Getting A Franchise?

For starting entrepreneurs, franchising is a great option that offers far less risk than starting your own business. For those who wish to keep their day jobs, it is also a great way to create a new source of income without taking too much of your time. Franchising is also a good idea for those with no or little business experience.

Although buying a franchise is far less complicated than starting your own business, there are many things to consider before deciding on what franchise to get. There are a lot to choose from — food carts, convenience stores, service stores, restaurants. For those of you planning to buy a franchise, here are some things to ponder before taking the plunge:

1. Understand what franchising is all about. It is not as simple as you think. You might have seen a food cart that has a line of customers that never seem to shrink, or a service business that is always present wherever you go. From just observing you may see some of the reasons why these franchises are successful. However, there is much more than meets the eyes as there are a lot more factors to take note of when choosing a franchise:

Pros: The more popular and successful the brand is, the higher the chance of success for new franchisees. There is lesser need for marketing efforts as the franchisors generally are in charge of the marketing and promotion. Franchisors will help you register the business along with teaching you how to run the business. You will also be able to seek advice and researches from the management to help you succeed.

Cons: First, you don’t have control over the products/services and branding. You cannot make any unauthorized modifications or promos unless allowed by the franchisors. Second, there is profit-sharing with the franchisors, and franchising contracts last for only for a few years. Third, while the goodwill generated by a well-known brand is desirable, negative events in any branch will also pull down the entire chain.

2. Know yourself. Know what capabilities and resources you have. Unfortunately, some excellent franchises may be too expensive for you. Consider your interests. You will be more motivated in managing the franchise if you like what it is doing. Matching a franchise to your personality and needs accurately takes a long time. You could start by eliminating those franchises that you cannot afford or do not like. This will help you by narrowing down the possibilities.

3. Search for a reputable franchise. Don’t choose franchises that thrive on trends that are unlikely to last. Pop culture has constantly shown us that fads die fast. By the time you start your operation, the fad might have died out, and you are stuck with an unprofitable venture. Look for franchises that either have become a staple in the Philippine market, or has a great and obvious potential for growth.

Take your time and inquire about all the franchisee packages that your prospects have to offer. Check out the things that are included in the franchising fee. Does it include the initial inventory? Will they provide you with the product stands and cash registers? Will they provide you their posters, or do you have to print them yourselves? Attend franchising expos to broaden your options.

4. Compute for the franchising requirements. Do not be misled by the low cost claims by some franchisors. Often this does not include all the expenses that will be incurred. What is usually quoted is just the capital expense which includes the franchise fee and the setup cost which includes items like inventory, equipment, etc. You must also factor in funds needed for operat-ng expenses like payroll, rental, and utilities. Aside from the initial franchising cost, franchisors generally will ask for a share from your profit—for royalty fees and marketing expenses.

5. Treat it like a business. Franchising, especially successful food concepts, is very appealing to aspiring entrepreneurs because of the benefits and convenience you get from them. However, do not expect for profits to come flowing in just because you are a franchisee of a prevalent brand. Treat it like a traditional business. Location will still play a critical role in your success, rent expenses will still be the same, and taxes are at the same rate. You still have to be careful with choosing your people, maintain a good inventory system, and conduct regular inspections and quality control. Plan carefully before you avail of any franchise by conducting surveys from existing franchisees and their employees, check their market positioning, and study external factors that may affect their profitability in the long run. Foot traffic matters in order to make your franchise lucrative.

For those who dream of building their own empires, franchising may not be the best option. It is unlikely that you will earn more than those who have successfully started their own business from scratch since they can have all the income along with all the risks. However, with the right franchise you have much better chances of surviving. This unchallenged fact may be all that is needed to convince those who prefer security rather than just the possibility of great wealth.
*Originally published by the Manila Bulletin. C-4, Sunday, June 19, 2016. Written by Ruben Anlacan, Jr. (President, BusinessCoach, Inc.) All rights reserved. May not be reproduced or copied without express written permission of the copyright holders.