Let us get the terminology right. In the franchise business, a franchisor is the one who permits a franchisee to use franchisor’s trademark, licenses and any other proprietary material for a predefined time. For example, if you set up a McDonald’s or KFC outlet, then you become a franchisee of KFC/McDonald, franchisor.
Franchising has become an eternal fad. Franchising is a risky proposition. Rules are in favor of the franchisors. If you don’t do your home work before you shell out your money to a franchisor, then you are in for a rough ride. Let us look at the things to consider before you become a franchisee:
Selection of Franchise Business:
This is the crucial thing to consider. There are a lot of franchisors out there, good, bad and the ugly. First, you have to like the franchisor’s brand and product/service. Don’t assume that if you become a franchisee of a popular brand, then you will automatically succeed. Unless, you have some personal connection with the product/service, you will find it hard to sail through difficult times. If you like toys, you are better off owning a toy store than a pizza outlet.
Homework before Buying Franchise Business:
Go around and ask the current franchisees about the following:
Before you sign-up with the franchisor, ask them about the following:
Capital Availability for Franchise Business:
After doing the home work as described above, it is time to check the purse before signing on the dotted line with your favorite franchisor. You should have enough working capital for at least the next 12 months. You should also plan to pay for rent, equipment repairs or replacements, local marketing, employees, utilities, supply/distribution vehicles and any other minor contingencies.