How to assess a franchise

Rashi Mathur, TFW Bureau
Rashi Mathur, TFW Bureau Sep 29 2017 - 5 min read
How to assess a franchise
It’s a common misconception that in order to be a successful franchisee all that is needed is ‘burning entrepreneurial spirit’. Most entrepreneurs are lured by the concept that, “A franchisee does not have to worry about what to do or how to do it

An entrepreneur seeking a franchise should look into the licensing and human resource aspect of the business that they decide to invest in. Each franchise system is different. Thus it is vital to carefully assess a franchise while understanding his/her own needs and conducting an in depth examination of the available options before making the final selection. One should also study about the business format that the brand operates on, in order to understand the kind of talent, knowledge and investment required to run the business. You are just 10 steps away from becoming a successful franchisee.

  • Self Scrutiny

First and the foremost thing should be evaluating your capabilities and limitations in relation to a franchise. You must be prepared to work for long hours as although the franchisor will render you support, the ultimate success of the venture lies on your shoulders. You must be willing to take financial and emotional risk. Your personality should be suitable for sustaining a franchise.

  • Market Analysis

Conduct a market survey and do an extensive research before deciding about the product. The product should be a proven one. Take a note of market competition. A presence of competition proves the availability of market for the product. Manpreet Gulri, Country Head, Subway Systems India Private Ltd says, “One should weigh the benefit versus risk ratio well before choosing a franchise. An in-depth research into the need/demand for that particular product or service in the market is very important. Once the product category has been shortlisted, the prospective franchisee can look at the brands recognised for offering that product, gather information from the franchisees associated with the brand and then make a choice.”

  • Right location

Location is the pivot around which the whole business revolves. A location on the outskirts of town might be more affordable but may be too remote for customers to reach conveniently. Tools like geographic-information-systems software and demographics reports for any region that analyse population characteristics, income levels, lifestyle trends and even traffic patterns within a mile of potential sites can be useful in deciding the location. Location can be one of the most critical business decisions, especially while running a business that depends on footfall.

  • Investment

You should have sufficient funds to meet the initial investment, working capital expenditure, front up and ongoing fee. The total investment that the business is going to require and the amount of income that it can produce should be in proportion. “One should do a thorough check of the profitability and revenue projections on the chosen franchise business. The franchise business they choose should fit in their investment budget,” says Manisha Ahlawat, Managing Director, Vivafit India.

  • Legal terms

You should have a know how of the legal formalities involved in acquiring a franchise. The franchisee must be aware of the duration of the agreement, the financial obligations, exit strategy and arbitration related issues.

  • Right business plan

Write your own business plan, which should include a brief synopsis about yourself, your age, education, experience and personal means including your property, liabilities and business connections. It should contain your purpose and plan in synch with market conditions and projected profitability. Do not forget mentioning about assets available as security.

  • Franchisor related queries

Thoroughly examine the business model. An ideal franchise is the one that offers new innovative products and services with protected technology and a growing market. Check for yourself whether the brand is an established one or not. You should be getting the required training and support from the franchisor.

  • Expert guidance

Experts can be hired for helping you assess a franchise. An expert could be a financial or legal advisor, business broker or who ever you can confide in. But he/she should be an expert in franchising who can help on matters concerning marketing, account handling and legal decisions.

  • Business agreement

Negotiate your agreement and don't think you have to accept the first set of terms put in front of you. Consider conditions and restrictions in the franchise agreement, including how long it will run and whether you will have the option to renew and then decide whether the franchise represents a sound business opportunity or not.

  • Communication with existing franchisees

Get in touch with the existing franchisees and take their feedback. They are the best people to talk to and get the feedback regarding the brand. But in the end use your sound judgment in making the final decision.

A piece of advice

Mike Hanrahan, Owner and Founder, Maid 2 Clean says, “The real business is the one that produces long term revenue.”Therefore, select the right proposition. Evaluate the franchise fee, royalty, product margins, geographies and market thoroughly. Dipak Agarwal, Chief Executive Officer and Head Strategy-DLF Brands also advocates the need of associating with the established brands. Gulri of Subway adds, “Narrowing down the choice of industry segment whether a prospective franchisee wants to venture into a high competition segment like a quick service restaurant category or a smaller but faster growing niche space like full service restaurants, helps in making the decision.” However in the light of business terminology, mental satisfaction cannot be ignored. Ahlawat of Vivafit India explains, “The franchisees should feel emotionally good about owning the business and take pride in sharing with family and friends about their business ownership. They should be happy with the expected financial returns. They should be willing to participate in the franchise network and sometimes curb their own creative desires in order to follow the franchise systems and values.” So, take a reality check on your expectations from the business; be it financial, emotional or physical and you are sure to succeed.

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