The What, Why, and How of Franchising in the Philippines

For a lot of Filipinos, having their own business is the ultimate dream, but often an unrealized one. This is not surprising, as starting a business is extremely risky—it will cost one’s hard-earned money, effort, and time. And it won’t always be a guaranteed success.

Franchising could be the answer.

It’s a way for people to go into business without starting from scratch (and arguably with higher success rates). If you’re interested in starting a franchise business but have no idea where to start, here’s our basic guide on what it is, its pros and cons, and how to start one.

What is Franchising?

Franchising is a “method for expanding a business and distributing goods and services through a licensing relationship,” as stated by the International Franchise Association. Simply put, franchising is when a person or company (the franchisee) pays another person or company (the franchisor) a set of fees and royalties for the right to do business using their trademarks, products, services, and even business model and operating systems.

Types of Franchises

There are two main forms of franchising — product distribution franchising and business format franchising. In product distribution franchising, the relationship between the franchisees and franchisors is very much like a standard dealer-supplier relationship. Franchisees are allowed to use the franchisors’ trademarks and distribute their products, but in return, they must pay fees and purchase a minimum amount of products. In business format franchising, the relationship between the two parties is much more complex where there is also an emphasis on sharing business methodologies, operating systems, and support. Depending on the agreement, franchisees not only get the license to sell the trademark products or services, but could also get access to the business’s operating systems and a wide range of support on things like site selection, training, quality control, and marketing.

Pros and Cons of Franchising

Getting a franchise has several advantages over traditionally starting a business from scratch, but it would be wrong to say that it’s totally risk-free. Below is a list of some of the franchise business model’s pros and cons to help you decide if it’s for you.

Pros of Franchising

• • Established Brand and Faster Return of Investment

Franchising lets you enjoy a pre-existing customer base, which usually takes months if not years to build. This could potentially help with earning your investment back faster.

• • Ready-Made Operating Systems

One could say that franchising is simply replicating existing businesses with already existing procedures, systems, and practices—you just need to follow them!

• • Franchisor Support

Depending on the agreement, franchisors could provide the franchisees a wide range of pre-opening and ongoing support on things like site-selection, crew training, and marketing. Being backed by a reputable franchisor also helps with loan approvals and negotiation with vendors.

Cons of Franchising

• • Expensive Fees and Royalties

In franchising, there are fees you must pay for such as processing fees and franchise fees. These could range from several thousands up to multiple millions in total. In a way, you could think of these fees as the price to pay for the convenience that franchising offers.

• • Limited Control

Remember that you’re buying the rights to sell the franchised products or services, not the business itself. Franchisees are obliged to follow procedures and restrictions set by the franchisors which could include manufacturing guidelines, quality control, and pricing.

• • System-wide Effect of Brand Reputation

While you might enjoy instant brand recognition through franchising, it also means that a major blow to the brand could just as easily spread to the franchisees and negatively affect their business results.

How to Start Franchising?

Okay, so you’ve weighed the pros and cons of franchising and have decided to pursue it. Now, what?

1. Choose a franchise

Whether you’re aiming for a small food cart business or a restaurant chain, it’s important that you take into account certain factors and do proper research first when selecting a franchise business.

• • Budget

Establish the amount that you’re willing to invest, so you can narrow down your options. If you find yourself being short on capital, you could consider getting a franchise business loan.

• • Company Reputation and Legitimacy

Nobody wants to unknowingly invest in an illegitimate and unreliable business, but it doesn’t mean it’s impossible to find success with lesser known franchise brands. Find out if the person or company is properly licensed and registered in appropriate government offices like DTI and SEC. It also helps to check if they’re a part of reputable franchise groups like AFFI (Association of Filipino Franchisers, Inc.), PFA (Philippine Franchise Association), and FIFA (Filipino International Franchise Association).

• • Market, Location, and Competition

Brand power alone isn’t always enough to make a franchise business successful. Make sure that whatever franchise you choose would fit in your preferred site location and the nearby market. For instance, it might not be the best idea to set up a high-end restaurant franchise near an elementary school where the primary market are kids.

To give you an idea on what franchise businesses you can consider, here’s a short list of popular franchise brands here in the Philippines.

• Potato Corner
• Master Siomai
• Siomai House
• 7 Eleven
• Dunkin’ Donuts
• Chooks To Go
• Jollibee
• Mang Inasal

2. Apply for your chosen franchise

Once you’ve trimmed down your franchise options to one, you can finally proceed with applying! Application procedures and requirements differ from franchisor to franchisor, but in general, you can expect to do the following:

• Submission of Documents

Below are the usual documents that many franchisors require. It’s a good idea to prepare these even if you haven’t fully decided on what franchise you want. But if you already have a particular franchise business in mind, you can check their website or get in contact with them for other requirements they might have.

• • Letter of Intent
  • Application Form (completely filled-out)
  • Valid Government-Issued IDs
  • Resume
  • Target Site Location Details

• Meetings, Site Inspection, and Evaluation

After submitting your documents, the franchisor will reach out to you to schedule a meeting and/or site inspection. In these meetings, expect to be interviewed and oriented on the details of the franchise. You can also take this chance to ask them any important questions that you might have.

• Contract Signing

Finally, you’ll be contacted again if you’re deemed qualified to be a franchisee. Review the contract thoroughly, and sign it if you’re okay with the terms and conditions.

3. Manage your franchise business well

Even with existing guidelines, always strive to continuously improve the business and how you manage it in ways that you can. Enhance your marketing skills. Improve the quality and speed of your service. Keep track of any market or industry trends. Reach out to the franchisor or fellow franchisees for tips and advice. Remember, getting approved for a franchise is just the beginning! Don’t let the journey end so soon by mismanaging your franchise business.

This article was originally published in the Blog section of Security Bank online.