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FRANCHISING

Presented by:
Siyaram (15/IME/077)
Harshit Talwar (15/IME/060)
Vikas (15/IME/54)
Nikita(14/IFT/002)
Akansha (15/IBT/003)
Shubham kumar (15/IME/065)
Introduction
• Franchising: franchising is a medium through which growth
can be achieved without making large investment in creating
internal infrastructure.
• Franchising can be defined as a process, wherein a firm that
own a product or service or brand (called as franchiser) shares
it in part or whole for a certain fixed amount or a portion of
the revenue, that will be earned by another company, which
will be using this in a certain geography as a business.
• Franchiser is the company that own the product/service or
brand, while Franchisee is the partner who operates the same
with permission from the owner. The process of franchising
between a franchiser and a franchisee is governed by the
framework.
• Franchiser may be a large companies, established companies or could
be young emerging companies. Franchising is a strategy that can be
used for growing one’s business.
• Franchising is important in entrepreneurship. Because there are people
with entrepreneurial mind, who may not want to take the risk of
starting an absolutely fresh business.
• Through franchisers give franchisees the freedom to run their brand
within certain boundary, there are rule and regulation through which
they would like their franchisees to operate.
• Franchise refers to:
F : Full Disclosure
R : Recognition
A : Advantages
N : Network
C : Communication
H : History
I : Insight
S : Support
E: Experience
Full Disclosure :-
Franchise should provide full disclosure about their business. This means that they should
provide you with any and all information relayed to their relationships with vendors, past and
current lawsuits, financial disclosure, all open and close franchise, any ownership interests, as
well as any fee they may charge you.

Recognition:-
The franchise’s brand should be recognizable. When you hear “ McDonald’s” you
automatically know that it is a fast-food chain restaurant. While not all franchises will have
that degree of notoriety, their name should have some standing within industry.

Advantage:-
One of the benefits of purchasing a franchise as opposed to starting your own business is that
you are entering into established system.
Network:-
Corporate and all unit franchisees should work as one to strengthen and enhance
the franchise as a whole. Everyone should be working in a single network
together.

Communication:-
This may seem obvious, but far too many franchises lack this key component.
You should be able to speak with the master franchisors whenever you need to.
They should be easy to get a hold of and willing to talk and meet with you to
discuss anything related to your franchise.

History:-
Any good franchise can present you with a history of their success. If the
franchise is too new to have any history, you might want to consider looking into
a different investment opportunity.
Insight:-
The franchisor should be able to provide you with valuable insight into their industry.

Support:-
Support does not stop after the sale. Once you invest in a franchise, the franchisor should be
available to help you with any issue that arise, Ideally, there would be a local office to make
support that much easier to reach.

Experience:-
When you invest in a franchise, you are not just buying a business, you are buying their expertise.
A good franchise should have extensive experience in their industry as well as knowledge related
to the field.
From Franchiser Perspective From Franchisee Perspective

 Definitive market expansion with  A proven model, ready to be


low cost capital investment. inherited and rolled out. The risk of
Return of investment in the starting up is reduced.
immediate future. Can enjoy returns over period of time
Reduced pressure of operations for based on success of the unit and
the franchiser overall progress of the brand.
Franchisees provide lot of input and Reduced pressure on investments and
ideas to improve the system expertise of running the franchise.
Franchiser’s ongoing support
 Only a small portion of the profit  Huge initial investment for the
actually belongs to the enterprise. entrepreneur
Loss of control over the franchisee by Independence is allowed but is
the franchiser restricted. Strict compliance is needed
High management cost Risk of failure
Legal expenses are high due to more Legal expenses are high due to more
number of exchange channels within number of exchange channels within
an enterprise an enterprise
Selection of Franchiser
This depends upon whether the franchise would like to do business in the sector ,
does the type of business and the way business is done suit the franchisee, does it
give the kind of return we expected and the investment needed to run the franchisee.

Legal Framework
Once the business case is created, the franchisee may need to consult a lawyer and a
chartered accountant to understand whether it makes legal and financial sense to run
the franchise and if the franchisees interest will be protected adequately . All the
terms in the contract should be well understood prior to taking any decision.
Franchiser’s Track Record
It is also essential to check with the franchisers and understand all the requirements
of the business and the possible returns. It may also be worthwhile to check on the
references of existing franchisees, whom one may want to meet. It may be wise to
check if there are people who have signed out of such systems and meet them as
well.

Arranging the Infrastructure


Identify people and the location, arrange for training for employees and prepare the
infrastructure needed to open the store. Once all the support system is taken care of
and the infrastructure is ready, the next step will be to order for adequate number of
products and goods to start the operations
Franchisee is a safe investment
It is wrong to think of it this way, because franchisee is just another form of
business. It is just that risks are lowered because of the support and the systems
created by the processes of a parent company. But it is not 100% safe as a business.

A Strong industry ensures franchise success


Just because the franchiser is an industry that is very good does not mean that taking
the franchise from that makes it easier for success. The success depends on the
products and the way they are managed.

Franchise is a proven system


Selling of a franchise can no way be assumed as an indicator for success of the
franchiser.
Franchising is like an investment
Purchasing a franchise is not one time activity. It has a series of ongoing legal contracts. It is
advisable to take professional help from a lawyer and a chartered accountant. However
franchising often is mistaken for a one-time activity.

It is best to be part of overall growing system


Although it may seem logically right to become part of growing system, it is not always true it
may be the best investment in the local geography. Sometimes the cultural and social impact on
the product by the local market may not favour a successful running of the enterprise, which
may otherwise be doing very well elsewhere.

I can make more margins than what the franchiser predicts


This may not be norm unless it is proven. So it is better to look at the numbers when purchasing
a franchise, rather than being very biased and too optimistic.
BENEFITS IN BUYING A FRANCHISE
• An established brand/business system
It is easy for the franchise to leverage the existing brand awareness of the parent and also
generate some enquires and business. It is also important for the franchise to understand and use
the business system which has already been proved in the market.
• He or She does not have to start every thing from the scratch
Buying a franchise means buying into an existing business. So the initial difficulties that a
business faces in terms of try to create product ,establish it, etc.
• The franchiser’s ongoing support
The franchiser also does a lot of activites in terms of support mentoring, support
activity ,training, managerial assistant ,advertising ,etc.
• The franchiser training and expertise
The franchiser training and expertise is added benefit that the franchisee gets by
becoming a part of franchising network.
CHALLANGES IN BUYING A FRANCHISE
• Upfront payment of the franchise and the related cost
The initial cost and setting up of franchise is quite high. In terms of financial cost ,it is ahuge
investment that the entrepreneur needs to make.
• Independence is allowed but compliance is needed
There are restriction on the creativity level on how operations can be conducted. In most
causes, it is compliant to what is defined by the enterprise.
• Exiting from a legal binding
Exiting is always difficult and needs to be studied carefully . Especially between franchise and
a franchiser ,it needs to understand in great detail.
• Potential for failure
Just like any other business , the chances that a franchise may fail in strong possibility. Though
it may not be as high a risk in the case 0f an independent set up, no one can deny the
possibility of a failure.
• Franchising also has a lot of myths associated with it . Few popular myths are:
• Franchising is a safe investment, It ensures success since it’s a proven model, it does not
require professional help.
• With the economies growing across the world , opportunities to take up franchising to new
locations have more popular now but before that few factors have to be taken consideration:
• Cultural and local barriers
• Political
• Economic and envt stability of the country
• Social status etc
• Franchising as a trend has picked up a lot of momentum in the recent years but just like
other businesses, it has its share of pros and cons associated therefore entrepreneurs have to
look at all aspects before deciding on the same.
SETTING UP A FRANCHISE SYSTEM
Setting up a franchise system requires following steps-
1. Developing a good business case for franchising
2. Create a business plan which will be a blue print
3. Aspects connected with intellectual property
4. Preparation of legal documents
5. Identifying the right franchisee
FRANCHISING AS A TOOL
It is important that the franchiser decides who
will be right for the franchisee for his enterprise.
People who will adhere and comply to
requirements , make good franchisee should not
be an institution that prefers to be too
independent and think on its own.
CONCLUSION

• Franchising, as a form of business has been in existence for a long time now.
• Franchising can be defined as a process where in a firm that owns a product shares the part
or whole for a certain fixed amount or a portion of the revenue that will be earned by another
company
• Franchising as a business tool is more suitable for entrepreneurial minds who do not want to
risk everything by starting something new, but are willing to take minimum amount of risk
• It is very essential to seek professional advice from a lawyer or a chartered accountant with
regards to all the legal aspects involved in the process Since it involves dealing with aspects
like intellectual property, trademark, legal expenses etc.
• Franchising also has a lot of myths associated with it . Few popular myths are:
• Franchising is a safe investment, It ensures success since it’s a proven model, it does not
require professional help.
• With the economies growing across the world , opportunities to take up franchising to new
locations have more popular now but before that few factors have to be taken consideration:
• Cultural and local barriers
• Political
• Economic and envt stability of the country
• Social status etc
• Franchising as a trend has picked up a lot of momentum in the recent years but just like
other businesses, it has its share of pros and cons associated therefore entrepreneurs have to
look at all aspects before deciding on the same.