Franchisee business is a good income source provided you select the right one and put in the best effort to grow. However there some useful tips when setting up a business under this model.

Let’s understand these:

1. Know what franchise business is and in and out of it:

Before thinking of starting about the business, you should know what franchising means. And when you acquire a franchise you must have extreme detailed know-how of the business (the technical and administrative characteristics that are essential to conduct a business process). First of all, you have to be aware of how much you know about the business and what the first step is to learn how to manage it.

This is not only achieved with the training period offered by all franchisors, but also during the first year of operation. Therefore, the advice is to take advantage of the training and guidance that franchisors offer, in order to learn from those who know how to run the business effectively.

2. Having the resources:

When starting a franchise, the brand must give the entrepreneur a budget of the total investment of the new business.

The task of the franchisee is to ensure that he has the full disposal of the resources. The recommendation is that the resources should be your own. And, if this is not possible, you may have as your first option a partner to contribute the missing capital or resort to bank financing, in which case it is recommended that this should not exceed 25% of the total investment.

3. Study the franchise contract very carefully:

The franchise contract frames the commercial relationship that the franchisee will have with the franchising brand.

Reading and understanding the whole of it will give the entrepreneur the necessary knowledge to properly manage the new business relationship, and thus know what the rights and duties are.

Contractual knowledge helps to avoid making mistakes that could cost the loss of the franchise due to breaches of contract. And it will also be known that the franchisor brand can be required to make during the existence of the business.

4. Be sure of the location:

While most brands advise on the correct location of the business, the franchisee must trust his franchisee.

There are two variables that depend on the entrepreneur; the first is not to worry, because this can be a delayed process and it is better to be sure of a good location, than to choose it in a hurry and wrongly. And the second is that the franchisee has easy access to that location so that the entrepreneur can be aware of his business.

5. Do not decapitalize the business:

Although it is likely that from the beginning a franchised business will generate profits, there is also the possibility that it will take some time to achieve them. So for these two cases two pieces of advice are: First, to have working capital within the investment, which allows the franchisee to cover the debts of the beginning of the operation. And secondly to allow the business to be capitalized during the first year, that is to say, that the entrepreneur during those first 12 months does not depend financially on it for his livelihood.

Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at nikeshmehta@allonmoney.com.