Types and requirements for starting a Franchise Business in India

Introduction

Some business owners find it easier to start a franchise rather than their own company. A franchise offers operational/marketing support, brand equity, and a track record of success. However, franchisees also require time for adequate study and due diligence. To help with this, we will walk you through the fundamental requirements you must set up before starting a franchise business in India. Let’s have a quick look at “What is a Franchise Business in India?”

What is a Franchise Business in India?

It is one of the main ways that foreign companies and brands have grown stronger in the Indian market. A franchisor (franchise brand) is involved in the process and offers the franchisee (owner of the franchise outlet) conceptual, structural, legal, and training support in exchange for an upfront start-up fee and royalty payments.

Both the franchisor and the franchisee earn from owning and operating a franchise. The franchisor can further extend the business in untapped markets, thereby boosting the market share and revenues, after the franchisee has access to the brand’s devoted customer base, legal counsel, creative support, and training support. The most valuable and practical type of business opportunity is franchising.

Types of a Franchise Business in India

Product Franchise

These product-driven franchises, also known as Distribution Franchises, are where the franchisee distributes the parent company’s products and some related services. The parent company typically provides the use of its branded trademark, but not an entire business management system.

Investment Franchise

These are large-scale franchises that require a significant capital investment, such as hotels and large restaurant chains. Franchisees typically invest money and hire either their own management team or the franchisor to run the business and generate a return on investment and capital gain upon exit.

Job Franchise

A Job Franchise is a low-cost (typically home-based) franchise that can be operated independently or with a small staff. The franchisee is only required to pay a franchise fee and a few initial costs, such as equipment, basic materials, and sometimes a vehicle.

Conversion Franchise

Conversion franchising is the process by which an existing business becomes a franchise or, in some cases, a large existing business (with multiple locations) decides to switch to a franchise structure.

Business format Franchise

These franchises also operate the business and market the product and/or service using the franchisor’s trademark and the entire system. The franchisor provides a comprehensive agreement and procedures covering nearly every aspect of the business model. It also includes both initial and ongoing training and assistance. This is the most common type of franchise system.

5 Requirements for starting a Franchise Business in India

1. Market Research

When you want to open a franchise, the first step is to learn more about franchising in general, including how it works, what to expect, and how to choose from all available options. Once you have identified a few franchises to open, do your research and select a franchise that meets your requirements.

2. Understanding the Dynamics of the Industry

This is the first and most important requirement. Before you do anything else, you must first gain a first-hand understanding of, and preferably some experience in, the industry in which you intend to start a franchise business. This does not imply simply comprehending the product. Understanding the framework, laws, rules, and regulations, human resource quality, best industry practises, direct competitors, collaborators and associates, market cycle, and so on is required. Understanding the industry’s ecosystem not only helps you survive in the industry. If you study it thoroughly, you will be able to use that knowledge to innovate and outmanoeuvre the other players in the industry.

3. Capital money to invest in the franchise

As previously stated, the most important aspect of a franchise is having seed funding or capital money to invest in the franchise because it is a cash-intensive business. You will need to spend money on setting up the brand’s outlet, furnishing the outlet to brand standards, hiring staff, and covering operational costs. Furthermore, you will share a portion of the profits with the franchisor. The first requirement is to have the financial backing to keep you afloat until you start turning a profit.

4. Location to set up a business

Choosing a location entails more than just deciding on a physical address where to set up a franchise. Depending on your business, you may want to consider buying or leasing space, and the franchisor maybe able to advise you on the best locations. Consider whether you will be required to construct your physical location.

5. Franchise Agreement

All of the requirements mentioned in this article are optional except for this one. There can be no franchise without a valid franchise agreement. A franchise agreement is a contract between the franchisor, the owner of the franchise brand, and the franchisee, the person who is carrying out the franchise. Once the franchisor and franchisee have agreed on the major points of the arrangement, those points are written down in the agreement.

Bottom Line

A franchise does not eliminate the risk of starting a business. While it provides a tried-and-true model to follow—from products/services to branding and day-to-day operations—it can be quite restrictive. When you decide to open a franchise, you must carefully read and comprehend the disclosure document and franchise agreement.