Is buying a franchise really better than setting up an independent business, as is often claimed?

Franchising provides people with better chances of success than they would when they set up their own independent business, and for the following reasons:

• There is a proven business system that is passed on to franchisees;
• Business setup mistakes are minimized;
• The franchiser, the “big brother,” mentors the franchisee throughout the term of the franchise;
• The franchisee rides on an establishes and successful brand; and
• A system-wide marketing campaign is in place that helps sell the brand.

On the other hand, an entrepreneur starting his business from ground zero must go through a learning curve that can be costly. (Indeed, statistics show that 90 percent of all independent businesses close during the first five years.)  He is truly on his own, and must spend time and enormous resources to build his brand and attract customers.

 

What is a franchise system?

A franchise system is a road map that guides a franchise toward development and expansion. It separates the responsible franchiser from the fake because, with a system, the franchiser has an organization that is devoted to providing services to his franchisees and involves them in corporate planning and direction setting.

 

How much does it take to buy a franchise?

The franchisee needs to pay for the initial fees, security deposits, building costs for the outlet, preoperating expenses and initial operating capital.

“A franchiser is a company that grants somebody an exclusive license to sell its products or operate under its name in a stated area.”

The initial fees include payment for the use of the franchiser’s trademarks and business system, while the building costs include the expenses for leasehold improvements, equipment, furniture and fixtures, construction management and design fees. The pre-operating expenses include the cost of registering the business and training the franchisee’s employees. The franchisee also sets aside an amount to cover the branch’s initial inventory and the expenses required to operate the branch for the first month or the first two months.

 

How do I know if franchising is for me?

First, ask yourself if you can live with a prospective franchiser’s business system—which has been proven—even if you don’t fully agree with it. Remember that once you buy into its franchise, you can’t stray from its established rules and procedures.

Next, ask yourself if you have the money to invest in the franchise and to defray all the expenses required to put up and run your outlet. Taking out a loan will help you cover all your initial expenses, but it will also add to your costs and affect your profitability.

Finally, ask yourself if you can commit you full time to the business and work hard to make it succeed. If you answered no to even one of the preceding questions, franchising is not for you.

 

How do I qualify as a franchise?

Franchisers have a set of criteria in choosing the franchisees they can work with. The first procedures include submitting a letter of intent, filling out an application form with your proposed location, and visiting the franchising manager for an interview. If you want the full details, call up the franchising organization.

 

What is a franchise agreement?

It is the contract that binds the franchiser and the franchisee to the franchise relationship and indicates the terms and conditions of the franchise.

The greatest mistake many franchisees make is not reading the whole franchise agreement since it is long and usually has a minimum of 30 pages. While it is good to ask a lawyer to review the contract, the franchisee must first read and try to understand its contents, and to make sure he or she is willing to abide by its terms.

 

How much money do I need to invest in a franchise?

From over P100,000 to over P20 million. It’s important to check with the franchiser to know exactly how much money you’ll need to buy the franchise, secure your permits, and build and operate your outlet in the first few weeks. Don’t be misled by some advertisements that claim you’ll be needing only P10, 000 for instance, to secure the franchise. Ask for the entire franchise investment.

 

What is royalty? When and how is it paid?

The royalty or service fee is a continuing fee that you pay the franchiser for the use of his trademark and business system and for his continuing support. It’s a percentage of your sales.

 

Where do I find franchises that will interest me?

Attend franchising seminars and exhibits to find the franchisers you can choose from. Alternatively, use the Internet to check on franchisers with web sites that detail their franchise offering.

 

If I want out, can I get out? Can I sell my franchise?

Yes, you can. In most franchise agreements, the franchiser has the first option to buy back any franchise being offered for sale because it owns the brand and the business system. Otherwise, you may look for a buyer who’s acceptable to your franchiser.

 

Once I become a franchisee, how do I communicate with the franchiser?

Responsible franchisers have an organization in place that can deal with all your concerns and attend to all your needs. (You will learn more about this during the orientation meeting with your franchiser’s managers.) With some franchises, all you have to do is call one person to take care of your problem.

 

What kind of support will I get from the franchiser?

The support and assistance will come in many forms. Your franchiser’s managers will meet with you regularly, visit you in your branch, and assess your operation so they recommend improvements if necessary. Those things aside, your franchiser will advertise regularly and continue brand building to promote the chain and increase customer patronage—and hence increase your chances of success as a franchisee.

 

By the way…

Last Monday, July 11, I was invited to preview the launching of Cheesesteak Shop. The store is located in E-Hotel on A. Aranaiz Street (formerly Pasay Road) in Makati. This is the first shop outside the United States. The products were superb, just like their branches in Berkeley Walnut Creek and other parts in California. Pretty soon I won’t be surprised of the rapid expansion of this branch to key cities. Check out www.cheesesteakshop.com.ph for more information and mouthwatering products.

Mark your calendar for July 21 to 24 as the Association of Filipino Franchisers Inc. highlights its 10th Franchise Show. This will be held in World Trade Center, Pasay City, from 10 am to 7 pm.

Also those who have an iPad or other tablets, you can get hold of a copy of the book about franchising. Written in a Philippine setting, the book aims to guide the reader on details to look at in getting a franchise. Simply log on to Amazon.com or iTunes.com and type under search Is Franchising For You?