Factors to consider while buying a franchise:
Franchising is a continuing relationship in which an established company licenses another party to sell its products, goods or services under its brand name and offers assistance in organising, training, merchandising, marketing and managing in return for monetary consideration. It is fact that franchising is growing faster than most other sectors in the Indian economy. Consequently, the franchise business is becoming increasingly popular among domestic and international players across many sectors. In the present blog, there is a list of factors you should consider before buying a franchise.
- Demand for the franchisor’s products or services:
Before buying a franchise, you must find out if there is strong customer demand for the products or services of the franchisor. It is also important to know the nature of the demand as if it is expected to continue or not. You also need to investigate about the existing competitors and should have an idea about the competitors to enter the market in the coming years. It is equally significant for you to investigate the quality of the products or/and services being provided and compare the same with other competitions in the market. The aforementioned investigations would make you confident to market the franchisor’s product successfully in the marketplace.
- Finding Out about the Franchisor’s Track Record:
If a company is offering a franchising opportunity that doesn’t imply that it is always worthy to take up its franchise. When you buy a franchise, you must look for a company that has a proven business model with ample experience. Before signing an agreement, you should track how the original founders of the company have treated their first franchisees to make sure it is a right match for you. One of the best ways to ensure the track record of the company is to speak to current franchisees about their experiences. You should also investigate the stability and comprehensiveness of the franchisor’s infrastructure.
- Financial Considerations:
While investing in a franchise, you can have a talk with existing franchisees and get financial figures from franchisors to get an idea about what to expect in the beginning. It is certainly tricky to evaluate the profitability of a franchise since you cannot rely on the profitability from other franchise locations- that would be affected by location and number of other factors. Get a detailed list of the financials from other franchises, investigate how successful ones became profitable, and find out whether other franchises have recently failed. Also, while buying a franchise unlike starting your own business, where all the capital is invested in your operations, a considerable part of your initial capital goes to the franchisor as fees for training, equipment and licensing rights.
- Verifying franchisor’s financial strength.
Most of the franchise systems fail due to under capitalization. You should ensure that the franchisor has the necessary finances to support your growth. Verifying the financial strength and stability of the franchisor, would let you know if the franchisor would still be in business many years from now. Also you should know if the franchisor provides you with the financial assistance.
- Franchisor’s market intelligence and market research capabilities:
It is inevitable on the part of franchisor to thoroughly research new markets using reliable and creditable market research methods. Moreover, as a franchisee, you should have access to marketing and product information regarding your industry as well as your specific business. You should investigate the forms of ongoing field support and assistance provided, and the manner in which they work. Also, the franchisor should assist you in the development of your business plan.
Most of the franchisors do impose certain restrictions on how their franchises are to be run. Guidelines and standards which may encompass things like product offerings, prices, operational hours, store design etc. are required to be followed by franchisees. So, the franchisor does have a control on a number of things. So while evaluating a franchise opportunity, it is crucial for you to determine if you are comfortable with the extent to which you can modify operations. The strict rules of franchises related to operation of the business may not allow innovative franchisees to an extent to explore new marketing strategies or product positioning. So, it’s important for you to ensure that you’re comfortable with what you won’t be allowed to change.
Once you have considered the aforementioned factors, you are all set to choose the franchise that fits you the most. Franchise Insider is a one-stop franchise consultancy ready to assist you.
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