership in a business. This also helps in assessing one’s own capabilities and prove crucial in making a decision. If possible a franchisee candidate should conduct a SWOT analysis of the business model to identify the strengths, weaknesses, opportunities and threats to the business. No doubt, the franchisee should do a SWOT analysis himself in the research phase but it can turn out to be quite different from the franchisor’s perspective. The franchisor has been involved with the business over a long period of time and deals with strategic issues and hence may be better aware of the opportunities and threats to a business. For example, if a franchisor has started facing too many queries regarding the products health hazards recently, he may be aware of approaching changes in market preferences that can act as a threat to the business. One factor that is often ignored or overlooked before purchasing a franchise is the whether the values adopted or inherent to the franchisor are matching with the values of the franchisee or not. Health and safety, environmental and social responsibility, ethical trade practices, employee relations and inclusiveness are not just jargon anymore. The associated values not only impact the bottom line of a business but also have legal implications. Be open about yourselves when making your queries to the franchisor. The franchisor will also enquire about you, understand your goals and capabilities and provide you with possible solutions to your doubts. A franchisor is out there to profit by helping you to simplify and run your own business profitably so ideally a franchisor’s answers should remove your doubts. www.frantastic.in 6

7. At the end of your interaction you should feel positive about receiving total support and guidance for the franchise from the franchisor. This would be an indication of a good franchisee opportunity. www.frantastic.in 7