The International Franchise Association defines “Franchising” as “a strategy for growing a business and selling products through partnership and co-ownership of an established brand.”
Franchising works by allowing the “franchiser” (individual or group) to award a license to a “franchisee” (individual or group) to operate a business to sell products or provide services using the franchiser’s trade name.
The franchisor additionally furnishes the franchisee with plans, framework, brand, raw materials, training, and support to start a venture immediately.
Basically, in a franchise, you can start a business without the initial hassles that first-time business owners go through.
Franchising is a more risk-free business attempt for beginner entrepreneurs since you don’t have to think of a brand and a business from the ground. There’s a lot of aspects of starting a business and making it successful. You can sell products from a known and popular brand, which improves your chances of success.
Another advantage of getting a franchise is that an established company gives the franchisee the materials and products to maintain the business. So, beginning your venture to a lesser degree will be easier.
Advantages and Disadvantages of Franchising
Is Franchising the best business strategy for you? Do you want to begin a business, but you have less preparation? Are you starting a business by yourself?
While it offers a lot of advantages, a franchise business has a few risks. Weigh cautiously the upsides and downsides of Franchising before you choose whether to let it all in.
1. Popular and established brand
When you purchase a franchise, you get the privilege to use the franchiser’s brand name and trademark, including their logo, design, and marketing. This gives you access to the notable brand’s client base, so drawing in and finding your first customers won’t be that troublesome.
2. Tried and-tried business model
The business frameworks of Franchising brands have been tried in different markets in the Philippines and have just been demonstrated to be successful and profitable. The plans, strategies, and control for maintaining the business are given out in a working manual—you just need to follow.
In this manner, Franchising is best for you if you have no background in business management.
3. A faster way to find a location
Having the sponsorship of a vast company or prominent brand makes it simple for you to rent your franchise business site.
If your aim is to start a business in a mall or shopping center, you can get approved for rent because the established franchise brand has been known to attract a lot of customers.
In case you’re intending to begin a food truck or stall, the location will not be an issue because franchisers ordinarily require only a small space.
4. Training support
Beginning a franchise is an incredible way to figure out how a successful organization works. Franchisers provide the training to help franchisees comprehend their business model and get familiar with the everyday tasks, customer support.
5. Pre-opening help
Franchisers help in the pre-opening needs of their franchisees, such as location, business structure, assessment, and development. Some franchise bundles additionally incorporate support for new stores to have a grand opening.
6. Marketing support
Franchise brands in the Philippines have strong marketing and advertising set up, and this helps a lot with their franchisees.
For instance, if you get a milk tea franchise, the bundle may incorporate marketing materials from banners and billboards. You won’t get such resources when you start a comparable business start-up.
7. Nonstop innovative work
No compelling reason to stress innovation and creativity to make a business attractive. No need to spend on the improvement of business to brand and design since the franchiser will be the one in charge. You can just concentrate on operations.
8. Quicker ROI
In contrast with going into a business from the start, you can expect a faster rate of profitability with a franchise. The entry to set up a brand name, client base, working framework, and store opening help cut down the time to get back your investment.
9. Higher chance of progress
Maintaining a franchise business has a success pace of 90%, according to a study by the United States Agency for International Development (USAID). This is not shocking since all the Franchising advantages mentioned above increases the odds of success.
1. Costly startup costs
The high capital that you need to shell out in a franchise is one disadvantage of franchising. The underlying investment is twice as (or significantly higher) than starting a business with no preparation.
Here are some costs when you begin a franchise business.
Franchise fee – This one-time fee is what you pay to get the license to use the franchise brand, which includes its trademark, logo, branding, marketing, and competitive innovations. The more well known the brand is, the higher they charge the franchise fee. There could also be royalty fees, which come as installments for franchises in the Philippines. They state these in the terms and you need to pay each month from your gross sales, so this means it can lower your total profit. Not all franchisers charge this fee, however.
Cost of provisions – Although some franchisers give the underlying supplies as a component of the franchise bundle, franchisees need to continue purchasing the raw materials from the franchiser or its certified providers. This can cost you higher in case you find a cheaper source.
2. Constrained adaptability
Franchising doesn’t offer a lot to franchisees the option for innovativeness and development. You must follow what’s given in the franchise manual and agreement.
In case you want to do something, such as changing to a less expensive provider or changing a menu, you must get the franchiser’s approval first, Most of the time the signed license states a provision where you must change nothing in the store or shop even if you ask the franchiser.
3. Lock-in period
Franchise contract terms usually go from two to five years or more. In that period, you’ll be with the company even if it’s not doing well. Reestablishing the agreement relies upon the franchisor’s assessment of your business relationship throughout the agreement terms.
4. Business risk
Much like any business, franchising is a risky endeavor. Your profitability will rely upon the franchiser’s success. If the company falls flat, the execution of its franchisees will fail.
Tips in Getting A Franchise
Authenticity of Franchise
You should have a list of potential franchise businesses you like to get. Look for franchises that have registered and completed all the legal requirements in the Philippines. Check for the franchise registration that applies to their industry.
Some agencies that you need to check the authenticity of the franchise:
- Security and Exchange Commission (SEC)
- Department of Trade and Industries (DTI)
- Bureau of Internal Revenue (BIR)
- Food and Drug Administration (food, medicine, drug-related)
- Banko Sentral ng Pilipinas (finance related)
Check also the permits in local government, such as the Mayor’s permit. You don’t want those ‘fly off the mill’ franchises that have legal problems.
Consider checking for the authenticity of a franchise in the Philippine Franchise Association, Association of Filipino Franchisers, Inc., or Filipino International Franchise Association.
Don’t forget to check the background of the franchise. Check that the office of the franchise is the actual office of the company. Be sure that the person you’re dealing with is authorized or an officer of the company.
Marketing and positive presence
Consider franchises with existing marketing, advertisements, commercials, billboards, and social media presence. Consider only those who have good customer feedback by checking reviews online.
Look at what the franchise bundle incorporates. Does it offer a wide range of training, support, and direction you need? Most franchises incorporate excellent support while others don’t.
One of the most important factors in franchising is your financial capability. The more popular a brand, the more expensive are the franchise fees and operational costs that you will need. Be sure to have more than enough financial capital whether you go for big franchises or smaller ones. Large franchisers will look at your assets to see if you can operate a franchise in the long term.
Choosing the right franchise
Be sure to choose the right business for you. Business owners who franchise their products/services are based on their strengths, their background, and the knowledge they have. While you pick the best franchise, go for those that interest you the most, such as what products you like to buy, services you like to avail of, or what you already have experience working with.
Upgrade your skills
Although franchisers will show you their business structure on the best way to operate their business, you still need to have basic business aptitudes of your own. You need to know the basics of customer service, sales, management, accounting, inventory, among many others.
In case you’re new to these, you need to think about taking classes, learning from courses, and reading books. Doing research on the franchise that you will pay for is an important requirement.
Have a business plan
Just because you have a popular franchise that’s selling products or services, it rarely ensures that your business will go smoothly long term. You will need a plan to develop your business so it doesn’t fizzle out after a few years. In case you’re a beginner who doesn’t have a clue where to start, you need not be intimidated. You can begin by defining objectives and having a money related goal yearly as motivation and then regularly tweaking your plans for your business to stay profitable.
Find a mentor
Getting help from a pro is important for new business owners. An authority – one who knows the intricate details of businesses – can definitely help you in improving your business plan. Another professional you need to consider is a lawyer. Franchise terms can be very tricky, which is the reason for having a lawyer (ideally) who knows about franchise laws will be useful in investigating franchise reports and potential warnings.
Consider your location
The area of your business is essential for it to succeed. Choosing an area is one of the most significant steps you’ll take as a business owner. Consider factors like traffic, schools, churches, entrance (in malls), close by stores. Check with the franchiser if your store is near to another franchise. The franchiser should be able to know how far their stores should be in a location.
Focus on administration
Even if you have a sound business plan and have chosen an excellent area, the success of your business also depends on customer experience. Worker and customer communications is a key element in any business, so focus on administration and services. Hire staff that has excellent character, pleasant, and ready to serve customers.
Even if you’re selling products/services with an established brand, you still need to do promotions and marketing to let other people know about your store. Consider novel ways to market your business. You can post on social media (Facebook, Instagram), sponsor events in malls, put banners along busy streets (you may need permits), give out stickers to jeepneys and buses.
Hiring sales agents
Few individuals are good at sales talks or selling. If you basically can’t do the selling, marketing, or promotion, hire someone who can.
Networking helps to advance your business. It helps you in gaining new friends. You can do networking by going to classes, seminars, meetups, or expos.
What to Ask Before Buying a Franchise
When you have thought of a franchise that you plan to buy, get in touch with them, and pose inquiries.
This is your opportunity to become acquainted with your potential franchisers and decide whether you’re a decent match.
Treat it like a prospective business meeting. Although the franchiser provides information on their site, you’ll need to know more and go further to know more about the company.
Here are the questions you should ask the franchiser:
- What are the franchise requirements?
- What are the franchise fee and other operational costs?
- What’s the working capital for continuing the franchise until I get a ROI?
- What are the legal registrations of the government?
- What are your support and training programs?
- Do you help with site assessment? Is there a cost?
- Do you have business, marketing, and promotion strategies for franchisees? What are these strategies?
- Do you help underperforming franchises? What will happen if mine comes up short?
The wide choices for franchises in the Philippines are good and challenging for new business owners. Finding the franchise that suits you best can be exceptionally overwhelming – so will do your diligence to know more about the franchise that you intend to buy and that you have the capital to begin.