Want to become a franchisor? Heard this term many times but wondering, how you can become one. Here’s a complete guide that will give you a clear definition of a Franchisor, the pros and cons of becoming a franchisor, how to franchise your business in India today, and more about franchising in India.
Who is a Franchisor?
Franchises are agreements whereby one business grants another the right to use its trademark, business model, and other proprietary assets in order to offer its goods and services.
The original company or one that already exists will be the one selling the trademark. The local entrepreneur who invests in these rights is known as a “franchisee,” and the new enterprise is known as a “franchise.”
Understanding What it Means to Become a Franchisor in India
Typically, three payments are made to the franchisor: the initial franchise fee, an annual fee, and a cut of the branch’s revenues. In addition, it can include additional service fees.
There are benefits and drawbacks to being a franchisor, but overall, it is a viable business option, especially for large, established businesses. A franchisor-franchisee relationship is fundamentally that of an advisor and advisee.
Here’s the role of you as a franchisor:
- The franchisor offers ongoing advice and assistance with basic business decisions including hiring and training employees, opening a storefront, promoting its wares, securing supplies, and so on.
- The franchisor’s role as a guide does not end once the partnership has been established and mutual success has been achieved.
- Some franchisors are more vigilant than others in monitoring their franchisees to ensure that they are upholding the standards, quality, and values of the parent company.
Benefits of Franchisor
Now let us understand what are the benefits of a Franchisor in India are.
1. Opportunities for Growth
Franchising is frequently used by multinational corporations to increase their presence in new markets throughout the world by tapping into the expertise of franchisees in those regions.
The franchisor company entrusts the franchisee with the obligation of regional or international expansion and the right to award additional franchises to other businesses.
In exchange for using the franchisor’s tried-and-true business strategy, market dominance, and brand name, the franchisee bears the cost of opening a location and pays royalties to the franchisor.
2. Increased Market Share
Franchising is a great strategy for a business to expand its presence into new markets while also gaining market share with little to no additional investment. Because franchisees are also business owners, they have a vested interest in the success of their locations and must bear the costs associated with running a business, including payroll.
Even if individual franchise locations generate less revenue than they would if they were part of a larger chain, lower operating costs can nevertheless make franchisees more profitable overall.
Franchise agreements can be tailored for high-volume national expansion or low-volume regional expansion, depending on the company’s needs, resources, and production goals.
4. Additional Revenue Sources
Ongoing royalties paid by franchisees are an extra source of revenue for a franchisor. Depending on the franchise agreement, royalties might comprise a variety of payments beyond the initial starting fee and monthly charge based on a percentage of the franchisee’s gross sales.
Disadvantages of a Franchisor
Every business comes with its own benefits and risks. Now that we have seen the benefits of becoming a franchisor in India, now it is time to understand the disadvantages.
1. Capital Investment
It takes a substantial time commitment and financial resources to launch a franchise. Developing the business, opening a flagship location, creating legal documents, developing marketing and packaging strategies, and finding and training franchisees are all essential expenses for every franchisor.
2. Risk of Failure
A franchisee may prove to be a bad fit for a number of reasons, such as being irresponsible, difficult to work with, or unable to successfully operate a firm, even if the franchisor has done its due diligence. There are additional possible scenarios in which the franchise loses money. There is still risk involved in investing in a franchise, even if the business model is tried and true.
3. Loss of control
At the outset, franchisees sign contracts promising to adhere to their franchisors’ guidelines regarding training, behavior, and other matters. However, this may not be the case once the novelty has worn off.
Disagreements are inevitable given that franchisees are people with their own views and temperaments; a franchisee could become stubborn or difficult, or they might not be able to implement changes as easily as the franchisor had intended.
4. Legal and Regulatory Costs Can Be Expensive
Legal action may be required if a franchisee refuses to cooperate or otherwise shows to be a bad option; this can be costly and detrimental to a franchisor’s reputation among other franchisees.
In addition, the Franchise Disclosure Document (FDD) and other regulatory documents necessitate the services of an attorney because of state and federal rules regulating franchisees.
Steps to franchise your business in India – Become a Franchisor in 6 easy steps
The best approach to expand your business across all of India is to franchise it. It’s also a fantastic opportunity to supplement your income. Offering a franchise involves entrusting a portion of your business to an unknown individual. That’s why it’s crucial to research the franchisee’s history.
Here are six easy steps to franchise your business in India.
1. Standardization – The term “standardization” refers to the practice of producing identical results consistently. This will ensure that customers at all of the franchise’s locations have the same consistent product flavor.
2. Ensuring a proper distribution network – Since the franchisor needs to ensure consistency across all outlets, it is important to have a proper distribution network, to ensure the same product/services across all outlets.
3. Have a proper support team – The prospective franchisee has to be assisted by a competent team. They will advise the prospective franchisee on the franchise’s history, past achievements, investment requirements, and potential returns.
4. Marketing Strategy – The franchisor should be actively engaged in online activities and have a strong social media presence. The franchisor must set up some funds for marketing the franchise system.
Key Takeaways – Role of a Franchisor in Franchising Business in India,
- Franchises are agreements whereby one business grants another the right to use its trademark, business model, and other proprietary assets in order to offer its goods and services.
- Because franchising allows corporations to leverage franchisees’ in-depth familiarity with local markets, it is frequently used by multinationals to increase their presence around the world.
- A franchisor must allocate funds for research and development, a flagship location, legal document creation, marketing and packaging strategies, franchisee recruitment and training, and operational costs.
- Franchises are subject to state and federal rules, which necessitate the use of an attorney to create the Franchise Disclosure Document (FDD) and other regulatory documents.
- Franchisees are typically not protected against their franchisor’s bankruptcy by the terms of the franchise agreement.
Franchise Your Business FAQs
Q.1. How can I become a franchisor of my own business in India?
Once you have analyzed that your business is successful and are looking to expand it across the country, you can become a franchisor of your business with proper planning and strategy in place.
Q.2. Why would a business choose to franchise in India?
Most business owners choose to franchise because it provides rapid growth with less exposure to debt or the need to use equity financing. Since the franchisee is responsible for raising all startup funds for a location, franchising provides a means for businesses to expand without having to put up their own money.
Q.3. When should a business consider the franchising model in India?
Franchises typically only accept businesses that have been established for at least a year and a half. However, that figure may be higher or lower than stated, depending on the sector. In the first two years of operation, franchising can be helpful for some businesses.
Q.4. Is franchising good for small businesses in India?
Franchises have a higher success rate than other company models, but this does not necessarily translate to better profits. Of course, the higher success rate will cost you more in franchise fees. If you don’t have a lot of expertise in the business world, a franchise may be the best option for you.
Your level of dedication to the franchising process should be the deciding factor in whether or not you take the plunge.
It would be irresponsible for privately held companies to consider not investigating franchising as a growth and expansion option. However, not every company can benefit from franchising as a means of growth. If you’re an entrepreneur thinking of testing out the franchise market, there are a few things you need to know first.
Get in touch with us at Sparkleminds to know how to franchise your business in India. Our expertise in franchising has helped various businesses to grow domestically and globally.
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