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5 Risks in Franchise Business


Are you in a plan to start with a new business and found the start-up phase too daunting? Then your ultimate choice is to purchase a franchise business. Most of the people think that purchase a franchise is the best way to become a millionaire, but the real fact is, there is a considerable number of reasons why franchise couldn’t crack up to be.

Its safer side to start a new business through the franchise, as you is potentially borrowing another company’s proven business model. Have the marketing power of a more prominent company backing them right from the start, providing a service or product that has been very familiar to the public. Everything has its advantage and its disadvantage also, the same way, franchising business has some drawbacks which may not go good with some.

It’s quite essential to assess the critical risk of the several franchise investments you’re considering to determine where they lie on the risk axis. One has to remember some points before starting up a business, and their risk doesn’t limit into a single factor. Moreover, it a combination of all the risk factors which makes your investment to go in a risk. 

So once you decide to with it, we give you some five factors to consider before purchasing a franchise. 

  1.   Investment

Most of the people look for a low investment franchise opportunity. One of the most significant barriers of a franchise business is not exactly starting your own business, where your entire capital amount is invested in your works, but here an ample amount of your initial investment goes to the franchisor as fees for equipment, training, and licensing rights. You can see what the franchise company will be offering to your investment franchise fees, and have to thoroughly consider the time it will take to earn your investment amount back. 

  1.   Higher level of restriction 

The person who is purchasing franchise must abide by the franchisee agreement, which places several restrictions as to the types of products and services offered, geographic location, marketing, and advertising strategies, prices, and more. If a franchisee has a better idea of a marketing campaign or some interesting fact about a product, they cannot enforce it. 

  1.   Demand and track record 

Just because you want to start your own business and a company provides you with a franchise opportunity in India doesn’t mean it’s worth taking up. You should analyze in a better way before purchasing as how they have been successful in their business. 

Before starting your own business, first, have to find out the demand for the service or the product that you are ready to start. Suppose you are planning to purchase an overseas franchising license, then be careful in what is selling well in other countries may not be well-received here. So never get into an opportunity without doing your research. The essential for expansion should also be thought if you are planning to expand your branch out in the future.

Analyze the company’s franchising track record or speak-out to current franchisees about their experience so that you will get a clear view of whether the franchise is worth or not. 

  1.   Capital risks

Capital risks come up only when the franchisor doesn’t have the proper resources to meet up with your growth plans. You have to carefully examine the financial statements in the franchise disclosure document (FDD) to know how actually franchisor is well-capitalized. In order, if you want a full financial picture, you have run a Dun & Bradstreet credit report on both any affiliated companies and franchisor. 

  1.   Suitable region 

You have to do a complete analysis on whether the concept will work good in your chosen market or your area because not all the franchise will work well in every region. Franchise in a coffee shop can be the right choice in a metro city, but you should give it a second thought while choosing in an urban or rural area. However, franchise opportunity in the education sector might be a wise decision that can work in all-region.

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