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Unlike in case of startups where everything is planned from the scratch, in a franchise business, the franchisees get to work on a predefined ready-made business platform which saves them from the struggle and hardships of starting a business from nothing and help them launch their franchise business in a very short span of time.

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10 5 2017

10/5/2017

5 Things to Check Before Investing in a Franchise Brand | Your Retail Coach

5 Things to Check Before Investing in a

Franchise Brand | YRC

Oct 3, 2017

Unlike in case of startups where everything is planned from the scratch, in a franchise

business, the franchisees get to work on a prede?ned ready-made business platform which

saves them from the struggle and hardships of starting a business from nothing and help

them launch their franchise business in a very short span of time. But once the

investments are made and the franchisees get bound by the contract, it can be di?cult for

them to reverse their decision. Prudence says it is better for an entrepreneur to thoroughly

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10/5/2017

5 Things to Check Before Investing in a Franchise Brand | Your Retail Coach

scrutinize the pros and cons of associating with a franchise brand before making any

investment into it and becoming its franchisee.

Brand Evaluation – Is it the right brand to a franchise? 

Of course, there are perks of franchising big brands. The bigger the brand is, the easier it

gets for a franchise to attract investors, ?nd competent sta?, engage the best suppliers,

attract the targeted segment of customers and all of these could place a business on the

fast track. However, association with big brands is costlier, rigorous in terms of operational

compliance and comes with little or no scope for negotiation. Working with o?-brands can

be economical and they may provide more operational autonomy and better revenue-

sharing, but it may take longer for the franchisees to get their businesses rolling.

The bigger the brand is, the easier it gets for a

franchise to attract investors

Some of the preliminary considerations involved in evaluating a franchise brand are listed

below.

Brand USPs

Brand awareness, popularity, and relevance in the local conditions

Promotional strategies and activities of the franchisor

Existing franchisees of the brand

Competitor brands

Investment and costing, revenue sharing and minimum guarantee, ROI, and breakeven

Operational model

Ownership and control

Terms and conditions of engagement, personal guarantee etc

Brand Marketability – Can the brand be marketed successfully?

The marketability of a franchise brand or the products/services being o?ered under it

largely depends on two broad parameters –

1. Local factors – customer demographics, the size of the market demand, targetable

market share, competition, regulatory framework etc.

2. Franchisors’ marketing model/approach – value proposition, pricing and promotional

strategies, supply and distribution network etc.

Even a good, reputed brand will not be able to sustain itself in a new market if the local

market conditions are not favorable from a business point of view. Secondly, the

franchisors’ marketing model/approach must ?t into the local market conditions. This is

where a bit of autonomy comes in handy for the franchisees to be able to customize the

franchisors’ marketing strategies to suit the local business environment.

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10/5/2017

5 Things to Check Before Investing in a Franchise Brand | Your Retail Coach

Even a good, reputed brand will not be able to

sustain itself in a new market if the local market

conditions are not favorable from a business point

of view

Site Requirements – Is it possible to address the franchisors’ site

requirements?

Di?erent brand franchisors have di?erent site requirements for their franchise stores and

these site requirements are explicitly mentioned. It is the responsibility of the franchise to

locate suitable site options which meet these requirements and the site must also be

approved by the franchisor. However, ?nding the right site is often a time-consuming and

tiresome process and involves considerable investment especially in the backdrop of real

estate space becoming scarce and expensive with every passing year. Therefore, it

becomes important for a franchise to carefully study the site requirements and ?gure out if

suitable site options are available and if they should invest in it. Some of the common site

requirements are given below.

Finding the right site is often a time-consuming and

tiresome process and involves considerable

investment especially in the backdrop of real estate

space becoming scarce and expensive with every

passing year

Site should be situated in a prominent market area, on the main street with high visibility

Preferably ground ?oor and corner plots

Parking facility

Access for inventory vehicles

Electricity, power backup

Necessary space and infrastructure for servicescape needs, safe use of equipment and

devices

Necessary permissions from local authorities for building, electricity connection, trade

etc.

Minimum surface area

Operational Model – How will the operations roll out?

In franchise business systems, franchisors de?ne the operational model or framework

following which the franchisees will have to execute the business activities. This includes

the value-chain route, business processes, ?ow of operational activities, SOPs, standards of

performance and output, reporting and audit etc. The franchisees’ stores act like an

extension or a branch of the franchisor’s business. Two important considerations arise at

this point.

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5 Things to Check Before Investing in a Franchise Brand | Your Retail Coach

This includes the value-chain route, business

processes, ?ow of operational activities, SOPs,

standards of performance and output, reporting

and audit

Is it feasible to implement franchisor’s operational model?

Does it suit the entrepreneurship personality of the franchise?

Following franchisor’s operational model depends on the availability of the required

resources like funding, technology, and technical infrastructure, skilled and trained

manpower, supply chain and logistical infrastructure, raw materials, suppliers, and vendors

etc. Secondly, not every entrepreneur is cut for the franchise business. There isn’t much

scope for business innovation and creativity here. Business growth and expansion remain

con?ned to the boundaries de?ned by the franchisor.

Exit Options – Are the exit routes open and convenient?

Keeping their business interests in mind, most franchisors prefer to keep their options of

terminating the franchise agreement wide open. But the same is not always true the other

way round. It is not always convenient for a franchise to terminate a franchise agreement

in the event of availability of better business opportunities, the emergence of operational

di?culties in running the franchise, lack of pro?tability etc.

Some of the common grounds based on which a franchisor can terminate a franchise

agreement are:

Failure to pay royalties to the franchisor

Any material breach of the contract by the franchise

Failure to execute operations as agreed by the franchise

Failure to comply with legal and regulatory obligations

Franchisee going bankrupt or insolvent etc.

In the event of a franchise agreement coming to an end, the franchise is subject to the

stipulations and obligations laid down in the contract. Some of the common liabilities on

the part of the franchisees in the termination of the franchise agreement are:

Payment of all outstanding dues as per the contract

Return of all assets belonging to the franchisor

Agree to the non-disclosure agreement (trade secrets, operational model, ?nancial

details etc.)

Strictly refrain from using franchisor’s trade name, copyrighted materials

Thus, it is very important for the entrepreneurs/franchisees to clearly understand the

terms and conditions of terminating the franchise agreement and ensure that their exit

routes are fair and smooth.

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5 Things to Check Before Investing in a Franchise Brand | Your Retail Coach

In working with franchise partners, franchisors will seek to ensure that their businesses and

brands continue to grow and strengthen and not take a beating because of letting someone else

do business for them. It is the responsibility of the entrepreneurs, who’re interested in becoming

brand franchisees to assess if they are considering the right brand for their targeted markets to

steer their business interests and whether they can meet the ?nancial, logistical and operational

requirements of the franchisors

 

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