How to Buy a Franchise: 12 Questions to Ask Before You Sign
By the Connectyfy Deals Team · Updated · 4 min read
Key takeaways
- A franchise gives you a proven brand and system — in exchange for upfront fees, ongoing royalties and less freedom.
- Judge a franchise on unit economics: what a typical outlet earns after royalty, rent and staff, and how long it takes to recover the investment.
- Talk to existing and former franchisees — they are the best source of truth.
- India has no franchise-specific law, so the agreement is your only protection. Have a lawyer review it.
How franchising works
As a franchisee you pay a brand (the franchisor) for the right to operate an outlet under its name, using its products, systems and training. You fund and run the outlet; the franchisor provides the brand, the playbook and ongoing support.
Typical models include FOFO (franchise-owned, franchise-operated — you invest and run it), and FOCO (franchise-owned, company-operated — you invest and the brand runs it, sharing revenue or profit). Multi-unit and master-franchise rights, covering a city or region, are also common.
Browse current franchise opportunities to compare models and investment levels.
What it costs
| Cost | What it is |
|---|---|
| Franchise fee | One-time fee for the rights, training and launch support |
| Setup / capex | Fit-out, equipment, signage, initial stock — often the largest cost |
| Security deposits | Rent deposit for the premises, sometimes a deposit with the franchisor |
| Royalty | Ongoing fee, usually a percentage of sales (not profit) |
| Marketing fee | Contribution to the brand’s national or regional marketing |
| Working capital | Cash to cover salaries, rent and stock until the outlet breaks even |
Tip: Because royalties are charged on sales, an outlet can pay the franchisor every month while losing money itself. Always model royalty against your expected profit, not your expected revenue.
12 questions to ask the franchisor
- How many outlets are open, and how many have closed in the last three years? Why did they close?
- What do typical outlets earn? Ask for average monthly sales, gross margin and EBITDA for outlets similar to yours — and the range, not just the best performer.
- What is the realistic payback period on the total investment?
- What exactly does the franchise fee cover? Training, site selection, launch marketing, software?
- What are all the ongoing fees? Royalty, marketing, technology, and any minimum payments regardless of sales.
- Is my territory exclusive? How far away can another outlet of the same brand open — including delivery-only kitchens?
- Must I buy supplies from you? At what mark-up, and can prices change?
- What is the agreement term and renewal process? What does renewal cost?
- Can I sell or transfer my franchise? Does the franchisor have to approve the buyer, and is there a transfer fee?
- How can the agreement be terminated — by either side — and what happens to my investment and equipment if it is?
- Who chooses and approves the site? Who negotiates the lease, and in whose name is it?
- Can I speak to current and former franchisees — chosen by me, not by you?
Check the unit economics yourself
Build a simple monthly profit and loss for your outlet using your own estimates for your location:
- Expected sales (be conservative in the first year).
- Minus cost of goods (often set by the franchisor’s supply prices).
- Minus rent, salaries, utilities, delivery-platform commissions.
- Minus royalty and marketing fees.
- = Outlet profit. Divide your total investment by this to estimate the payback period.
If the numbers only work in the franchisor’s best-case scenario, walk away. A good brand will be happy to help you test them.
Review the franchise agreement
India doesn’t have a dedicated franchise law, unlike some countries that require a standard disclosure document. Franchise relationships are governed by general contract, intellectual property and competition law — so the agreement is everything. Have a lawyer check in particular:
- That the franchisor actually owns (or is licensed to use) the trademark — check the trademark registry.
- Territory, term, renewal and exit clauses.
- Non-compete obligations after you leave.
- Dispute resolution and jurisdiction.
- Personal guarantees you are asked to give.
Buying an existing franchise outlet
Buying a running outlet from a current franchisee can be lower risk than opening a new one: you can see real trading history. Treat it like buying any business — run due diligence, value it on verified profit (how to value a business), and get the franchisor’s written approval for the transfer and the remaining term.
On Connectyfy you can browse franchise brands and running businesses for sale. Brand owners can read how to franchise your business.
Frequently asked questions
Is there a law regulating franchising in India?
There is no franchise-specific law in India. Franchising is governed by general laws such as contract, trademark and competition law, so the franchise agreement and your own due diligence are your main protection.
What is the difference between FOFO and FOCO franchises?
In FOFO (franchise-owned, franchise-operated) the franchisee invests in and runs the outlet. In FOCO (franchise-owned, company-operated) the franchisee invests but the brand runs the outlet, sharing revenue or profit with the investor.
How do I check whether a franchise is profitable?
Ask the franchisor for average sales and profit of comparable outlets, build your own monthly profit and loss including royalties, and speak to several current and former franchisees you choose yourself.
Can I sell my franchise later?
Usually yes, but most agreements require the franchisor to approve the buyer and may charge a transfer fee. Check the transfer and exit clauses before you sign.