Sometimes, the best way to start a new business is to become a franchisee of an existing business. Under the franchise model, you can piggyback on the popularity, identity, marketing strategy and operational efficiencies by paying the franchisor, or owner of the brand.
This means that you do not have to set up your operation from scratch, but build on the goodwill, and the training that the franchiser provides. There are a number of reason to look at franchising as a business model.
Reduction of Risk Franchises are a lot faster to set up. While the franchisees have to make the initial funding, as compared to the franchisor the cost of capital is a lot less.
Already a known face Franchises enjoy the cushion provided by the franchisors as activities such as marketing, operations and strategizing are already in place.
Customer Advantage A franchisee benefits from an entrenched customer base already available for the franchise.
Continuous Support Franchisees are always supported and can gain insight from franchisers.
Forecasting Unlike a new business, franchisees have past records to help function. Past practices help in estimating and forecasting strategies and plan accordingly. There are some steps you have to undertake if you are interested in becoming a franchisee.
Understand your requirements: The preliminary step of setting up a franchise is to understand what kind of a franchise you would like to have and then approach the key players who have well established franchises.
Plan: A good business plan is the key factor that helps securing the kind of franchise you would want. Not only does the business plan help the franchiser understand your goal but also helps the banks and financial institutions you would be approach to gather funding.
Understand the franchise: Comprehend the franchise and see how the franchiser’s business models are positioned. Gauge requirements and the working style of the franchiser.
Know the cost and expenses: Typically 40 percent of the cost of setting up a franchise has to be from your own (non-borrowed) funds. An amount has to be put across to acquire property, equipment and miscellaneous expenses. A conventional franchisee is liable to pay the franchisor a prefixed initial amount. Also, the franchiser is to be paid either a flat monthly fee or a monthly percentage of sales that is predefined. An investor must remember that while he might be evaluating the franchiser, the franchiser too will be making his evaluations.
For the franchiser, he is allowing a relatively unknown stranger participate and use his brand name – something he must have spent years working on. He is not only putting at stake his parent company’s functioning but is also putting at stake the reputation and the goodwill he has amassed over a period of time. One of the main challenges is to accept the franchise system.
The franchiser’s success depends on the success of the franchisees. For good functioning it is imperative to have, the franchisee and the franchiser understand the interdependence of each other and share a common vision.