5 Things you must do before choosing a franchise
Running a franchise is one of the easiest and the smartest ways to enter the retail business segment. Whether your preference is food or groceries or footwear or garments or eye wear you will definitely find a brand to partner with.
While franchising is definitely the best known way to run a retail business you must do the following 5 things before you choose a franchise partner to work with.
Study and evaluate the opportunities of the business vertical you want to enter into. The business vertical should be mapped with the city/locality demography to understand the hyper local opportunity. For example - Opening a premium sportswear brand in a tier 2 city from which most youth migrate to other larger cities for studies and jobs might not make good business sense.
After selecting the business vertical the factor which is of singular importance is "funds". You should follow the below formula while calculating the funds you need to keep aside to invest in the project.
The investment amount = Setup Cost + Running cost of the restaurant for 6 months
It typically takes a few months for any retail outlet to achieve profitability and hence before opening an outlet you must plan for funds assuming the outlet will take a minimum of 8-9 months to reach its profitability.
Now that you have chosen your business vertical and decided on the budget for the project you must investigate the area in which you should setup the store. You must do some basic research in the locality to figure out the market opportunities.
For example - It may appear that opening one more garments franchise outlet in a locality which already has 10 other established garments retail shops is not a wise move. However, a closer analysis may reveal that there is an absence of a seller specializing in wedding/party wear or that there is a lack of a new age branded clothing wear for youth. Since such a cluster would already be drawing customers interested in buying garments in large numbers the business might just turn out to be a blockbuster.
Most retail businesses end up not doing well because the owners either do not spend enough time in growing their business or most get too involved in the day to day operations and are unable to focus on sales/marketing. Before opening up an outlet you must ensure that either you or your business partner spends full focus of theirs in the first 6 months to grow the business. If you are starting the business with a partner then there should be a clear demarcation of the roles and at least one of you should focus on sales and marketing. Running a retail business should never be a part time job if you intend to make it profitable.
When you have chosen the retail vertical and determined the amount of funds you can invest, selecting a franchise partner becomes the most important decision. While evaluating franchise partners you must evaluate the following:
1. Cost of setting up an outlet (franchise fee, setup fee and other costs).
2. Monthly operational cost of an outlet, number of staff required, training and evaluation of the staff.
3. Margins for franchise and the royalty fee.
4. Study some P&Ls of existing stores.
5. Credentials of founders, investors and core team.
6. Support process and escalation path.
7. ERP and CRM system's capability.
It always helps to be prepared before you take the plunge, we have seen this work with thousands of franchise owners and guarantee that if you follow the above list diligently you will most likely have a fantastically profitable business.