Franchising as a business format, has worked wonders for the franchisee as well as the franchisor. It is in fact a format which thrives on mutual benefit and synergy. Benefits for the franchisee are quite well known like using an already established business model, the right to use an established brand name and all its intellectual property. But why does a franchisor franchise his business? What are the benefits in store for him? We tell you the advantages of franchising for the franchisor.

• Capital
Franchising provides the franchisor with the perfect opportunity to raise capital. The franchisor obtains capital from the initial franchise fee paid by the franchisor. This money can then be used by the franchisor to finance and grow his business.

• Infrastructure
Also through all the finance raised, the franchisor can put in the money to generate infrastructure. Infrastructure plays a major role in the development of the business by increasing efficiency and creating goodwill.

• Leverage the brand
Franchising provides the franchisor with an opportunity to leverage the brand. By adding more outlets and getting in more people, the franchisor can reach out to a great target audience which in turn will help him leverage his brand better. This provides the franchisor with an opportunity to reap rewards for all his hard work.

• Expand
Also franchising provides the franchisor an opportunity to expand his business. He can take his brand across boundaries through franchising. Many franchisors franchise stores across the world without even seeing the location once.

• Economies of Scale
More and more franchisees means the franchisor can get economies of scale. As the production goes up, the cost decreases which in turn increases margins. Since the franchisor will order for raw materials in bulk, he can get maximum discounts. So franchising provides the franchisor a great oppurtunity to obtain economies of scale.

• Customer insight
Also, the franchisees help in providing the franchisor with great customer insights since they are in direct contact with them. The franchisees interact with the customer on a daily basis and hence this can provide some great insights which the franchisor wouldn’t get otherwise.

• No day-to-day running
A franchisor doesn’t need to monitor the day-to-day running of the business. Once a franchisor has established and put systems and processes in place, the business is run by the franchisees. Hence franchising involves a lot of strategy rather than daily running of the business.

People often enter franchising with dreams in their eyes. But franchising as a business has many aspects to it as there are many types of franchising, for example, an office based franchise, master franchise, pilot franchise, and home based franchise

Each of the above mentioned formats has its own advantages and disadvantages, the formats by themselves are not the only determinants of success, the format should suit the needs of the franchisee. Today, we compare two of the most successful franchise formats which are Home Based and office Based franchise

Office Based franchise

Investment
The initial investment in an office based franchise is quite substantial because one has to purchase commercial space, which by itself is a huge investment. In addition to this one needs to hire staff, buy office furniture and office equipment. Hence the initial investment in an office based franchise is quite high.

Overhead costs
Due to various factors like staff salary, electricity bills, office rent etc the overheads in case of an office based franchise are comparatively higher that in a home based franchise.

Focus
An office helps in maintaining a professional atmosphere around the business. Also in an office there aren’t any distractions and hence it is easier to maintain focus.

Convenience
At times, the work hours and the commuting time can cause inconvenience in case of an office based franchise. Unless the office is close to ones residence then this problem may not arise at all.

Home Based Franchise

Investment
The investment in an office based franchise is considerably lower because of no need for office space, office furniture etc. Usually home based franchisees don’t hire a huge staff and this also helps in reducing cost. Hence when compared to an office based franchise, this format needs considerably lower investment.

Over Head costs
Since a home based franchise can be run from home without any need for elaborate office furniture and a separate electricity bill, the overhead costs are comparatively lower.

Focus
At times it can be difficult to maintain professionalism in a home based franchise because one constantly works from the comforts of his house. In such a case it is easy to lose focus because the line blurs between work and personal life.

Convenience
Out of all the formats, home based franchise offers maximum convenience with respect to time and space. Since one works from home, one can work at whatever time is convenient.

The Uniform Franchise Offering Circular [UFOC] is the most important document a franchisor can offer to the franchisee. This provides the aspiring franchisees with all the important information which they need before they make the final decision of investing in a franchise. It should contain a plethora of information ranging from the time of inception of business to the terms of termination & renewal. Franchisees often rush into making decisions because of lack of accurate information. Therefore in order to make the right choice, the franchisors UFOC is very important.

Here are some of the key points, which should definitely be mentioned in the UFOC

• History of the Franchise
It should clearly mention the history of the franchisors business since its inception. This would also involve legal details, if any. This should be like an exhaustive description of the company since its beginning with respect to market share, customer satisfaction, profit margins, taxation etc.

• Fees
It should also clearly state the various types of fees which have to be paid by the franchisee. Many franchisors nowadays take an incremental fee, which means, greater the sales, greater the fee/ commission paid by the franchisee. Hence the royalty as well as the daily fee should be clearly stated.

• Initial Investment
This is also known as the franchise fee. This is the initial fee paid by an aspiring franchisee to be a part of the franchisor business. The initial fee is used by the franchisor to invest money in the franchise and also in training and hiring franchisee staff and for other such services. The fee varies from franchisor to franchisor.

• Rights and duties
It should also state the rights and duties of both the franchisor as well as the franchisee. This would help avoid confusion in the future. Also in times of dispute, this section is the one most often referred to.

• Terms of Contract
It should also clearly mentions all the terms of the franchise contract like the duration, termination clause, renewal conditions and its fess. It should also mention whether the franchisee gets exclusive rights over his territory or not. It should mention the compensation to be provided in case this right is violated.

• Use of Intellectual Property
It should also mention the terms of use of the intellectual property of the franchisor. The do’s and don’t’s of using the franchisors Intellectual Property should be clearly stated.

• Financial position
It should have an accurate financial report of the company.

• List of Franchisees
It should have a list of all the existing franchisees and also their contact details.

Many franchises reach a point where the growth seems to be stagnating. In today’s highly dynamic world, the market and its consumers constantly keep changing. In such an environment it is very important for a business to constantly adapt itself to the changing environment. In order to do this, a franchise may constantly need to re-invent itself in order to grow. Today, we give a few tips on how to grow a franchise:

• Market Research
In order to adapt to the constantly changing business environment, one needs to know the constantly changing preferences of the consumer. In order to get up to date knowledge on current trends, it is important to conduct some market research. Market research will help the business to cater to the needs of the consumer in the best possible manner.

• Focus
To grow, it is very important to maintain ones focus. In order to focus, one should set long term as well as short term goals for the business. These goals will help give direction to your business. Growing randomly is not important but growing in the right direction is.

• Resources
Once you have set long term and short term goals, it is very important to accumulate the resources needed to attain those goals. These resources may be in the form of the finance or even the equipment required. Even one’s own staff is a major resource.

• Commercial space
At times commercial space proves to be the biggest hindrance in the growth of business. To ensure, good growth of your business, one needs to select the location very carefully. The various things which should be kept in mind are as follows

1] Demand in the area
2] Demand in the surrounding areas
3] Its accessibility from the surrounding area
4] The overall consumer traffic in the given area
5] Competition
6] Rent

• Employee training
Even your employees need to be trained according to the changing business conditions. As we work in a cluttered world, customer relationship management has become the buzzword. It is no more about just selling the product to the customer but it about making all customers feel a part of one big family in order to obtain and keep their loyalty. This is done by providing the customer not only with the required product/service but by providing the customer with an experience.

• Advertising
Also with time, a brand may need to re-position itself to suit the changing market conditions. Advertising can play a major role in re-inventing and re-packaging the brand in order to increase its appeal to the consumers.

Franchising as a business model has worked wonders for various businesses, but is there a formula to determine which business should be franchised and which shouldn’t? No, there is no such magic formula. But there are certain traits which can help determine whether a business will be successful through franchising or not. These traits are as follows:

• Good recent performance
In order for a business to be good as a franchise, it is very important that the business has shown incremental growth in the last few years of operation. This performance is measured through various terms such as sales growth, profit margins etc.

• Novel Idea
Also businesses which have a novel or a unique idea are more likely to succeed. Consumers lap up a good idea which in turn increases the chances of success.

• Diverse Appeal
Businesses which have a wide and diverse appeal are more likely to succeed. A diverse appeal helps in creating wide customer base, which will help the franchise to grow.

• Good systems
Businesses which have good systems and processes in place are easier to run through franchising. Also since systems and processes are already in place, it becomes easier to recruit and train new people to be a part of the franchise.

• Replication
Since a franchise can only grow through including more and more franchisees, the business model has to be such that it can be replicated everywhere with ease. A simple and successful business model can prove to be a great attraction for aspiring franchisees.

If you think that deciding whether or not to be a franchisee, is tough then hink again, because deciding on which franchisee to buy is even tougher. Your entire business depends on the franchise you select, one mistake here and you will pay for a long time. Also many people can’t afford to go wrong in their business when they are investing huge amounts of money, hence selecting the right franchise is very important. What are the traits of a great franchise? We tell you……

• Professional Interaction
Keenly observe all the interaction that takes place between you and the franchisor. Through these interactions, you will be able to judge the style and functioning of the franchisor. Also you will be able to judge the franchisor professionalism. See in how much time he answers your queries, notice the manner in which he answers those questions.

• Business plan
Go through the franchisors business plan and also check whether he has the required resources to execute that business plan. A good business plan with adequate resources is a healthy sign.

• Franchisee Satisfaction
Try and interact with the current franchisees and judge their level of satisfaction. A good franchisee satisfaction level is the best way to judge a franchise business. Franchisees will only be satisfied when the franchisor is providing them with good support which ensures smooth running of the business.

• Service
Thoroughly analyse various services and support that the franchisor offers to his franchisees. These services form the back-bone of the business. These include legal help, help in training and recruiting staff, managerial advice and many more. Only strong service and support can ensure a great franchise.

• Systems and Method
Also one should have a good look at the systems and processes put in place by the franchisor to ensure smooth running of the business. Streamlined processes help a great deal in running a business efficiently. So analyse the systems and processes of the franchisor in detail.

• Multi-Unit Franchisees
Multi-unit franchisees are those franchisees who own multiple units of the same franchise. The number of multiple unit franchisees is a great way to judge the franchisors business because any franchisee would only own multiple units when the business is reaping rich profits for him/her.

• Market Research culture
Today’s market place is highly dynamic and in such a market place, tastes and preferences constantly keep changing. Hence it is very important for the franchisor to develop a culture of constant market research in order to adapt to the changing preferences. Good market research will help fulfill the consumer’s needs in the best possible manner.

If you have already made up your mind about buying a franchise and now are looking to set things into motion, then this is for you. Have you started your research? Are you doing it the right way? We give you a few tips on how to start the process. There are a few mistakes that an aspiring franchisee should definitely avoid in order to get off to a good start. The mistakes to be avoided are as follows

• Just industry figures
Just relying on industry figures and trends can be grossly misleading. Although these stats do provide a good idea about the state of the business, these can’t be the stand alone factors. Many factors have to be taken into account. Relying on these figures alone and believing that this will lead to success can be fatal.

• Under-estimating financial requirements
Never under-estimate the financial requirements of a franchise. Never try to inflate your finances just in order to impress to the franchisor.

• Number of Franchisees
Also, just relying on the number of franchisees can be misleading. At times a brand can acquire a number of franchisees by good advertising and marketing, but in reality the franchise might not be very successful. Although the number of franchisees in a system is a good indicator, it should not be considered an absolute indicator of a good franchise system.

• Ignoring professional advice
Most aspiring franchisees often don’t hire an expert franchise consultant in order to help them select the right franchise. This selection will determine your future and hence it is very important to do all the right things at this time. It is always advisable to hire an expert franchise consultant and an expert franchise attorney to prepare a good franchise agreement.

• Assured success
This is one of the biggest causes of downfall of new franchisees. They believe that owning a franchise automatically ensures success. There is lot more to business success then just owning a franchise. Even a franchise business needs a lot of hard work and commitment. Hence complacency with respect to hard work and commitment can lead to a franchisees downfall.

• Expecting to be spoon-fed
Most new franchisees believe that the franchisor will run their business for them. This is not true, although the franchisor will forever be there to guide you, he is not going to run your business for you. You are the owner of your business and it’s your duty to run it, the franchisor will only train and guide you and not spoon-feed you.

• Selective acceptance
Many new franchisees want freedom and they prefer to implement the franchisors suggestions in only a selective manner, which is not right. Such half-measures can never get you full results. Hence it is very important to implement the franchisors suggestions wholly.

Do you dream big? Do you want to be your own boss by breaking free from the shackles of your monotonous job? Then franchising is for you. You know this and yet it is only natural to be worried about leaving the comforts of a secure job. Are you still comparing the advantages of both? If yes, then your ordeal ends here, we give you 8 great reasons for buying a franchise…

• Already established business model
By buying a franchise one gets the advantage of using an already established business model. Hence one does not have to build his business from scratch. Also an established and successful business model increases your chances of success. In fact, some believe that franchising as a business model is 3 times more successful than a normal start-up.

• Lower Risk
The risk involved in franchising is a lot lesser because you don’t run your business by ‘’ Trial and error’’, you already have expert advice in the form of the franchisor. The franchisor will guide you through out the business period and make sure that you don’t make costly mistakes.

• Finance
This is one of the major problems faced by new and budding businessmen. But once you become part of a franchise, banks will be more willing to provide you with business loans. This is because of the already established image of the franchisor in the market. Also now more and more franchisors have themselves started offering financial help to their franchisees. Hence procuring finance becomes easier once you are a franchisee.

• Loyal customer base
As a franchisee you automatically get access to the franchisors huge customer base. Loyal customers of the franchisors brand will definitely want to purchase the product/service from their area itself.

• Established brand name
Once you buy a franchise, you get access to the franchisors brand name and also the right to use his Intellectual Property. Hence the franchisee does not work to build a brand, the brand is already established and the franchisee just needs to leverage that brand.

• Exclusive Rights
Most franchisors provide their franchisees with exclusive business rights over a particular area of operation. Such an exclusive right ensures that you are the only franchisee in your area and all the franchisors customers in that area come only to you.

• Advertising and marketing
As a franchisee, you dont need to especially focus on advertising and marketing because this is handled mostly by the franchisor. It is the franchisors duty to ensure that the brand is advertised and marketed well.

• Support
The biggest advantage of being a franchisee is the constant help provided to you by the franchisor. The franchisor expertise and guidance play a major role in the success of any franchisee. All this expertise and guidance is always just a call away.

Since franchising is an ever-growing area of business, every day more and more people are turning towards franchising, but these people suffer because of lack of information. There is nobody to answer their questions which ultimately leads them to common mistakes. So today we answer some of the most frequently asked questions with respect to franchising. This is a like a layman’s guide to franchising

• What is franchising?
Franchising is basically a business model which is developed, proved and tested by the franchisor who then, sells it to the franchisees for a fee. The franchisor gets his due for developing a good business model while the franchisee gets to use an already proven and tested model which reduces risk greatly and increases chances of success.

• What are its advantages?
A franchise basically helps a franchisee by increasing his chances of success through reducing risks by using an already proven business model. Also a franchisee doesn’t need to start his business from scratch. Then franchisee also gets constant guidance from the franchisor on how to run his business. The franchisee gets to use the franchisors established brand name.

• What is a Franchise Agreement?
A franchise agreement is basically a legal document which states the rights and duties of both the franchisor as well as the franchisee. This document is legally binding on both and should only be signed when one is comfortable with all its provisions. Usually expert legal advice is taken while preparing this agreement.

• What is a Franchise Fee?
A franchise fee is the initial fee that the franchisee pays to the franchisor in order to use his business model. In return for this fee, the franchisee is given various services like help in training staff, management expertise etc. The franchise fee depends of the size of the franchise.

• What is the duration of a franchise?
There is no fixed duration for a franchise. It varies from franchisor to franchisor. In some cases it can be 10 years while in others it can be 15 years.

• What are the different types of franchising?
The different types of franchising are
1] Large scale franchising
2] Small scale franchising
3] Home-based franchising

• Does a franchise guarantee exclusive rights?
No a franchise automatically does not guarantee exclusive rights. If you have exclusive rights, it will be clearly mentioned in the agreement. All franchisors do not provide their franchisees with exclusive rights.

• Can a franchise be terminated?
Yes, a franchise can be terminated under specific circumstances which will be mentioned in your franchise agreement.

It’s better to call franchising a team business rather than just a business. In franchising not only the risk, but even the cost is shared by both the parties. Franchising as a business has many costs, some of which are unique like royalty, initial payment etc while others are more routine like advertising, marketing etc. These costs are divided between the franchisee and the franchisor. Let’s have a look at the various costs that are borne by the franchisor as well as franchisee.

Cost to the franchisee

• Franchise Fee
This is the initial fee that has to be paid by the franchisee to the franchisor, in order to use his brand name and business model. On payment of this fee the franchisor will help train your staff, help you in selecting the right location and guide you in starting up your franchise. This is basically a fee that the franchisee pays to be a part of the franchisors business.

• Capital Investment
The franchisee will also need capital to buy various things such as commercial space, machinery, office equipment etc. In case of some large franchisors this amount can be huge.

• Working Capital
Apart from the above mentioned costs, one also needs good circulation of working capital to keep the business running smoothly on a daily basis. The various costs included under this section are staff salary, raw materials, distribution fees, monthly rent etc.

• Royalty
Also a franchisee has to pay the franchisor a royalty for using his brand name and product/service. Also in some cases this royalty will be coupled with a percentage of commission based on sales.

Costs to the Franchisor

• Pilot Franchise
More often than not, most franchisees prefer operating a pilot franchise before getting full fledged into franchising. This pilot franchise needs a lot of investment for commercial space, staff, machinery etc.

• Legal cost
A franchisor should hire an expert lawyer and get a good franchise agreement prepared by him. This involves legal cost.

• Marketing and advertising
It is the duty of the franchisor to ensure that his brand is marketed and advertised well. Advertising today costs a lot of money. Also the franchisor will have to prepare a lot of promotional material and get it distributed, all of which involves cost.