Financial Solutions

Buying a franchise? Few points to consider

If you are having adequate capital and looking to start a new business, you can consider buying a franchise of an existing brand. The advantage is that you need not introduce or convince from scratch to local populace about the product. The product is already popular and you reap the value of the brand in your locality/area. There is, however, no free lunch. As a franchisee, you will be asked to pay a price for the brand value by the franchisor which will form a significant component of cost.

You can only become a franchisee if the company owning the brand has a provision of appointing franchisee. So, you need to check that first.

Given that you have a land/shop in a high street or own a shopping mall, being a franchisee of consumer items will give you immediate access to prospective customers. Your existing infrastructure will be crucial. Some of the points that could go in favor of selecting franchisee model by you over others could be as follow:

  • You are not interested in growing a business from scratch (organic growth) because you have the capital to grow fast inorganically.
  • You have a land or shop in a high street or own a shopping mall and can renovate to match the demand of chosen franchisor.
  • You have an existing team of people whom you can quickly deploy to the franchise unit.

You get a host of benefits from franchisor including their in-house research, training, and advertising support, and more depending upon the terms and conditions of the agreement. There is one disadvantage. You will always be associated with a brand which is not your own. However, becoming a franchisee for the first time can be a great learning experience which should help if you plan to start your own new brand going forward.

The expectation of franchisor goes beyond the financial strength of franchisee. Parameters like the educational background of the prospective franchisee, past business experiences also count in the profiling. Working under franchisor-franchisee system requires flexibility from both parties. As director of Primarc group that operated franchise of Crossword in Kolkata while exiting says,“There are things that you can do and things that you can’t do within an existing brand. I wanted to create something unique, that’s why I felt it’s better to start something on my own…” (Crossword exits Elgin Rd). For a franchisor, this may mean losing control of their brand identity if the appointment of a franchisee is not correct. This is one of the reasons why many companies do not work under franchise model and those that indeed appoint franchisee periodically review performance while renewing the contract.

Buyers beware: It is one thing to buy franchise of Maruti Suzuki where chances of fraud are almost nil (whether franchisee makes profit or not is something different) and another with a host of choices available to buy a franchisee once you visit market places like There are fly-by-night operators who invest single-handedly in variables like beautiful offices, sales girls, logo, website appearance (instead of core business), grab as much money as possible selling franchisee only to disappear. Stringent rules (not just in paper to be relaxed once under negotiation) where not all are offered franchisee even after paying cash means that the franchisor is serious doing business rather than making quick bucks. A Google search should be helpful to know experiences of other franchisees as well as business model of the franchisor. To get an idea of how difficult it is to locate (or administer) forums related with franchise, refer Online forum for franchise owners/managers.

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