India is witnessing a consumption boom fuelled by its growing middle class. Roughly 300 million people in this group have disposable income, big aspirations and are looking for goods and services. If you’ve been thinking of starting a franchise business in India, now might just be the perfect time.
Find the right franchise for you in 3 steps
Opening a franchise is less risky than building a business from the ground up because the business model has already proven successful. Follow these steps to choose the right one for you.
- Evaluate your area of interest.
- Find the right franchisor.
- Come to an agreement.
Once you’ve read through our list, keep going to learn the six benefits of franchising.
How to get a franchise business up and running
If the idea of a franchise business has you excited, you can explore a multitude of options online. Many groups in India today connect interested entrepreneurs with franchise businesses, assisting all the way from plan to floor.
You need to carefully select the right partner, understand the operational and financial expectations and be willing to work diligently. Here’s how you can go about weighing your franchising options.
1. Evaluate your area of interest
The key ingredient to achieving success in any venture is passion. So step one in starting a franchise business in India is to make a short list of franchises that excite you.
You don’t need food service experience to open a Baskin Robbins franchise or a degree in teaching to open a Kidzee centre. You could always hire people with the necessary experience and skills.
Now look at each of the franchise options on your list and ask yourself:
- Will you be equally passionate about the idea 10 to 20 years down the line?
- Are there opportunities for personal and professional growth?
- Will this improve people’s lives and the community at large?
This should help you cross at least a few businesses off your list and point you towards the industry that most interests you.
What do you bring to the partnership?
Of course you stand to gain by joining a successful chain, but why should the franchisor choose you from the many other entrepreneurs who want to come aboard? Most franchisors look for a strategic ‘fit’ in terms of personality, ambition and work ethic. Everything else can be managed.
Having access to real estate is a major plus, considering the exorbitant rental costs in major cities.
Additionally, most franchisors expect franchisees to contribute a set amount of money up-front. You might be interested in this list of five low-investment franchise opportunities in India.
2. Find the right franchisor
Once you have identified the industry you’re most passionate about, start short listing businesses with franchising requirements that match what you have to offer.
Get detailed information about each business, the owner, the product/service and the franchise model.
This is one of the best ways to learn what it’s like to be a franchisee with each business you’re considering. Here are a few questions you could ask:
- What are the challenges to running your shop or outlet?
- How long did it take you to break even (start making a profit)?
- How helpful is the franchisor?
- Were there any surprises?
Then schedule a meeting with the franchisor and make sure to have all your queries and concerns answered.
When you approach the franchisor initially, you will have to submit a franchisee form provided by the business and a letter of intent. Both will play a crucial role in your application being approved, so take your time completing them.
You’ll need to answer detailed questions about your experience, education, background, finances — even your aspirations. You should also be prepared to provide:
- The intended location of the business
- Agreement of the property (if leased)
- A valid government ID
- Updated resume
- Past two to three years of bank statements
- ITR, TIN and GST details
This article has more on what to expect in the application process.
3. Come to an agreement
Most franchisors have a master agreement for every region. This usually includes:
- The franchise fee (your up-front cost)
- Operational guidelines
- Renewal terms and grounds for termination
- Inclusions and exclusions to the contract
While most agreements are ironclad, your ability to negotiate the terms depend on local laws, the size and reach of the franchisor, prevalent market conditions, what assets you bring to the table and your negotiating skills.
Doing your homework about the industry, the specific business and other franchisees will set you up well for negotiations. Even a small percentage shaved off an annual franchise/royalty fee could amount to millions in a few years for a mid- to large-scale operator.
Documentation and laws of governance
Once the association is approved in principle, you need to decide how to structure the business entity. You could choose from a Sole Proprietorship, LLC, LLP or Private Limited Company, based on the business segment, tax advantages and law of the land.
Before the contract is finalised, seek legal counsel to ensure everything is in order.
Because there are no specific laws governing franchising in India, the agreements are covered under the Contract Act, 1872 and the Specific Relief Act, 1963, which enforce the covenants of the contract and offer remedies in case of breach. For international franchisors, FEMA, 1999 and other FDI rules as prescribed by the RBI may be applicable.
Management and decision making
To be successful, a franchisee has to adhere to the standards prescribed by the business. This is why many franchisors look for franchisees who follow the rules. However, you should be able to exercise some freedom in how you operate.
This is especially true in India. Considering the cultural diversity from one region to another, the brand should be able to adapt to connect with the local audience.
The crew you hire can make all the difference to your success. Picking the right team members, providing the adequate training and developing good relationships can really help you succeed.
Benefits of opting for a franchise model
An estimated 35% of Indian franchisees are first-time business owners who see this as a way to jump-start their careers. They’re not wrong — in fact, there are a number of benefits to franchising rather than building a business from the ground up:
Proven business model
To be able to ‘franchise,’ a business must:
- Have a robust business model
- Demonstrate that it can be replicated in multiple locations
- Show long-term financial potential
An entrepreneur can significantly increase their chances of success by partnering with a business that has already survived difficulties and proven itself able to adapt, evolve and grow.
Better financing opportunities
The biggest obstacle for entrepreneurs across the world is funding. A franchisor’s reputation, proven business model and financial data make it much easier for franchisees to convince a bank or an investor to fund such a venture.
For any new business, building a reputation can take years. However, a well-known franchise can bring in customers right away thanks to the goodwill built by the parent company’s product or service, branding and advertising.
Unlike a fledgling business, a franchisee benefits from having:
- Established business practices
- Useful business data and technology
- Reliable vendors/suppliers
- A fine-tuned end-to-end operational blueprint
Access to this know-how shortens the learning curve and protects the franchise from potential damage arising out of business inexperience.
Economies of scale
The cost-benefit ratio of a franchise model is phenomenal. Because all the franchisees order from the same vendors, each enjoys savings — right from sourcing to marketing, technological development and scientific exploration/IPR.
The brand and the franchisee have a symbiotic relationship. The franchisor is directly invested in the franchisee’s success and will therefore offer continued support on business issues, training programmes, management and business processes.
It’s a good time to start a franchise business in India
India is already the second largest franchise market in the world after the U.S. and the segment continues to grow manifold. With rapid economic growth and a billowing middle class, there is still tremendous untapped potential to franchise local and international businesses.
The Indian franchise industry is expected to grow four-fold over the next four to five years.
There’s no doubt that this is a fortuitous time to start a franchise business in India. Entrepreneurs should weigh all aspects that affect success — the reputation of the franchise, use/need for the product or service, financial prospects, feasibility and plans before they make the leap. The franchisor provides the tool, but you still have to build the business.
All the best!