IndiaFilings / Learn / Business Startup / How Franchise Business Works
How Does Franchise Business Works? - IndiaFilings

How Franchise Business Works

Franchising is the running of a business using some or all aspects of another successful business in partnership. In the past, businesses would provide the right to sell a product in a particular market known as distribution deals or distributorship. More recently, however, the concept of franchising has evolved wherein a business allows grants another business the license to operate under the same name and use the expertise of the parent company for establishing a successful business.  Some of the most well-known franchise business in the world is Domino's Pizza and McDonald's restaurants. In this article, we look at how to franchise business works in India.

Franchisor - Franchisee Relationship

The franchisor is the parent business that allows franchisees to operate using the same products or services, trademarks, techniques, etc., in return for an agreed-upon fee. A franchisor usually has a number of franchisees. A franchisee can have only one franchisor. The relationship between the franchisor and franchisee is governed by the franchise agreement.

[caption id="attachment_2561" align="aligncenter" width="868"]Franchisor-Franchisee-Relationship Franchisor Franchisee Relationship

Franchise Agreement

The franchise agreement is a written legal document between the franchisor and franchisee. The franchise agreement is the fundamental document upon which the franchisor-franchisee relationship is based on. The franchisor and franchisee must both sign the agreement. The following are some of the major aspects covered in a franchise agreement:

  1. Details about the franchisor and franchisee
  2. Appointment of franchisee and grant of a license
  3. Location of the franchisee
  4. Development of the franchisee location
  5. Maintenance of the franchisee location
  6. Proprietary marks or trademarks the franchisee can use
  7. Licenses or permissions the franchisee must obtain or can use from the franchisor
  8. Operation standards
  9. Quality standards
  10. Training and assistance from the franchisor, if any
  11. Consideration for granting franchisee
  12. Franchisee license fee, if any
  13. Marketing assistance from Franchisor, if any
  14. Products or Services that can be offered by the Franchisee
  15. Franchisee obligations
  16. Franchisor obligations
  17. Terms of the franchise agreement
  18. Tenure of the franchise agreement
  19. Renewal of the franchise agreement
  20. Termination of the franchise agreement

Benefits for Franchisor

The franchising business model affords a number of advantages for both the franchisor and franchisee. The following are the advantages of Franchisor from creating a franchising business model.

Low Capital

Franchisors typically collect a franchising fee from individual franchise owners at no interest. This money collected from franchisees can be used by the Franchisor to grow the business and brand.

Rapid expansion

Fast expansion is necessary to quickly capture market share in a developing country like India. Franchising business model can help a business quickly expand and garner market share.

Partnering with Entrepreneurs

In a franchising business model, the franchisor partners with Entrepreneurs or Business Owners - who are motivated by their ownership, profits and capital invested by them in the business. This will immensely help the franchisee and franchising model succeed.

Greater buying power
Since franchisors represent a number of franchisee's they can often negotiate volume discounts from suppliers when buying in bulk. Sharing the savings with the franchisees provides a competitive advantage for the franchises over the independently operated business.

Brand Building

Compared to independently operating businesses, franchisee business has a better recognition as many locations are opened.  In a franchising business since brand building costs are spread over a number of business, there can be tremendous savings on advertising and branding costs.

Benefits for Franchisee

Franchisee enjoys a number of advantage by starting a franchising business than starting an independent business. Some of the advantages of starting a franchising business for a franchisee are:

Expertise

To start and manage a franchise business, the promoter does not need any experience or expertise. The franchisor will provide the training and expertise to successfully operate the business.

Higher chance of success

Franchise business usually has a higher rate of success than independent business due to a number of reasons. Franchise businesses have well experience professionals backing the business, lower branding cost, higher brand reputation, etc., - increasing the chances of success.

Independence

Franchise business offers the business owner a chance to operate an independent business while enjoying many of the benefits of big business.

Easier access to capital

Franchisors typically have a number of tie-ups with banks to provide loans for setting up a franchise business. Therefore, franchise owners can have easier access to bank loan through the franchisor.

Franchising Cost for Famous Brands

The following are the estimated cost for obtaining a franchisee of the brand. They are just indicative figures and can vary:

Fab India Franchising Cost

Selling of garments, home products, personal care products, etc., Investment: 30- 50 lakhs. ; Annual Brand Fee: 2 - 5 lakhs. Snap Fitness Franchising Cost High-end health and fitness centre. Investment: Rs.100 - 200 lakhs; Annual Brand Fee: Rs.15 - 20 lakhs.

Naturals Salon Franchising Cost

Health and beauty salon. Investment: Rs. 30 - 50 lakhs; Annual Brand Fee: Rs. 3 - 7 lakhs.

Sunglass Hut Franchising Cost

Eyewear and accessories retailing. Investment: Rs.30 - 50 lakhs; Annual Brand Fee: Rs.2 - 5 lakhs.

Classic Polo Franchising Cost

Men's fashion and clothing retailing. Investment: Rs.5 - 25 lakhs; Annual Brand Fee: NIL - 2 lakhs.

To start a business in India, visit IndiaFilings.com

IndiaFilings
Updated on: August 30th, 2021

Popular Post

Download ePAN Card – Get ePan from NSDL & UTIITSL
80 Small Business Ideas

Starting a small business can be a transformative venture, offering the exciting opportunity...

Nadakacheri – Income Caste Certificate Download Online in Karnataka
TDS Rate Chart for Financial Year 2025-2026 (Assessment Year 2026-2027)

Tax deduction at source, shortly and popularly known as TDS, was introduced by the Income Tax...

Divorce Rules in India: Everything You Need to Know
How To Download GST Registration Certificate Online?

Goods & Services Tax Certificate is issued to people who are registered under GST...

PAN Card Cancellation Online
Find Complete Details of GST Registration Procedure

GST registration applies to all individuals and entities supplying goods or services in India. GST...

Check Your PF Claim Status Online Using PF Tracking ID
Gift Tax in India: Applicability, Exemptions and Rules

Gift tax in India is applied when the value of the received gift exceeds ₹50,000 in the...

Check Your PF Claim Status Online Using PF Tracking ID
Old Regime vs New Regime 2025: Which Tax Regime is Better for You?

The Union Budget 2025 has brought significant changes to India’s personal income tax structure, raising the...

Check Your PF Claim Status Online Using PF Tracking ID
What is the minimum turnover for GST?

The Goods and Services Tax (GST) is an indirect tax system introduced in India in 2017. It functions...

Check Your PF Claim Status Online Using PF Tracking ID
How can I check if a trademark is registered?

A trademark search is simply checking if another person or organization does not already own the...

Check Your PF Claim Status Online Using PF Tracking ID
Section 194H of the Income Tax Act: TDS on Commission & Brokerage

Section 194H of the Income Tax Act in India mandates the deduction of Tax at Source (TDS) on commission or brokerage...

Check Your PF Claim Status Online Using PF Tracking ID
Section 80G Deduction - Income Tax Act

Section 80G Deduction is a facility available in the Income Tax Act which allows taxpayers to...

Check Your PF Claim Status Online Using PF Tracking ID
Crypto Tax in India: Taxation On Cryptocurrency

The Income Tax Department (ITD) has not provided specific guidance on crypto taxes for Indian investors. However...

Check Your PF Claim Status Online Using PF Tracking ID
Internal Audit Applicability Under Companies Act, 2013

Internal audit applicability is a critical concept for companies in India, impacting various...

Check Your PF Claim Status Online Using PF Tracking ID
Difference between Private and Public Company

In the business world, two main types of companies exist: private company and public company...

Check Your PF Claim Status Online Using PF Tracking ID
New GST Rules for Rent

Ministry of Finance vide a Notification No 05/2022- Central Tax (Rate) dated 13.7.2022 has issued...

Check Your PF Claim Status Online Using PF Tracking ID
GSTR-1 and GSTR-3B Due Date Extension - New Due Dates For January 2025

The Central Board of Indirect Taxes and Customs (CBIC) has recently announced an extension...

Check Your PF Claim Status Online Using PF Tracking ID
Different Depreciation Rates under Companies & Income Tax Act

Depreciation is a key concept in finance and accounting. It helps us manage how the value of...

Check Your PF Claim Status Online Using PF Tracking ID
Form 10IA - Section 80DD Deduction

Form 10IA of the Income Tax Department must be filed by taxpayers claiming income tax deduction...

Check Your PF Claim Status Online Using PF Tracking ID
GST on Used Cars: New 18% Tax Rate Explained

The Goods and Services Tax (GST) system in India has been a significant reform in the country's...

Check Your PF Claim Status Online Using PF Tracking ID
MSME Registration - Udyam Registration

India's Gross Domestic Product (GDP) benefits significantly from the substantial...

Check Your PF Claim Status Online Using PF Tracking ID
Section 43B(h) - New MSME 45 Days Payment Rule

The Finance Act, 2023 introduced the MSME 45-day payment rule under Section 43B(h) of the Income Tax Act...

Check Your PF Claim Status Online Using PF Tracking ID
Direct Tax Vivad Se Vishwas (DTVSV) Scheme, 2024

The Direct Tax Vivad Se Vishwas (DTVSV) Scheme, 2024, was announced by Union Finance Minister...