Franchising Basics

Franchising Basics

Franchising has become the one of the hottest business trends for entrepreneurs, budding and seasoned alike. Popular for its “turn-key” feature, franchising has become synonymous with the relatively painless setting up of businesses and “guaranteed” success. What could be better than to capitalize on ventures that have proven themselves successful, right? True, but business-hopefuls should know that there is much more to franchising than just paying a fee and building a store.

Just what is franchising anyway?

Franchising Defined

If you want to be technical, dictionaries list franchise as “the right or license granted by a company to an individual or a group to market its products or services.” This is exactly how Mr. Isaac Singer of Singer Sewing Machines pioneered the strategy. While he was on top of manufacturing, Mr. Singer was desperate for help in selling and servicing his sewing machines. Out of this necessity came a brilliant idea to grant rights to interested individuals to sell his products, and at the same time, train them on how to service the machines. And this is how product distributorship, one of the four types of franchising, came to be.

Other types of franchising are business format franchising, conversion franchising and multi-branding franchising.

Their Business, Your Business
As a franchisee, you are buying into the success formula established by the franchiser. As such, it is in their interest to make sure their formula is carried out to a tee or within certain parameters. This is to guide you step by step towards success, since your triumph (or failure) reflects on them as well. Everything from site location to store operations will be evaluated thoroughly to comply with the company’s direction or brand’s image.

While franchisees are in charge of their stores operations, plans for your franchise are usually dictated by the parent company or at least, should be tailored in conformity to the company’s directions. Individuality is a no-no in franchising.

The Best Franchise for You
If you believe that franchising is for you, the crucial first step is to determine which business to franchise. Here are a few tips:

  • Go with something you know and like. For this, take stock of your interests, hobbies, passions, as this is a good way to know what you will enjoy doing. Corny as it sounds, there is truth to the saying “Do what you love and you won’t have to work a day in your life.”
  • Know your budget. Compare how much you have and how much it would require to put up your dream biz. Surprisingly there are a lot of promising ventures you can get into with just P500,000. Take a look at our franchise info page a list of franchises by budget.
  • Do your research. Learn all you can about your prospective business by calling the company, visiting their website or even dropping by existing franchises. Talk to franchisees and ask them about their experiences. Know what exactly is included in the franchisee fee or package, and what company regulations you have to follow. Ask how long it usually takes to build your store, gain customers and get your ROI (Return On Investment). Know how long has the company been in franchising and how many branches they have to get an idea of your chance for prime locations and rate of return. Gathering information and weighing your options are important in making an informed decision.
  • Consult experts. If you are new at franchising, don’t attempt to go through it by yourself. Even with your business acumen, there are bound to be a few things you might overlook which may cost you in the long run. There are people who can guide you through the franchising process.
  • Know yourself. Consider your strengths and weaknesses and how these affect your potential franchise. Does your body clock coincide with their store hours? Are you willing to be on call at any time? How are your problem solving skills? How patient are you? Also, clarify your goals for getting into business. In it for the money, prestige, the experience? What are you willing to do to achieve your goals? How long are you willing to wait? Answering these questions can help you streamline your choices and simplify your task.

Franchising Today

It is not surprising that franchising has become a popular way of both expanding and setting up businesses in the Philippines. Once only practiced by bringing in foreign brands to the country, it is interesting to note that from its inception in the 1970’s, the number of homegrown franchisers has now swelled to over 200. This has helped our local business expand operations and widen their reach to key cities in Metro Manila and the provinces. At the same time, these franchisers have opened the field to more entrepreneurs, a golden opportunity, even for those armed only with determination and less than half a million in their pockets.

AFFI has taken upon itself the responsibility of professionalizing and standardizing the franchising industry. Composed of 32 well-respected businesses, AFFI aims to assist more fellow entrepreneurs in realizing their business potential through franchising.

Think small, earn big These days a franchise can be bought and opened for half the price of a Japanese car. The return on investment is between six months and a year.

“In franchising, you sell a business model with a proven track record and the systems that go with it. The success rate for franchises is 65% while the success rate for independents is 12%”, said Association of Filipino Franchisers, Inc. president Pacita Juan.

The majority of the 50 participants are in the food business. Non-food franchiser-exhibitors include those in the laundry, nursery school and IT businesses. There’s also a section for start-ups or small businesses without a franchising program but which would like to get a feel of the market and gain confidence.

“The start-up is a litmus test. If a start up can get 100 inquiries on franchising, that a good sign that maybe the business should take the next logical step,” said Juan who co-founded Figaro Coffee Company.

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