Getting into a franchise is a great way to become a business owner. A franchise refers to the official permission under which a business can sell its products and services in a particular region. So, basically, the stores or outlets are operated under a franchise.
It is an excellent way to start a small business and promote it on a large scale. While setting up a franchise business might not be the easiest and cheapest way, an MSME registration can boost your credibility to procure a franchise if you are a small or medium-sized business owner.
Now, franchises in India can be of different types based upon their services, your position in the business, your input, involvement factor, etc.
While a franchise is quite flexible and any type of business can be franchised, here are the 5 major types of franchises available in India.
5 Types of Franchise Business in India
This is the most common type of franchise you can see around. Such franchises are solely based on supplier-dealer relationships where the franchise is responsible for distributing the franchisor’s products and services.
For example- When a retail store procures a tea time franchise to distribute tea and bakery items is a type of product franchise. In such cases, the franchise is allowed to use the trademark and brand name of the manufacturer to distribute or sell the bakery products.
Generally, the brand name is licensed by the franchisor instead of providing the franchise with their entire business operating system. Mainly, product franchises deal with large products such as electrical appliances, vending machines, car spare parts, etc. No doubt, product franchising accounts for the highest proportion of total retail sales.
This is a more individually-oriented franchise where the business owners prefer to operate a small business alone from home. Such a franchise is low-cost and includes a single person selling products or services within a specific industry. The most significant advantage of a job franchise is that it takes minimal investment.
Despite the minimal investment and low-cost operation, the business has to get a GST registration done if its annual turnover exceeds 20 Lacs.
A wide range of small and medium-sized businesses can run under this franchise, such as gardening goods and services, plumbing, commercial and domestic cleaning, mobile accessories and repairs, real estate service, daycare services, and so on.
As the name suggests, your investment is the main factor for this franchise. An investment franchise is a large-scale franchise that generally requires a considerable capital investment.
The franchisees invest money and deploy either their management team or an outside franchisor to operate their business. In this way, they produce the return on their investment and capital gain.
Usually, large businesses like hotels and big restaurant chains run under this type of franchise. The franchisor needs to get a GST registration done to procure a franchise as their annual turnover usually exceeds 20 Lacs.
Business Format Franchise
This is one of India’s most preferred franchise types where the franchisee gets their own business model backed by an already existing popular brand.
Here, the brand owner just has to provide the pre-requisite training and assistance to establish the business. The franchisor also supplies the goods and services. In return, they enjoy a royalty fee.
In a business format franchise, a franchisor might also provide the franchisee with raw materials as they usually aim for consistency of the quality delivered by the franchise.
The most prominent examples of such franchises are food chains like an Amul franchise and other international restaurant chains like Domino’s, Burger King, etc.
A conversion franchise can be referred to as a modified relationship between the franchisee and franchisor. In this, many franchise models grow their business by turning it into a trademark. Hence, the company tends to grow in the same industry as the franchise units.
The business indeed adopts marketing & advertising programs,client-service standards, and other ways of operation. As the franchisor usually increases the procurement savings, the company possesses the potential of very rapid growth in terms of units and royalty fee income.
Major examples of businesses that use conversion franchising are real-estate brokers, home services, electricians, air conditioning, etc.
Is MSME registration mandatory for procuring a franchise?
If you own a micro to medium-sized business, you might be wondering if you need an MSME registration to get into a franchise business. Although getting MSME registration is not mandatory, it offers you several benefits, including procuring a franchise. Here’s how it can help you buy a franchise and grow your business.
- As owning a franchise can take a significant capital investment, you might need to apply for business loans. For example, a small DTTC franchise would require a capital investment of about INR 4 lakh to INR 5 lakh to cover brand fees, equipment, etc. You become more credible to get the necessary business loan to set up a franchise by getting your MSME registration done.
- Starting a franchise business also needs you to comply with various rules and regulations by the government and the parent business. It requires simple procedures like obtaining a lease, permits, certifications, etc. An MSME certificate can help you gain better trust and credibility while obtaining licenses and permits. In addition, you can also claim reimbursements for the expenses you spent for the ISO certification of your goods.
- You are subjected to pay several taxes while running a franchise business. However, enterprises that have MSME Registration can enjoy Direct Tax Exemption in the initial year of business and can avail of MSME loan easily.
Micro, small, and medium-sized businesses emerge as the backbone of our economy. A franchise business is an excellent way to grow and expand MSME businesses to new heights. However, the process of procuring a franchise can be tricky and expensive, so it’s crucial to choose a reliable company and keep all government compliance.
Small yet practical steps like getting an MSME registration are the best way to improve your enterprise’s success in entering a successful franchise business. Ziploan offers loans for MSME that are upcoming or just blooming in the market.
Start from as low as 1 lakh depending on your needs with minimal documentation and easy eligibility. You can avail of the loan in just 3-days provided you should have proper documentation.
Frequently Asked Questions
The main types of franchises available are a single unit, multi-unit, area developer, and master franchise. The franchising industry is very versatile, with multiple franchises, industry options, and investment ranges.
There are three types of franchise business models which are opted by most of the brands for expansion;
1) The business format franchise
2) The product distribution franchise
3) The manufacturing franchise.
Business format franchising is the most popular type of franchise system and the one generally referred to when talking franchising. Businesses from more than 70 industries can be franchised, and the most popular are fast food, retail, restaurant, business services, fitness, and others.
Coca-Cola is a franchise as a product distribution system and the largest beverage company in the world. As a product and trade name franchisor, The Coca-Cola Company licenses its franchisees to sell and distribute the end product using the franchisor’s trademark, trade name, and logo.
McDonald’s continues to be recognized as a premier franchising company around the world.
The most profitable franchises in 2021 are:
3) The UPS Store
4) Dream Vacations
5) The Maids
6) Anytime Fitness
7) Pearle Vision
9) Tea Time