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Franchising can prove to be a lucrative business option when starting a business. But certain key factors must be kept in mind before selecting a franchise.
ANY investment option comes with some amount of risk, though the nature and magnitude varies. However, many investors agree on one factor that of starting some business venture having good returns. This brings us to the most intriguing question, whether franchising is a lucrative option.
Before answering this question, it is important to understand the investor, his background and a proper assessment of his needs. Investors can be classified into the following broad categories:
After the above, the investor must check the following before taking the franchise:
Credibility: A brand is a crowd puller. Also the management team running the brand adds to its credibility.
Successful business prototype: A brand that already has several outlets or is into franchising is ready for replication which makes the franchisee's life easier. For instance, food cost is an important component in a Profit & Loss statement of any F&B business and can affect the profit margin.
Uniqueness of the concept: Research based outcome that gives differentiation will prove to be relevant for the target group in a given geography.
High ROI: It depends on several factors like industry, concept, location, brand awareness, competition, management bandwidth of a franchisee, franchisor support, etc. The following questions need to be answered to establish the right ROI:
Legal agreement: In franchising an agreement should be enforced between the parties after consultation with a franchise lawyer. A few important clauses like Exclusivity, Exit clause, Indemnity, Intellectual Property, Territory rights, etc., should be checked.
An investor can surely multiply his profits through franchising, provided the above pointers are borne in mind before selecting a franchise.
Shashwat Prakash, Senior Consultant-Strategy