Getting Into The Franchise Business - Facts You Should Know
by Raja Santosh
My experience of running a franchise business relates to a time I was in job, earning a decent monthly salary. The reason why I thought of changing into a new line was that my job required me to travel a lot. I was soon going to be married and saw this would be even less palatable.
Frankly, I didn’t have enough savings to even think of starting any business. It came as a godsend when one of my relatives who was in export trade suggested if I would be willing to run a franchise business for a well established tire brand. In fact, he had made good money and wanted someone trustworthy to run a secure business with it and share the profit with him.
After initial hesitation, as I had no experience of running a business on my own, I agreed. I saw improving my income together with riddance from frequent travel, as being two basic incentives.
I didn’t have the need to approach any finance company/bank and could acquire the franchise with relative ease. Here are the points with wider ramifications that I would like to share with anyone thinking of going into franchise business.
1. The bigger the brand, higher is the initial fees required to be deposited. It’s somewhat ticklish as initially one doesn’t have collateral except for personal guarantee to offer.
2. The contract of franchise needs very careful study to ensure there are no conditions that may pose problem. In my case, the franchiser had a condition that each consignment of truck tires would comprise a percentage of car and motorbike tires.
Later, I was pained to find that the demand for truck tires far exceeded the supplies; they literally sold like hot cakes. But I faced considerable problem selling car/bike tires. It was a real struggle.
3. The market trend took a dip after I came into the line. So my projections got greatly disturbed.
I ran my franchise for some eight years and passed it on to another franchisee with least hassle, when I got a better business opening for setting up a service agency in computers. The little I learnt from my experience about franchise business is summed up below for the benefit of those who would like to go into this line.
(a) The arrangement for depositing initial fee should be secure.
(b) I faced problems because I did not study the market trends for sale of different varieties of tires. There is often one catch or the other with most franchisors’ conditions.
(c) The franchisor of any established brand deals from a position of strength. It is therefore necessary to make detailed enquiries in the line, franchisee being clearly the underdog.
(d) Experience of existing franchisees serves a good purpose to firm up your decision.
(e) At times, seeing a potential competitor in you, they might tend to offer you misleading facts.
(f) It is necessary not to take what the existing franchisees say at its face value. Do corroborate by interacting with a broader base.
(g) Professional consultants can be both a help and otherwise. At times, they want you somehow to go into the line so that they earn their fees.
(h) This doubt however should not deter you from seeking professional help. The point is care needs to be taken in choosing a consultant preferably through a reference.
(i) If the terms of franchise involve making ongoing payments to the franchisor, the margin in the line of business has to be looked into with care.
(j) For ongoing payments, a reasonable period of moratorium should be asked for so as to provide you time to comfortably settle down before the payments commence.
All told, franchisee business is far safer than starting entirely on your own. You take the benefit of the franchisors’ struggle to get established. So, giving back a part of your profit to them is justified.
