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Consider before Buying a Franchisee in India

Consider before Buying a Franchise On its face, opening a franchise may seem like a simple way to run your own business. But beware, rarely is business simple and in the franchise world specially in Indian Franchise System the business is never really yours.

Recently I thought to write something on the darker side of the franchise Industry in a Positive note to assist the Individuals and Entrepreneurs to start the Right Business Opportunity I know many Individuals to whom the Franchisors / Brands have cheated in India here is the darker side of the industry. According to Ravi Kumar , there are quite a few enterprising entrepreneurs who have opened businesses and wished they’d done more research. He know many a small business horror story and identified certain mistakes and blind spots many hopeful business owners fall prey to. Here is the Business finding by Mr.Ravi Kumar Founder , Director FCIPL .

Whether you’re looking to open a Food & Beverage Franchise joint, a Spa Franchisee or even an apparel shop, below are a few suggestions of wisdom to contemplate before taking the plunge.

1. Don’t buy a franchise to “be your own boss” or “control your destiny”

Franchising is always based on conformity and uniformity, not freedom. As a franchisee, you do not really hold the the control . You may technically & Practically be the boss of your single shop only , but you must follow the orders of the Franchisors . “Franchising is similar in a lot of ways to Buying a Maruti car from maruti as you are the owner of your car and always you have to drive the Car on the Road carefully and go for the service as per the schedule given , and on the other hand Maruti has to provide you the world class service support break down on side assistance etc .

2. Don’t be Misguided by positive press clippings, industry rankings and awards

According to Ravi, In India there is no governing law for franchise Industry and there are couple of Self Proclaimed Father of Franchise in India , Who Organise the Awards for Franchise in India , Annual Rating for Brands , where there is no Authenticity, transparency and credibility for all these ,all these are their PR efforts than to the strength of Brands franchise opportunity.”

3. Ask Franchisors for his Credentials rather than giving your credentials first .

Before signing a legally binding contract with a franchise organization, it may be a good idea to see what that company’s is up to Ask the company for his Last three Year balance sheet ,Existing Franchisee List for referral, outlets opened so far and closed , Franchisors Company’s CIBIL Score and Franchisors Individual CIBIL Score , all these information will help the Entrepreneurs to take the informed decisions and help him to save his time and money in future .

4. Hire a Fulltime franchise Consultant before you sign a contract .

In India the number of people that buy into a franchise without having a lawyer explain the contract agreement to them is the biggest mistake , says Ravi Kumar . Ignorance, in franchising, is not bliss—it’s a potential future nightmare. “They’re making this huge commitment of Lakhs & Crores up front, . It’s remarkable how many of them won’t hire somebody who is experienced in franchising to help them the franchise opportunity that they’re looking at or even go through the franchise agreement and explain to them what they’re signing.”

5. The term “hot new franchise” is an oxymoron.

Would-be entrepreneurs are eager to get in on the ground floor of a trendy new business. What they should do is the exact opposite, says Ravi Kumar . “The benefit of a franchise is really to buy something that’s been proven over a period of time. Hopefully something that’s been proven over different City’s, states, Markets & economic climates. So it’s done well in good times and in bad times.”

6. Franchises fail with about the same frequency as independent businesses.

The myth that franchises are less prone to failure than other small businesses is simply that. The reality is that they generally go out of business at the same rate. However, which franchise you choose can make a big difference, says Ravi. “Some franchise chains have failure rates as high as 80% to 90%, while others have almost no failures. Don’t be seduced by vague statistics or common wisdom, do careful research on the specific franchise you are considering to determine how many franchise owners are still in business through the full terms of their franchise agreements.”

7. Be wary of free franchise “coaches” and Freelance Individual consultants.

Most of the Franchise Consultants are Individuals and “They’re third-party commissioned salespeople and brokers and they have very little franchise experience except for delivering prospects to the franchisors that they have commission arrangements with the Brands.” And in Indian Couple of company’s Freelance Individuals had made this a Broking Business , Ravi Kumar Say’s Actually Franchising For company is not a Selling and for Entrepreneurs its not Buying , for Brands its an Appointment and selecting the right candidate and for Entrepreneurs its and Lifetime marriage with the Brand .

8. Understand that the franchisor holds all the Rights.

As in India there is no Franchise Law or governing body its only work on the old partnership law on where the agreements are signed at 100 Rs Stamp Papers and most of the times they are not even Registered “Most franchise agreements give franchisors the power to change required procedures, radically alter the product line, or require franchisees to make unexpected expenditures.” In the mountain of legalese that are franchise contracts, franchisors can even sneak in language absolving them of any number of lies and misdirection while taking away the franchisees’ right to raise a grievance.

9. Don’t expect government support in India.

Franchisees are not consumers and not protected as such, they are considered entrepreneurs and business investors. Despite what some would-be franchisees believe, the government oversight in the industry is paltry at best. “In International Market the Government instructs franchisors to disclose certain types of information to franchise buyers, On the other side in India the Law itself is missing and there is no governing body ,” says Ravi Kumar . “If your franchisor doesn’t perform as promised or if you later feel you were lied to or misled, it’s likely that your only recourse will be to hire an attorney and file an expensive lawsuit and in India some 2 Crore lawsuits are already pending.”

10. Understand that franchisors can succeed even if franchisees fail.

I personally know many Brands who are running their shops from years in India as every year they appoint some 24 – 36 New Franchisee a take a Huge Money as an franchisee fee ,it’s true that the Franchisors can make more money if its various Franchisee do well, “In India Almost all franchisors Charge a Franchisee Fee which what they always work for and after that franchisors receive a percentage of a franchisee’s gross sales, regardless of whether the franchisee is profitable,” Ravi Kumar explained. “Others markup equipment, products and supplies they require franchisees to purchase from them only and there also they have a commission .

11. Spend time with franchisees and in franchise businesses you are considering.

If you want to make an organization Franchisors your life – at least for a few years – consider spending time working for it before you buy it . Getting experience and knowledge is key in making your decision. Some franchises, like Dominos, required it, says Ravi Kumar . “Speak to as many franchisees of the chain you are considering to Invest.”I know couple of people to whom we advised and they become Franchisee & Franchisors both by following our services .

12. Imagine failing of the Franchisee what you have taken .

It takes confidence and enthusiasm to startup your own business, even if it is an established franchise. Keeping your hopes up can lead to setting aside the idea that you could fail. Do not do that. Says Ravi Kumar : “if you don’t think you, your marriage, your family or your financial well-being could survive a business failure, you shouldn’t start a business—franchise or any other Business. It’s important to have a positive, optimistic attitude, but don’t roll the dice without considering the possible effects of the worst-case scenario.”

13. Consider doing it yourself and become a franchisor

How much are you really getting from a Bigger franchise organization? Is it worth the monthly payments to the Franchisors ? A lot of franchisees come to feel that it isn’t. “If a given franchise doesn’t provide an ongoing, long-term return on your investment, consider starting your business as an independent and building your own brand,” says Ravi Kumar. “Who knows? If it’s successful you can also Become a Franchisor and might start offering franchises of your own some day.”

Talk to Mr. Ravi Kumar , Founder I Franchise Connect India one of India’s Best Franchise Solution Provider Company you may speak to him on Legal assistance , Feasibility Reports , Business Operation , Lead Management ,Franchise Recruitment,New Business Idea , write to him at :
Email: ravi@franchiseconnectindia.com

For more on the best and worst franchises get in touch with Franchise Connect for the Detailed Report and review of Brands , click here.

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