A franchise is a business where the owner of the business provides a license to another person for its operations, products, branding, trademark, and processes by allowing the franchisee to sell products or services under the franchiser's business name in exchange for a franchise fee. A franchisor is a business that grants a license to franchisees. It is a contractual relationship among the franchisor and the franchisee.
Before starting a franchise business it is necessary to know about the factors of opting for it. Most of the businesses nowadays opt for franchising rather than startups. Here are a few reasons why franchising is becoming popular day by day.
Tried & Examined Strategies
The business purchased by the franchisee is that business that has already proven itself in the market and has refined the business tactics and plans. Consequently, they don't have to face the problems that all new businesses face.
The franchisee business does not have to build recognition in the market as it gets that from the franchisor that has already established in the market. This provides a vast competitive advantage to the franchise in capturing market share.
A Proven Business Model
The business has already proven the model, which enables it to work effectively, and this benefits the franchise as the franchise can work as per the proven model for achieving targets and increasing profitability.
Buying a franchise business benefits the franchisee as they don't have to incur such expenses. They can benefit from the marketing campaigns run by the franchisor.
A franchise is a safe business because banks often lend money to franchisees rather than startups.
Types of franchise available in the market are:
There are numerous franchise business opportunities available in the market, and it is up to you to determine what type of franchise business you want to run. Following are the top franchise businesses:
It is a low investment franchise that can be operated with the least staffing. Such a franchise only has to pay a franchise fee and minimal operating costs. They generally provide services. Examples-
- Cleaning services
- Children's services
- Event Planning
- Travel Agency
A distribution franchise is a product-driven franchise where the franchise distributes products and services of the franchisor.Examples-
- Computers(Dell, Asus)
- Cars(Ford, GMC)
- Vending Machines
Business Format Franchise
It is a franchise where the franchisee operates the business under the parent company's brand with a proven method to operate.Examples-
- Fast Food(MacDonald, KFC, Subway)
- Fitness( Planet fitness, Anytime fitness)
It is a major investor who provides money and a management team. It comprises hotels and large restaurants.
Under the conversion franchise system, the franchisee enters into a relationship with the existing company and converts it into a franchise unit.Examples-
- Real-estate brokers
- Plumbing services
Top Franchise To Invest In
- McDonald's is the top most franchise to invest in. It is related to fast food and its country of origin is United States Of America.
|Cost of Opening a Franchise||$1 million-$2.3 million|
|Number of Franchise Company||29,544|
2. KFC(Kentucky Fried Chicken) is an American fast food restaurant chain that specializes in fried chicken.
|Cost of Opening a Franchise||$1.3 million-$2.5 million|
|Number of franchise Company||13,864|
3. Marriott International is an American multinational diversified hospitality company. It is the largest hotel chains in the world by number of available rooms.
|Franchise Name||Marriott International|
|Number of franchise Company||6500|
4. Pizza hut is an American restaurant chain and international franchise known for its Italian American cuisine menu.
|Franchise Name||Pizza Hut|
|Headquarter||Plano, Texas, US|
|Cost of Opening a Franchise||$297,000-$2.1 million|
|Number of franchise Company||12,956|
5.Dunkin' Donuts is an American multinational coffee and doughnut company.
|Franchise Name||Dunkin' Donuts|
|Headquarter||Canton, US, Massachusetts|
|Cost of Opening a Franchise||$216,100-$1.5 million|
|Number of franchise Company||12,871|
6. Subway also known as Doctor's Associate Inc., is an American privately held restaurant franchise. Its country of origin is United States of America.
|Headquarter||Milford, US, Connecticut|
|Cost of Opening a Franchise||$116,600-$263,200|
|Number of franchise Company||42,227|
Steps to Start a Franchise Business
Before starting a franchise business, one should know the procedure for the same. It includes knowing what kind of franchise is available.
Step 1- Analyze the Pros and Cons of Getting a Franchise
Choose a Business with a Proven Record History: Commencing a franchise gives an option to select a business model that has sustained itself in the market. For example, MacDonald, Pizza-Hut, etc. have proven themselves in the market.
Check startup Costs: Startup costs are expensive as capital is needed for purchasing space, procuring inventory, Obtaining licenses, and hiring of trained employees.
Built-in support structure: Generally, franchisors support franchisees with services like business advice, training, marketing, and advertising.
Step 2- prefer a franchise that aligns with your business goals.
Before choosing any franchise franchisor should ask himself the following questions:
- What are your strengths & weaknesses as an entrepreneur?
- What line of business would you like to own?
- What are your business goals, and how would a franchise will help you achieve them?
- What is the line of industry you want?
Step 3- Form Limited Liability Company or Corporation
Franchises started as LCC or corporations offering several taxes, legal, and business incentives. The tax benefit is available for LCCs and not for sole proprietors. Numerous franchisors prefer to work with an LLC or corporation. Startups create a legal barrier between business liabilities and personal assets.
Step 4- Research Market Condition & Franchise Opportunities.
Understand the local market conditions that are what kind of business will succeed in the area. Some reliable sources of market data are-
- Government agencies: Census Bureau & Small business administration.
- Private market researchers.
- Business centers at colleges or universities.
Step 5- Design a business plan.
Once the franchise is chosen, write a business plan to be organized.
Step 6- Obtain Finance
Some possible sources of capital are as under:
- Family & Acquaintances.
- Banks or financial institutions.
Step 7- Review and sign the franchise agreement.
A franchise agreement is a contract between franchisee and franchisor. Understand the terms of the agreement, rights, and obligations supporting the agreement.
Step 8- Business Compliance Requirements.
State and local governments require businesses to acquire several licenses and permits before starting the business. These involve business licenses, tax registrations, permits, and occupational licenses. Without these licenses and permits, the franchisor may terminate the franchise.
Step 9- Build and enhance business factors.
The franchisor will provide blueprints, custom fixtures, and signage, but the franchisee needs to do the rest of the work. Before starting the franchise, the franchisor will provide training to franchisees and employees.
Step 10- Open the Franchise
After completing all the procedures and fulfilling all the requirements, the franchisee can smoothly run the business.
Must have tools for startups - Recommended by StartupTalky
Subscribe to StartupTalky
Get the latest insights delivered to you right in your inbox