Franchising is a business model in which one purchases a license of a specific business. Research has revealed that franchises have a higher success rate than other independent businesses. In this form of business, you may have to sacrifice your own business ideas that do not fit with the franchiser's terms, but you enjoy the security provided by an established business. You do not require to establish a brand nor no worry about marketing and operational activities as most franchisers offer help and support to its franchisee.  As a franchisee, you also earn the right to use the trademarks, signage, products, software, business systems, etc. of your franchiser.

But buying a franchise does not guarantee success. To be successful in a franchising business, you must properly assess your franchising opportunities, choose the right franchise that works for you, and you must plan well and work hard. In this discussion we are going to discuss the key issues you need to consider before entering into the franchising business.  

Types of  franchising
1. Business format franchising
This the most common type in franchising business. Here, a franchisee owns the outlet he runs, uses his franchiser's trademark/business name, benefits from the franchiser's help and support, and distribute the franchiser's goods or services. For this, he usually has to pay an initial fee to the franchiser business and a percentage of the sales revenue after selling the franchiser's products or services. In this type of franchising business, the franchisee enjoys less freedom and usually has to follow the franchiser's business ideas and marketing strategies. The extent of freedom the franchisee enjoys and the support he gets from the franchiser are defined by a written contract between the two parties.      

2. Product distribution franchising
In this type of franchising business, the franchisee enjoys more freedom over how he runs his business. The franchisee contract does not necessarily define under what name and how the marketing of the the goods takes place.

3. Agency franchising
In this form of franchising business, the franchisee sells the goods or services on behalf of the franchiser.

4. Licensee Franchising
In this type, the franchisee contract does not usually regulate how the franchisee runs his business. The franchiser licenses him to make and sell products.    

5. Trade name franchising
It is another form of franchising business. In  this form of business, the franchisee sells his own products but uses the trademark/business name of the franchiser.  

Advantages of franchising

• The franchisee benefits from the entire business concept of the franchiser who provides support in every aspect of setting up and running the business.
• The franchisee also benefit from the advertising and promotional activities undertaken by the owner of the franchise.
• It is easier to obtain financing for a franchise than an independent business. While granting a loan, a banker  is primarily concerned with three things: management skills, repayment ability and the value of liquefied assets. While setting up a franchising business, you franchiser can ease these concerns do persuade the bank to grant you a loan.
  
• The franchisee need not worry about setting up a customer base if he buys a franchise from a reputed manufacturer.
  
• A franchisee enjoys exclusive rights in its specific area as the franchiser doest not usually sell more than one franchises in the same area.
• Business risk is reduced a lot as it is shared with the franchiser.   

Disadvantages of franchising

• Buying a franchise may involve more cost than you usually think of. Besides the initial cost for buying it, you have to pay royalties regularly and share the profit with the franchiser.
• In a franchising business, you have to face restrictions on how you run the business. The business strategies you have follow may not suit local requirements.
• You have to totally depend upon the franchiser for the brand image. If the competitors outdo your franchiser, your business might be get affected.
• In franchising business, you have share your profit with the franchiser. The lower risk in franchising business is off-set by lower profit.
• It is not easy to sell a franchise after buying it. Often it requires approval from the franchiser to sell it.
  

How to access a franchise opportunity

• Look for the type of franchises that suit you.
• Prepare a list of the franchises and compare them.
• Before buying a franchise, investigate financial prospects of the franchiser
• If you need loans, confirm that your bank avails loan for the type of franchise you're considering.
• Before signing the franchisee agreement, discuss with a professional adviser.
  

In India, the Franchising Association of India is a reputed Membership Organisation of Franchisers, Franchisees, Vendors, Consultants and Financial Institutions. Its official website (www.fai.co.in) provides useful information different aspects of franchising business in the country.

Tips on franchise agreements

• Before entering into a franchise agreement, confirm how long does it last, when to renew it, how much you have to pay for renewal, etc.
• Confirm the specific area your franchise will cover. Also ask what exclusive rights you will enjoy within that specific area. 
• Before signing the agreement, be clear about the costs such as the initial amount, sales revenue, and everything that you will have to pay.
• Insist on a written agreement detailing the type and extent of support the franchiser will avail you at the initial and later stage of the business.
• Try to understand all about the restrictions you will have to comply with while operating the business.
• In the agreement, make it clear whether you will be allowed to sell the business or not in the future, and on what terms.