Franchising can be an attractive venture for any aspiring entrepreneur. You can access a well-established brand, an existing support system, and a targeted customer base.
If you’re considering this route, you’ve come to the right place. This article will discuss the basics of franchising and others things to do as a franchisee. Are you willing to invest your time, resources, and energy? Let’s get started.
- What is franchising?
- Overview of franchising in the Philippines
- Benefits and risks of franchising in the Philippines
- How to apply for a franchising business in the Philippines
What is franchising?
Franchising is a popular method of starting your own business in the Philippines. A franchise allows you to become a business owner by taking advantage of another company’s established products, services, or brand.
It’s like running your own business but with support from the franchisor’s existing infrastructure. It involves
- Franchisor – the company that owns the business
- Franchisee – an individual who purchases the rights to use the franchisor’s business model
The franchisee can then open up multiple locations of the same business using the following:
- Brand name
- Trademarks, and
- Marketing materials provided by the franchisor
This business model allows entrepreneurs to quickly leverage a successful brand to gain customers.
In most cases, when a franchisee buys into a franchise, they need to pay an initial fee to purchase the rights from the franchisor, including training, advice, and guidance on running their own business.
In return, the franchisee receives access to pre-existing infrastructure such as suppliers, merchandising systems, and customer service processes.
The franchisor also provides ongoing support through regular meetings with the franchisee as marketing campaigns designed to help them stay competitive in their local market.
Overview of franchising in the Philippines
In the Philippines, franchising is regulated by the Philippine Franchise Association (PFA), which sets standards and guides franchisors and franchisees.
The self-regulating governing body ensures that both parties are well-informed about their obligations and expectations for any agreement entered into.
Franchises are available in food, retail, and services. With the right franchise partner and sound financial planning, you can grow the business with fewer risks than starting a new venture from scratch.
Here are some fast facts about franchising in 2023:
- The Philippines’ franchising industry is expected to increase its revenue by at least 15% in 2023, creating approximately 2 million new jobs.
- Almost 50% of the franchising activities come from outside Metro Manila.
- The local industry plans to expand overseas and aims to have 50 Philippine brands worldwide.
- Most owners want to expand their brands to the U.S. or Canada, but the easier expansion could come from ASEAN or nearby countries.
- Food has been leading the sector. However, the retail industry has a high potential for growth this year.
Benefits and risks of franchising in the Philippines
Just like any business, franchising has benefits and risks. Weighing each side can help you decide if it’s the right venture.
Benefits of franchising
- Access to the proven business model – Franchisors have already undergone trial and error in business operations, and franchisees can grow with established systems and proven methods.
- Brand name recognition – Franchisees benefit from the franchisor’s established brand name in terms of both customers and suppliers. It helps them save on marketing costs as they don’t need to build brand awareness from the ground up.
- Support system – Franchisees also get ongoing support from franchisors, such as training, advice on marketing strategies, and access to proprietary products or services.
- Loan availability – Banks usually view franchisors more favorably when it comes to lending decisions than independent startups because of their track record of success and good brand reputation. Franchisees generally qualify for better loan terms than independent business owners.
- Reduced risks – Starting any new business is always risky. Still, franchising reduces some risks due to access to an existing customer base, existing supply chain relationships, and financial help from the franchisor when needed.
Risks of franchising
- Lack of control – As a franchisee, you must follow specific rules specified by the franchisor even if you think your ideas may be better or more successful than theirs. These restrictions limit your ability to customize your business or try out new initiatives without permission from the franchisor first.
- High investment cost – Setting up a franchise is usually more expensive than it costs for an independent startup due to upfront fees and royalty payments. These costs might cause financial strain if not appropriately planned ahead of time.
- Limited territory – Most franchisors require exclusive territories. No other franchises will be allowed in that area, so even if your store succeeds, you cannot expand without considering these restrictions.
- Poor quality control – Poor quality product or service delivery might reflect onto all franchises under its name regardless of who provided it. Thus, negatively affects word-of-mouth advertising for all stores under its banner — including yours.
- Unfavorable reputation – If any controversies or scandals arise involving some franchises belonging under the same company umbrella, this could reflect poorly onto all other stores belonging to the same company, causing undesired effects on sales revenues.
How to apply for a franchising business in the Philippines
Most people think franchising a company doesn’t require much effort and resources. But like any business, it does. It can even be more complicated when it’s the food industry. Here’s how to get started.
1. Research and choose a franchise
List the possible companies you want to franchise and do your research. There are many franchising opportunities, but it’s best to shortlist those that fit your passion or interests, goals, skillset, and budget.
Visit these websites as your starting point:
- Philippine Franchise Association — Learn more about the support, community, mentoring, seminars, and networking opportunities. It has a comprehensive list of franchisors.
- Franchise Market — Find more franchisors on this website and read informative blogs and other resources about franchising and business opportunities.
While searching for companies and products or services, consider these factors when choosing one:
- Industry trends — Is it relevant to the market needs or demands?
- Marketing strategies — How easy (or difficult) is promoting the brand? Will the franchisor provide support and training?
- Product offerings — How many products does the company offer? If it’s in the F&B, is it saleable? How long does it take to prepare the meals?
- Target Demographics — Is the market saturated? Is the buyer’s profile or persona targeted?
2. Calculate the costs of investing in a franchise
Researching and understanding all the associated costs of starting up your business is crucial. Don’t forget to calculate the following:
- Acquiring the necessary licenses
- Fees associated with brand recognition
- Fees on the development of products/services related to your chosen brand
- Location expenses such as rent or property taxes, if applicable
- Operational costs such as utilities, supplies, and human resources
Before investing in any franchising opportunity, carefully review existing contracts and agreements between yourself and the franchisor to understand all financial commitments.
Say you find Shawarma Shack a good brand because they offer Buy 1, Take 1 on products. Plus, you really love shawarma. Here’s how much it cost:
- Set aside the franchise fee of ₱300,000 if you plan to franchise a mall cart.
- On top of that, you must have an extra ₱550,000 for other costs to set up the business.
- A total of ₱850,000 to put up your first shop.
3. Prepare documents for the meeting with the franchisor
Once you’ve decided which franchise to apply for, it’s best to meet with the franchisor to get rough estimates of how much you need to pay upfront.
When applying for a franchise, generally, you will submit the following:
- Duly Completed Franchising Application Form
- Letter of Intent (LOI)
- Map of the Proposed Location
- Resume of Curriculum Vitae (CV)
- Valid IDs
Some franchisors may require you to submit supporting documents to see if you’re a good fit to run the business:
- Taxpayer Identification Number (TIN)
- Business registration documents and permits
- Latest bank statements
- Written agreement with the lessor if you plan to rent the site
- Land title if the franchisee is the owner of the site
4. Meet with the franchisor
The meeting serves as an opportunity to discuss the franchisee’s plans and objectives, evaluate goals and lifestyles, and understand the details of the franchisor’s operations.
Meeting with the franchisor allows both parties to ask each other questions that cannot be answered through documents or emails.
It allows them to get to know one another and better understand each other’s expectations from the franchise arrangement.
The franchisor can also use this time to assess if the potential franchisee is suitable for the role.
During this meeting, both parties should go over essential items, such as
- The franchise agreement
- Financial requirements
- Terms of payment
- Location options
- Training programs and support offered by the franchisor
- Marketing strategies
- Buying power while dealing with vendors
- Financing options available to franchisees
- Site specifications and inspections
Meeting with the franchisor helps potential franchisees determine if they have what it takes to run a business within a specific brand or industry successfully.
5. Secure financing options for your franchise investment
If you have an extra ₱1 million in your bank account, sourcing funds won’t be a problem. However, if you’re considering financing options, here’s a list.
- Business loans — Bank loans tend to come with lower interest rates than other types of financing, making them an attractive option for those who want to keep their overall expenses as low as possible.
- Personal savings – Significantly less expensive if done correctly—saving you thousands of pesos in interest payments over time. Using personal savings also gives you greater flexibility when managing cash flow.
- Informal loans — these are loans made between family and friends. But this financing option requires extra caution. If you and the lender initially seem like a perfect match, that’s great. But be aware that one misstep from either side could negatively impact your reputation and relationship.
6. Get assistance from professionals during the startup process
Getting professional assistance during the startup process is highly recommended. It can help you navigate the complex paperwork, regulations, and requirements of starting a business.
Professional guidance ensures that all legal documents are in order and that any potential roadblocks encountered throughout the process are avoided or minimized.
A good lawyer or accountant familiar with startup protocols can provide invaluable advice on drafting contracts, taxes, compliance issues, and employee regulations.
7. Monitor the progress and performance of the business
Say your application as a franchisee was approved. Funding is all set. The contract is signed. Site renovations are finished. It’s time to open for business. So, what’s next?
Being an entrepreneur is a challenging role, and as a franchisee in the Philippines, it’s essential to monitor your business’s progress and performance consistently.
Monitoring progress entails tracking metrics like revenue, cost figures, customer satisfaction levels, and employee engagement scores.
These insights will help you address areas that need improvement effectively rather than waiting until it’s too late or reacting retrospectively without sufficient resources to handle issues properly.
Franchising in the Philippines can be a great option to find success and build a business you are proud of. The process may seem overwhelming initially, but hard work and dedication can achieve any goal.
Hopefully, we have provided insight into franchising within the Philippines and offered some help getting started.
Business opportunities can help many Filipinos jumpstart their careers and create wealth through entrepreneurship. In addition to the pros of franchises, it’s essential to be aware of what could go wrong at all times.
Before taking the plunge, check out potential markets, ensure space for your industry or product, and thoroughly research any available franchisors.
Think you got what it takes to be your own boss? Let us know what you think in the comments below.