In the business world, a lot of risk-takers will not hesitate to create a start-up company, even if it means a lot of pros and cons. As anyone would say, putting up a business is not a simple undertaking and should require you an in-depth knowledge of its complexities.
However, if you are someone who wants to start small and secure the stability of your gains than your loses, then you must consider franchising as the best alternative investment.
Before starting your franchising journey, you must first learn the basics of franchising, the processes involved, and the best practices.
Let us define first what is franchising.
Franchising: Definition and Nature
In layman’s term, franchising means acquiring a right from the business franchisor to market the same product or services of the owner, including its trademark, logo, name, and the business model and systems for a fixed price.
As a licensing agreement, franchising is bound by various legal documents and considerations to ensure the smooth operation of the business. Everything starts with a Franchise Agreement (FA) document - the paper that specifies all the duties of the franchisor and the franchisee, including all information in terms of duration and the provisions.
Franchising is just temporary in nature; hence, the FA should include the Terms of Agreement. Here, the franchisee must know the type of business relationship he/she agrees with the franchisor. Moreover, the FA must include the duration of their agreement, the renewal period, the overall investment amount and fees, training and support, purchase of products, territory, and the termination of the contract.
In most franchise in the Philippines, franchisees prefer a corporate business model since it is ideal having a separate identity from its shareholders. Businesses with corporate models often have varied nature of business ranging from the food industry such as Jollibee and McDonald’s to the oil conglomerates like Shell and Petron.
Types of Franchising Business
Deciding the type of franchise business to nurture is not easy and often requires you to have thorough research and understanding of the kinds of franchising business available in the country. This allows you to have a good grasp of the concepts and will help you understand which business type is ideal for dealing within the market.
There are three common types of franchising business: product franchising, manufacturing franchising, and business format franchising.
Product Franchising (Trade Name Franchising)
In this type of franchise, the franchisor grants every franchisee the right to sell its products and use its trademarks for a fee but without any method of doing the business. Common examples are car dealerships and service stations businesses.
In this type of franchise, the franchisee does not only have the right to sell the products but also has the right to manufacture the product following the manufacturing guidelines. An example is the food and beverage company, Coca-Cola. The franchisor only supplies the syrup ingredients to soft drink bottlers (franchisee) who then proceeds to mix, bottle, and distribute the final product.
Business Format Franchising
In a business format franchise, the franchisor does not only allow the distribution of the products but also gives franchisees the right to the franchisor’s business concept or model.
Here, the franchisor gives the franchisee access to its overall business methodology, This could also include providing training, marketing, and supply of needed equipment and materials depending on the agreement.
An excellent example of this is the food cart franchise. In this kind of franchise, you have a cart that sells street food to the masses. This has now become a trend in the Philippine market and is a very lucrative business since Filipinos love food. A food cart franchise is the choice of inspiring entrepreneurs because of its promising low initial investment and high returns in the long run.
Why franchise a business?
Many people are asking why they should consider franchising rather than starting their own business. The answer here is very obvious. Indeed, not everyone is great enough to handle business on their own and make it succeed. This is where the role of franchisor comes in.
There are many reasons why you should franchise business, but in a nutshell, the idea is that it allows you to manage a business that has lower risks of failing than start-ups.
Here are other reasons why you must consider it.
- Evident collaboration - You are always assured that the franchisor is there for you to succeed.
- It offers a better chance to succeed - As said earlier, a franchise business has low risks since it is well-established already
- Owners get freedom factors - Every franchisee considers flexibility, money, and status before starting a franchise. This gives them the freedom to choose if it suits them or not at a specified period.
- Happy franchise owners make more money - As the business grows, the franchisee also earns well.
Benefits of franchising
It is normal to have pros and cons in every business undertaking. Considered as an investment, having a franchise must give you more benefits than its downfalls. Hence, here are some of the benefits of franchising:
- The franchisor’s experience - Once you start a franchise, you should be honored that the franchisor is willing to share his/her expertise to you. It is like purchasing the years of experience and the proven methods of the franchise system. There are always trial and error, and a successful franchise eliminates the possibility of encountering common start-up problems. In return, you also learn skills from this experience, which can be useful for your future endeavors.
- Training - This is vital for any franchise as it prepares the new owner in all facets of the business. The franchisor must provide training for the new franchisee and should be done at the home office or the franchisee’s place of business. Again, this is relevant since you can always apply your training in another business undertaking in the future.
- Buying and advertising - Advertising is costly, and most small-business people cannot afford extensive advertising. As a franchisee, you now have an advantage when you purchase the right to use the franchise system’s purchasing power and advertising.
- Ongoing Advice, Research, and Development - There is a hands-on and focused supervision from the franchisor and the business’ experts until you are ready to take over the business by yourself.
- Business Synergy - Every franchise owner becomes a part of a “family” where all members work together for the good of the whole.
To sum up, franchising becomes an exciting and meaningful venture if you start it the right way. There are considerations that you must understand, and although statistics tell us that franchising in the Philippines has a high success rate, you must not be complacent. Remember that without hard work and perseverance, no business will prosper.
You can checkout the list of franchises in our website.
Ultimate Guide to Franchising
Avoiding Scams, Making Smart Investments, and Better Decisions
The franchise industry is booming, and entrepreneurs are wondering about how this sector works. This ebook aims to help aspiring franchisees achieve their business goals.Learn more