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Advisory 2009-11-17

Appraising a franchise

Entrepreneurs jump into the franchising business hoping to gain profits. But most of them take this procedure for granted without much evaluation, thus leading to its failure. Below are a few points which a franchisee can keep in mind before investing in

By Abha Garyali Sub Editor

Franchising is one of the most demanding and happening businesses in India today. In the recent years, franchise business has become widely popular with entrepreneurs and aspiring franchisees entering the business with a dream of making it big and successful. It offers huge opportunities to such aspirants. For example, from owning a QSR franchise to taking up a cartridge refill franchise, the choices are plenty. Besides such interesting factors, some other factors should be also kept in mind while taking up a franchise. They are:

Requirement of Investment: After selecting a franchise of your choice, one is recommended to consider the franchise fees and other payments required. The myth about franchising is that the more one invests the more one gains.  But, the success of the franchise depends upon the services or products provided by the franchisor, marketing techniques, and strategic skills.. Franchise investment may start from a few lakhs to crores. As an aspiring franchisee, one can always go for a franchise which one finds suitable to his/her requirement and interest.

Consider royalty payments: Young entrepreneurs are advised to deal with royalty payment tactfully. Most of the franchisors take a royalty payment monthly or yearly besides one time franchise fee. One is suggested to take up a franchise which does not require very high royalty. A high percentage of profits can be a problem to the franchisee at later stage.  So considering a royalty issue carefully is highly recommended before venturing into the business.

Reputation of the franchisor: In the present time, when franchising is becoming popular and growing rapidly, there is a rapid increase in franchising frauds too. Franchising scams are seen to be taking place with the new and inexperienced franchisees. So consider companies that have a good track record. Always conduct a research on the company before jumping into the deal. Reputation of the franchisor is an important aspect in franchising. Thus, the franchisee must ensure the reputation of the franchisor well in advance.

Consider legal issues: Franchising suffers from a major drawback. Till now there is no existence of franchise laws in India. So if the franchisees get into any hassles with the franchisor after signing the franchise agreement then the franchisee may have to face unnecessary harassment. Thus, before signing please read and understand the legal documents and in case of any doubts, do not hesitate to get it clarified from the franchisor. Also, the franchisee is advised to take help of a franchise attorney in the legal matters.

Training provided: Another important aspect before selecting the brand is the duration of training provided to the new franchisees. Some franchisors make fake promises about training procedures. So, trainings and support promised by the franchisors should always be in written forms. The franchisee can also try to find out whether the franchisor will be involved in selecting the location and setting up of the new outlet.

All prospective franchisees should always keep the following considerations in mind while taking a franchise. Thus, a franchisee can make a remarkable success if one is selective in their approach of evaluation of a franchise.

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