The SMERGERS Blog

How to Start a Franchise Business

Thu 18 Oct 2018

In India, entrepreneurs with surplus funds often like to start a franchise business. It may not be their primary source of income but it can lend them a great deal of profitability because the business model is already proven successful and is led by a strong existing and recognised brand.  

 

Let us first take a brief glimpse at what is a franchise business:

In layman terms, a franchise is a license which grants the permission for the usage of products, name and trademark of an existing operational business. The party that lends the franchise is called the franchisor (popular examples include Mcdonalds, KFC, Pizza Hut etc.) and the party which will take the franchise is called the franchisee.

 

What can be the benefits of taking a franchise?

When a franchise is given to a franchisee by the franchisor, they can derive multiple benefits from it including selling franchisor’s products, using their trademark, access to technical know-how, access to their logistical services, professional advice etc. It is the most convenient way to start a business as the franchisee will be supplied with almost everything by the franchisor.  

The brand and the business model are laid out for the entrepreneur taking the franchise but still there are a lot of challenges to be faced while running it. And, in this blog post we are going to help you tackle those challenges as well as provide you with the required guidance on starting a franchise business.

 

What is your budget for starting a franchise?

First thing you should know before looking for a franchise opportunity is that every franchise comes with a required upfront brand fee and also an estimate of required investment. So, we recommend you to go over your personal finances and assets to get an idea of franchise price range you should look for. For example a subway franchise in India will cost you around INR 6 lakhs in upfront brand fee and approximately INR 65 lakhs in investment required in opening the outlet. Take some time considering this variable as you don’t want to waste time in dreaming up opening a particular franchise only to later realise that it doesn’t fits your bill.

 

Then how do I proceed with the process of opening a franchise?

We at SMERGERS have a huge number of franchises listed on our platform here across several preferred locations and industries. Also, you can easily shortlist franchises of your choice according to required investment, run rate sales, EBITDA, year of establishment etc. Once you approach a franchisor through our platform or any way else the following process takes place:  

1. Franchisor will conduct the due diligence of you the franchisee as well as you can also do a due diligence of the franchise to see if it will be suitable for you or not.

2. Approval will be granted by the franchisor often based on certain conditions being met by you the franchisee.

3. Then, the franchisee can sign the franchisor’s agreement and both parties can start the franchise.

What is included in the franchise agreement?

A franchise agreement is a legal document that governs the rights and obligations of both the franchisor and the franchisee. You should definitely consult a lawyer for going through this complex document which will list various obligations for you as a franchisee.

 

Following are some of the key terms in a franchise agreement:

 

1. Payment: Payments have to be made by the franchisee to the franchisor such as the brand fee, royalty and management fee.

2. Term: This states how long the franchise has been granted for to the franchisee.

3. Intellectual Property: This includes how the franchisee can make use of franchisor’s patents, trademarks and copyrights.

4. Supplies: This states the items that the franchisee has to purchase from the franchisor only.

5. Confidential Information: The includes any information passed on from the franchisor to the franchisee has to remain confidential.

6. Accounting: The franchisor will require regular maintenance of accounts and invoices by the franchisee and the same must be audited by an independent firm of accountants.

7. Non compete clause: Often there will be a clause in the agreement that bars the franchisee to start a similar business once the franchise agreement has ended in a geographical territory or for a period of time.

8. Employees: The franchisor may require the franchisee to hire employees of a certain qualification only or require them to pass a certain training program developed by the franchisor.

 

Signing up for a franchise business is as easy as this but make sure you have the required surplus resources to pull it off and you can work under instructions from the franchisor as this may not be suitable for those entrepreneurs who are fiercely independent.  

If you are looking to start a franchise business then you can login to www.smergers.com and start connecting with attractive franchise options available in your location.

 

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