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Education Blog 2016-08-23

10 things to watch out for before signing a school franchise

When it comes to choosing the brand for a franchise, most people just compare the initial and ongoing franchise fees or get tempted by no royalty (no support) models while making their choice of franchise.

10 things to watch out for before signing a school franchise

If you are planning to open your own preschool or school, franchising is the obvious choice. ‘Franchising’ is described as ‘an arrangement where one party (the franchisor) grants another party (the franchisee) the right to use its trademark or brand name as well as certain business systems & processes to produce & market the good or service according to the standards set.’ Also, the franchisor offers assistance in organising, training, merchandising, marketing and managing in return for a monetary consideration. Specifically in the Education Industry, one gets a complete package to set up their school, i.e., infrastructure, school design & interiors, teacher recruitment, teacher training, school curriculum and ongoing R&D support. Moreover, parents mostly prefer brands to standalone “local” schools as they assure quality.

To set up your own school, when organisations have already spent crores of rupees and years of research on perfecting their school system is totally irrational. For instance, if you wish to have a car, would you go to a showroom to buy a car or go around the market trying to speak to mechanics and buying parts to assemble your own car? Similarly, by signing up a franchise you get a readymade and proven system as opposed to creating a system all over again by hit and trial. Even if you can make it work, it will be difficult for people to trust a new name. No wonder research clearly shows that franchisees tend to do better than independently set up units.

However, when it comes to choosing the brand for a franchise, most people just compare the initial and ongoing franchise fees or get tempted by no royalty (no support) models while making their choice of franchise, but, it is imperative to dig a bit deeper to avoid getting one’s fingers burnt.

Why don’t we wear the cheapest clothes, go to the cheapest restaurant, or parents send their children to the cheapest schools (government schools)? Why not? It’s because we all want “value for money”. A brand charging 20 per cent royalty and franchisees getting value for money is a better proposition than someone charging 5 per cent royalty and not giving any value at all. However, “value for money” is not just a simple equation; you need to identify what you will end up paying beyond the obvious and what return you will get on your investment. You should choose the brand where you can get the maximum bang for your buck. There are many operators who promise 360 degree and 24x7 support at almost no cost – but there is no such thing as a free lunch. By signing up with such unethical operators, the investors feel cheated and give the whole industry a bad name. So,to avoid such a situation with your hard earned money and reputation, here are 10 steps that will help you get a better idea of what you will end up paying and what you will be charged.

1. Years of experience

The Franchise sector has a history of fly by night operators who have promised their franchisees the moon, only to go back on their promises once the agreement is signed. The number of years a company has been operating & franchising for is very important to judge their previous track record. Since you are paying for the goodwill, when you join a system, the more the number of years in the industry, the more the students, the more the alumni- the better it is!

2. Background of the Management

The vision, mission, goal & objectives of the organisation are driven by the top management; therefore, by joining a franchise you are essentially choosing your “leader” for the coming years. The decision is yours, but to make it wisely you need to do a little research about the promoters as there are a lot of inexperienced ones in the market and you would not want to deal with them. Moreover, reading about them from their websites, competitive analysis & reviews by experts, etc., will help you get a brief picture of the brand, the people behind it & their ethics, morals and values. Also check for third party and industry validation of managements – read what the media says about them. Check out the ones which are speaking in industry forums - national and international. Furthermore, many companies in the franchise sector are driven by professional CEOs with the promoters acting as only investors and not getting involved in the day-to-day affairs. Such cases may involve replacements of the people in the top management that may result in unfulfilled commitments and promises. Therefore, it is important to choose a company where the management is actively involved and transparent enough to meet and listen.

3. Quality of the system

Use your time in researching about the company - both online and offline. Social media these days is a powerful weapon for conducting any kind of research which includes using Facebook, company’s own website, YouTube etc. Also, you could conduct a personal research by talking to people in areas where the brand has a presence and get an idea about its reputation amongst the general public. Moreover, take into consideration the opinions of the franchisees and the brand with a higher percentage of happy franchisees is the one you should choose. The brand with the highest number of franchisee turnovers is the one you are not to consider. Ask the brands you are considering about the R&D team and who is heading the same. Also try and research the philosophy of the curriculum and check to see if it is better than the “traditional” schools in your area. You will be surprised to know that many school brands have no standardised school and academic system or are just repackaged versions of the traditional school system.The best way to judge the curriculum of a school is to ask in the neighbourhood of existing branches about its reputation, see its reviews on Facebook, likes on Facebook, pictures posted by its other branches and if possible go as an admission enquiry and browse the book sets. Moreover, check that the Hindi curriculum is also available as most school systems fail on that front.

4. School design

Franchisors providing the franchisees with the liberty to get their own interiors and designs use this as a strategy to sign up more franchisees. Such brands tend to have no uniformity in the infrastructure and design of their school branches and are mostly concerned with quantity rather than quality. A brand allowing franchisees to design their own interiors is in it for the short term and therefore, needs to be eluded. Also try and visit the schools to see how attractive the interiors are since you shall be paying for the same, so you should know how your school will turn out for the investment you make. If you cannot visit, try and do a Google image search to see if the interiors of the exiting franchisees are attractive for parents. Furthermore, a school system with a good network should be able to assist you in finding the right location, dealing with the already shortlisted vendors and also in guiding you for any government approvals which are required for primary and post primary classes.

5. Recruitment & Training

Teachers are the backbone of any educational institution – do ask in detail the kind of assistance that is provided in teacher recruitment. Also, enquire about the trainings given by the Head Office and get details about the types of training- initial & ongoing, limitation on the number of people and the charges per head. Any quality institution will offer online, on-site, head office and residential trainings. Check on with the existing franchisees about the quality of training and trainers and consider this factor before making your decision.

6. Technology

Any organisation with a better understanding of technology will have a sure shot advance in the coming years, over those that do not understand technology - therefore, it is imperative that the system you sign up with, has a technology backbone to manage and communicate. Furthermore, any quality organisation should have the ability to design your personal website, assist in digital marketing and have an in-house IT development team.

7. Option for Updgradation

Ideally, the brand you tie up with should have preschool, primary school and 10+2 franchise packages because you may want to upgrade your preschool to a primary school, upgrade your primary school to a 10+2 school or setup feeder schools for your formal school. You would not want to be stuck in a situation in the future where you do not have flexibility to expand your school.

8. Hidden Costs

Many franchisors get the franchisees to purchase the “setup kit” from the franchisor itself. However, there can be chances that they might be overcharging for the kit. Therefore, one should enquire about the market price of the contents of the kit and ask the franchisor about the option of buying the same from the market after considering the price. Many franchisors offer “Customized” products such as books, uniform, stationery, etc., which may have been kept overpriced. Therefore, before choosing to buy these customized items, get the opinion of existing franchisees on the buying choices of parents relating to such items. Also, check for any hidden costs like teacher training fees, compulsory purchases from the HO, forced advertising fees etc. A simple test to check the same is to ask franchisors –“if the same thing is available from the open market at a cheaper price - can I buy things directly?”

9. Additional Charges

Many brands charge an agreement renewal fee that might add up a lot to the costs if one considers a lifetime relationship with the brand. Therefore, negotiate with the franchisor on getting the renewal fee waived for life in written, if any has been charged by the franchisor. In addition, many brands charge royalties on after-school hour activities such as day care, clubs, hobby classes, etc. Consider on checking for any such royalty charges to be borne by you.

10. Distance between branches

You would not want to end up a situation where you find another franchise of the same brand in your vicinity, thereby, leading to competition with another franchisee. Ask the franchisors about the geographies in which they are the strongest, after which do some research about the information received from their website and check on for the distance between the branches of that particular area. You can consider including cities like Patna, Pune etc., with large school populations in your research and check on the ethics of the franchisor about giving sufficient space between each branch. Furthermore, you can try and ask the franchisors to grant another franchisenear an existing location and see their reaction. If the company agrees, stay away from such a brand as they will treat you the same way in future.

By keeping these 10 points in mind you can shortlist the brands that will help you set up a quality school in your community and you can embark on a journey that is enriching, satisfying and profitable for a lifetime.

This article is written by Amol Arora, Vice President & Managing Director , SHEMROCK & SHEMFORD Group of Schools based on his personal research and experience.

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