11 Key Steps in Opening a Franchise Business in India

Starting a new franchise and becoming an entrepreneur is a dream that many cherish. Even a well-established businessman wants to take a new franchise and expand his business, but starting a new franchise is easier said than done. There are hosts of issues that need to be addressed before entering the franchise business.

The process of opening and running a successful franchise is stressful and time-consuming, not to forget the funds.

However, the franchising model is rewarding and one of the safe routes to create wealth for entrepreneurs. Instead of taking higher risks in starting your own brand new company, the franchise model entitles you to exploit the benefit of an already established successful brand.

You can scroll down to read the entire gamut of issues related to opening a franchise.

Steps in opening a franchise

Owning a franchise is a big business decision, and prudent planning is a must before starting a venture. There are 11 significant issues before-hand that should be pondered over for successful franchise opening.

• Self-assessment is the key.

Starting a franchise is a cumbersome process for many people. As an aspiring business person, it’s essential to be focused on the particular franchise that suits your style and taste. Before you commit yourself, be aware of the fine prints of your business model. Do you have the patience to work long hours? No weekend holidays or festivals?

Sharing your profits and depending exclusively on the franchisor’s network, brand and resources are the other things to consider. Moreover, do you have enough money to fund the venture, or can you secure it through franchise financing?

• Try to find out the industry you want to participate in

Every major industry operates on a franchise model. There are plenty of opportunities in sectors such as food, beverage, electronics, clothing, automobile, etc. Find out what you’re interested in and how you feel about a particular industry. Make a list, but don’t be adamant, be flexible, and open to suggestions. It is advisable to narrow down to a limited number of options that interest you and then look into other factors like finance, location, etc., before taking a plunge.

• Do proper research

Once you have zeroed in on the potential industries that suit your interest, now start your research on things like-

• The kind of business like to sustain itself in your locality
• The business environment of your area of operation
• The kind of challenges you may encounter
• The expected clientele, etc.

It is necessary to learn the right kind of business environment prevailing and future prospects of a place that may benefit your venture. Study how a franchise will work in your locality: your future revenue stream and the hours of work you need to put in. You should study carefully the right kind of model that fits your bill.

• Hire a franchise consultant

Taking a franchise consultant’s services is a wise step that can walk you through the entire process. A franchise consultant has complete industry-specific knowledge and can help you in legal matters and save you from your business’s possible pitfalls. Therefore taking timely advice from a consultant can protect you from hardships in your new venture.

• Approach the franchisor

You can approach the franchisor and seek information directly. A franchisor can appraise the potential franchises about the services and support on offer with details.

• Talk to other franchisees.

You can obtain a list of franchisees who are working with your target company. Visit them and inquire about the support offered by the franchisor. Discuss in detail the issues faced by them and also if it is financially viable. Do make a fair assessment after it. Try to figure out if your expectations meet reality?

• A suitable location to set up a shop is a must.

Most franchisors assist you in selecting a favorable location. It is necessary to set up a shop with maximum traffic to increase the clientele.

• Prepare a business plan.

It is ideal for preparing a business plan with goals and a timeline specified to achieve them. If the business plan is correctly spelled out, the franchise is going to be successful.

• Secure funding for a franchise

After selecting a franchise to invest in and preparing a business plan, approach possible lenders for a franchise loan. There are many financial institutions, including banks and NBFCs, providing franchise loans to the applicants.

You can also take assistance from your franchisor for availing franchise finance. Some franchisors assist financially or help secure funding for new franchises. It is essential to underline that a new venture needs regular cash to stabilize the operations.

• Get the necessary permits and staff

After signing an official agreement with your franchisor and securing franchise finance, the next step is to adhere to the state rules and regulations. Every new venture before starting needs necessary permits and licenses. The franchisor can suggest regarding permits and insurance required from the local authorities.

With permits in place, you can seek guidance from the franchisor on getting the right kind of human resources. Training programs for employees will help in the right kind of professional attitude required to run the business.

• Launching of your franchise

Marketing your business is necessary to get maximum eyeballs. Promotional material, signboards, etc., are a part of the launch. Some companies do a soft launch to fine-tune their operations before the grand opening.

What is the requirement of funds in starting a franchise?

Starting a franchise needs significant cash. It would be best if you had the money for;

• Starting the operations that include the place of operation, hiring your staff, permit/license expenses, etc.
• To pay a royalty to the franchisor.
• Working capital requirement

The franchise loans are offered for various industry segments such as garments, grocery, retail, electronics, fashion accessories, automobiles, hardware, etc. Not just the new ventures, even franchises in operation seek funds for extension or new product launches. To meet all the requirements, franchise finance from financial institutions is available today.

 

What is franchise finance?

If an individual wants to start a new venture, then instead of setting up a new brand or product line, he/she can take a franchise of an already established brand. The funds required to start a new franchise of an existing renowned product is called franchise finance. Franchising enables the new entrepreneur to exploit the brand name, logo, trade name, identity, procedure, etc., to set up his venture.

A franchise is a type of co-ownership where the new franchisee pays royalty.

Things to consider before availing of a franchise loan

The financial institutions such as banks or financial companies like Lendingkart consider the following things before issuing loans:

• The financial stability of the applicant
• The credit score of the applicant.
• The financial liabilities of the applicant, if any.

Features of Franchise financing

• The interest rates, repayment tenure, EMIs, etc., depends upon the applicant’s financial stability, repayment capacity, and loan amount. The interest rates levied vary among the lenders.
• Franchise financing can be through different ways like term loans, small business loans, and traditional loans.
• Quick disbursal of collateral-free franchise loans by lenders like Lendingkart.
• Minimal documentation and Flexi-repayment facility are the other features of franchise finance.

What are the eligibility criteria to avail of a loan?

The eligibility to get a franchise loan are as follows:

• Age limit – Between 21 years to 65 years
• Time of operation – The franchise should be operational for the last three years
• Income tax – The income tax returns of the last year
• Annual turnover – It varies among the lenders.

Documents required to avail a franchise financing

• Identity proof: PAN card, Aadhar card, Voter ID, Driving license.
• Address proof: Aadhar card, Ration card, Utility bills (electricity, water, telephone bills)
• Financial proof: IT returns for last one year, bank statements for the previous six months, Balance sheet audited by CA.
• Business ownership proof or Partnership papers for joint ventures
• A business plan with full details about the franchise
• Two passport size photos of the applicant

What are the other charges levied by lenders?

Apart from the interest rates, the financial institutions also levy different charges and fees on the borrower that vary from one lender to another. It is advisable to do thorough research and get the details of the additional charges and expenses.

• Processing fees; It is between 2% to 3% depending on the lender.
• Prepayment charges: Levied on borrowers that want foreclosure of the loan account.
• Penalties: The penalty is levied for late payment of installment (usually between 2% to 3%)

What are the other loan products that can be used for franchise finance?

Some of the other loan products are:

• Overdraft
• Term Loan
• Business Credit Card
• Working capital loan
• MSME Loan
• Loan for Start-up

What are the things to keep in mind before availing of a franchise loan?

The franchise loan is one way to secure financing; you can also borrow from friends or relatives or try the crowd-funding option. Since starting a franchise is capital intensive, some critical things to consider are:

• It takes time to stabilize the business, so working capital should be arranged in advance. The lender can be asked to postpone the installments till the company generates sufficient cash.
• A detailed business plan is a must before applying for a loan. The goals, funds available, loan requirement, timeline of repayment, financial stability, personal finance needs to be mentioned.
• Arranging funds from your franchisor is one smart move as you can get customized financing, equipment, and other information to run the business effectively. Your franchisor may also help you in securing the required loans from lenders.
• Commercial banks offering franchise business financing is another route to get funds. An applicant’s personal and business credit finance track record is scrutinized, and based on it, the loan is sanctioned.

 

The franchise model helps an individual to become an entrepreneur with a safety net of a significant and established brand behind him. However, starting a new franchise is capital intensive and needs funds and dedication on your end to be successful. The franchise loan is an ideal way to get the necessary funds and become an entrepreneur.

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