Interested in Franchising? Read this First Before You Invest in One

Let’s say you have a one million in your bank account. How do you plan to use it?

Shopping for your family might be the first thing on your mind, but have you ever considered investing it? Stocks or UITF is a good option, but what about having a business that your family can manage even if you are away? While this is a good idea, starting something from scratch can be overwhelming.

This is where franchising comes into play. Before you say yes to the idea, read this post first to help you decide if this is the right one for you.

What is franchising? 

Franchising is where an individual (like you) or small companies practice and use other people’s perfected business concept. In a franchising relationship, the franchisor or owner of the business concept gives the franchisee the right to use the brand, distribute and sell his products, and implement business techniques in exchange for a franchise fee.

The franchise fee is usually good for one to three years and can be renewed thereafter after payment of renewal fee.

Why franchise?

  • Higher success rate – This is because a franchise is already a proven business model at minimal risk.
  • Recognized brand – The target market is already identified and the brand is recognized by the public.
  • Support is provided – Franchisors have perfected not just the business concept but also techniques and practices that will make the business model effective and profitable. Most franchisors also offer strategies and advice, which they can pass on to their franchisees. Training is also included to help you prepare on how to handle a business.
  • Advertising is included – When you franchise, you also get to purchase, or at least have the right to use the franchisor’s advertising capabilities in order to market the brand. This is essential because most start-up entrepreneurs have no enough money to afford extensive advertising techniques.

In other words, you get to save time and your own money building a business since all you need to do is to follow the already proven business concept. There are no more trial and error, thereby reducing the risk and failure in handling a business.

Any risks or downsides of franchising? 

  • No full control – You need to follow the business model and cannot divert from this anytime you want to. You also cannot easily introduce “gimmicks” to induce more customers, unless your franchisor allows you.
  • Costs to maintain franchise privileges – Apart from the franchise fee that you have to pay, there are franchisors who require payment of additional fees such as royalty fees or a certain percentage from your monthly sales. There are also franchisors who require payment of advertising costs.
  • Success is not guaranteed  – Yes, there is a proven business model, but once it is handed to you, it doesn’t mean you’re all set. The likelihood of success still remains in your own hands and in the amount of time and effort you put into it. Commitment is important, so you have to be prepared.

Despite the benefits of franchising, you still need to be ready since success is not automatic. You have to be prepared because a business is still a business.

Tips on How to Franchise:

1. Choose a franchise. Similar to starting your own business, find something that you are passionate about and suits you best. Identify the kind of product or service you want to offer, check your possible competition, and find out the franchisors offering such product or service you are eyeing for.

2. Go for a brand. Name recall is important in business. This will make it easier for you to market the franchise without paying for expensive advertising costs. Still, more is not always better since you might have a hard time penetrating the market.

3. Legitimacy is important. It is imperative that the franchise is registered with the Department of Trade and Industry (DTI). There are also legitimate franchise groups around, so check if your chosen franchisor is a member of one.

4. Look into the business model. This is important. You are buying the rights to use an established business model. Therefore, ask about support, research and development, and training schedules, and whether these are included in the business model.

Now that you finally decided to franchise, make sure you provide the following documents upon application:

  • Franchising application form
  • Letter of Intent to franchise
  • Site location proposal
  • Business documents like Business Name Registration (from DTI), barangay clearance, and business or Mayor’s permit
  • Payment for Franchise fee, which varies per franchisor

With this information in mind, are you ready to get into franchising? Give it a try. Don’t worry. Balikbayad is here to help.

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