Starting a Franchise Business
In an era where everyone wants to be their own boss, why is it that people are still reluctant to open their own business? Setting up a new business is like signing up for an unknown adventure, and it is the risk of failure and questions like ‘Will the business work,’ ‘Will customers want my product,’ and ‘Am I making a mistake’ that hold many back. These fears aren’t entirely unfounded, as numbers suggest that up to 30% of new businesses fail in their first year; 50% fail in the first five years and only 25% make it to 15 years or more.
However, what if we told you that starting a new business can still be a learning and profitable adventure, with minimal risks. Over the past few decades, the franchise model of establishing a business has proven to be immensely successful all over the world. Starting a franchise has minimal risks and lots of room for everyone’s benefit. Let’s take a look at seven important factors that make franchise businesses a lucrative investment for entrepreneurs and businessmen:
7 Reasons Why You Should Seriously Consider Investing in a Franchise
- Extensive franchisor support
Just like any regular business, setting up a franchise can be a daunting affair. However, franchisors make it easy for franchise owners and investors by supporting the set-up, launch and promotions. Franchisors also usually provide extensive training to franchise managers and employees, thus, helping the business maintain high standards of quality and comply with the regulation.
This support isn’t limited to the set-up and launch. A successful franchisee spells success for franchisors in terms of revenue and expansion. Therefore, most franchisors are also incentivised to provide ongoing support to their franchisees. Since a franchisor already has proven management policies, tested business processes and a good reputation, franchisees benefit from this as well when they are starting out. More often than not, franchisors also give exclusive rights to franchisees in their territory and ensure that they do not have any undue competition.
- Be your own boss | Explore a new career
Starting a franchise allows anyone to be a solo entrepreneur and experience what it is like to be running a business first-hand. Franchise owners are their own boss, which essentially means they can enjoy flexible work hours, find new ways to run the business and use it as a learning opportunity for the future.
Not only do franchise owners get to enjoy independence while benefitting from the franchisor’s network, but starting a franchise can also mean exploring a new career. Since a franchise carries lesser risk as compared to regular businesses and does not require years of business experience, anyone can use this as an opportunity to strike out on their own.
- Low risk | High success rate
Franchise businesses have the unquestioned and unwavering support of a much larger corporation. This means that even if they are just starting out, franchises do not need to spend money in market testing. The products and services already have an established market share.
What’s more, the risk of failure is significantly reduced in a franchise business. Since the business model has already been proven, the rate of success is much higher. Most regular businesses fail because of a lack of planning, poor management and lack of quality customer services. These challenges are have usually been solved by the franchisor, and the standardisation of the business operation and customer service means that the room for error is much lower.
- Cheaper than starting a business
If you were to start a business for the same products or services, a considerable amount of capital would be required in research and development, market testing, finding investors and securing the right location. Setting up a new business would require you to jump through several hoops, and even then, there is no guarantee that it would even take off. Discounting all the years, effort and money it would take to learn about running a successful business, starting a business is still more expensive than a franchise.
Franchisors hand-hold franchise owners and investors by helping them through the initial phases of setting up the business, finding the right location and promoting the outlet and provide support on an ongoing basis. Furthermore, due to the original franchisor’s reputation, banks are more likely to finance a franchise compared to a regular business with no established branding.
- Low customer acquisition cost | Enhanced brand awareness
Given the success of the original franchisor, franchise businesses enjoy a loyal customer base from day one. The established market share helps franchise owners spend less on customer acquisition and redirect those funds to purchase inventory or improve the customer experience. Franchise owners also benefit from any advertising done by the franchisor. Most established franchisors regularly run local and national promotional campaigns and spend a considerable amount on advertising their products.
This enhanced brand awareness has more than one benefit; locals prefer working with reputed and established brands in their region, which means that franchise owners have a wide talent pool to choose from. This can help build the right team, which is an essential ingredient for any successful business.
- Access to the franchise business network
When you start a franchise, you also become part of an extensive franchise network. This means you can learn, offer support and help each other find solutions to everyday business challenges. This is extremely useful when you are just starting out. A knowledge exchange session can help you with the practicalities of operating a franchise outlet from someone who has already had success with it. It can also help to assuage your fears and clarify any doubts that you might have before starting a franchise business.
- Collective buying power
As soon as you become part of a franchise system, you can also make use of the franchisor’s deep-rooted supplier relations. This means that you do not have to hunt for the right supplier and then negotiate terms with them. You can procure inventory at lower prices given the franchisor’s collective buying power. Cheaper inventory will go a long way to increase your profit margins and ensure you become profitable sooner than anticipated.
Investing in a Business Franchise: The Process
Now that we have established that several benefits of investing in a franchise business over starting a new business, let’s take a quick look at how you can go about starting a franchise:
- List out all the possible contenders: Ask yourself the right questions and introspect to identify the right franchise opportunity for yourself. What would you like to sell? What kind of revenue stream would you be comfortable investing in? How involved do you want the franchisor to be? Once you narrow down the industry and the specific product and service, you can start listing all the possible franchises that you might be willing to invest in. You should also assess how much you are willing to invest at the moment and in the near future. Once you have definitive answers, you have to start submitting applications to the franchisors you are interested in.
- Research the franchisor:
This is possibly the most critical step of the process. Don’t rush into an agreement with the franchise and research thoroughly before becoming a part of the network. Attend seminars, visit the company headquarters and speak to other franchise owners to get a realistic picture of how the business works. Since the amount of investment is high, beware of scammers as there have been several franchise frauds with fake websites and schemes that are simply too good to be true. Remember, if something is too good to be true, you should take a closer look and investigate. Weigh the benefits against the investment you are making and proceed cautiously. - Hire a franchise consultant: This may seem like a frivolous expense but hiring a franchise consultant is highly recommended, especially if you have little or no business experience. A franchise consultant can walk you through the entire process and help you save money in the long run by avoiding franchisors that offer unfair agreements or those with dubious histories. A franchise consultancy company, like Frankart Global, can help you in researching and narrowing down the franchise businesses most suitable to your business goals, connecting you to several franchisors, negotiating and reviewing the Franchise Disclosure Document and other legal, real estate and financial services. Since franchise consultants rich experience and extensive industry networks, you can save time and money that you would normally spend in researching franchisors.
- Review the FDD: The Franchise Disclosure Document or FDD is required to be presented to a potential franchise owner. This includes all the details regarding the franchisor – litigation, bankruptcy, initial fees, other fees, franchisee’s obligations. Once you receive the FDD, you usually have a few days to review it and sign it. Use this time judiciously to reach your final decision and allay any questions. Remember, the agreement is legally binding, so sign it only after you understand the terms and conditions that it states.
To sum up, starting a franchise has a ton of obvious benefits over starting a regular business but there are also some other advantages like getting adequate support, being a part of a business network and enjoying a healthy work-life balance. Young entrepreneurs and investors who want to try their luck should definitely consider investing in a franchise business. If you are looking for the right franchise business opportunity in India, please fill up our Investor Inquiry Form, and we’ll get back to you.
Karan Makan
Technology Engineer and Entrepreneur. Currently working with International Brands and helping them scale their products Globally through different ventures. He owns Multiple Food Brands and is on a continuous spree to acquire many more businesses in the coming years. With over 10 years of experience and strong background in Brand Acquisition, Karan Makan is soon poised to be a Brand in the coming years.
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