For the Franchisee
1. Chance to own a business without going through lengthy trials and errors
2. Proven concept
3. Ownership and relative autonomy
4. Training and assistance
5. Benefits from Research and Development
6. Benefits from bigger media spend
7. Relatively easier access to credit
8. Minimal risk
What is Franchising?
Franchising (from the French for free) is a method of doing business wherein a franchisor licenses trademarks and tried and proven methods of doing business to a franchisee in exchange for a recurring payment, and usually a percentage piece of gross sales or gross profits as well as the annual fees. Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the entity licensing the ‘chain store’ or franchise outlet (commonly shortened to the one word: franchise), and may indeed be required by the franchisor, which generally requires audited books, and may subject the franchisee or the outlet to periodic and surprise spot checks. Failure of such tests typically involve non-renewal or cancellation of franchise rights.
A continuing relationship in which the franchisor provides a licensed privilege to the franchisee to do business and offers assistance in organizing, training, merchandising, marketing, and managing in return for a consideration. Franchising is a form of business by which the owner (franchisor) of a product, service, or method obtains distribution through affiliated dealers (franchisees). The product, method, or service being marketed is usually identified by the franchisor’s brand name, and the holder of the privilege (franchisee) is often given exclusive access to a defined geographical area.
Advantage and Disadvantage of Franchising
The term “franchising” is used to describe a wide variety of business systems which may or may not fall into the legal definition provided above. For example, a vending machine operator may receive a franchise for a particular kind of vending machine, including a trademark and a royalty, but no method of doing business.
The parties involved typically enter a franchise agreement, which binds the parties together through contractual provisions. This is an arrangement whereby someone with an idea for a business (the franchisor), sells to another person (the franchisee) the rights to use the business’s name, sell a product, or provide a service to someone else . A franchise agreement will usually specify the given territory the franchisee retains exclusive control over (the area protection), as well as the extent to which the franchisee will be supported by the franchisor (e.g. training and marketing campaigns). Most franchisee agreements, however, do not rovide the franchisee with area protection because of the disparity in bargaining power between franchisors and franchisees
Advantages
As practiced in retailing, by using the business network concept, franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators).
As long as their brand and formula are carefully designed and properly executed, franchisors are able to expand their brand very rapidly across countries and continents, and can reap enormous profits in the process, while the franchisees do all the hard work of dealing with customers face-to-face. See customer service. Additionally, the franchisor is able to build a captive distribution network, with no or very little financial commitment.
For some consumers, having franchises offer a consistent product or service makes life easier. They know what to expect when entering a franchised establishment. See franchise validation.
Disadvantages
For franchisees, the main disadvantage of franchising is a loss of control. While they gain the use of a system, trademarks, assistance, training, and marketing, the franchisee is required to follow the system and get approval of changes with the franchisor.
In response to the soaring popularity of franchising, an increasing number of communities are taking steps to limit these chain businesses and reduce displacement of independent businesses through limits on “formula businesses.”
Another problem is that the franchisor/franchisee relationship can easily give rise to litigation if either side is incompetent (or just not acting in good faith). For example, an incompetent franchisee can easily damage the public’s goodwill towards the franchisor’s brand by providing inferior goods and services, and an incompetent franchisor can destroy its franchisees by failing to promote the brand properly or by squeezing them too aggressively for profits.
Mutual Benefits of Franchisor and Franchisee
Franchising is the most dynamic method of business expansion ever devised. By franchising, many businesses have grown from a handful of units (or even just one unit) to hundreds or sometimes thousands of units within a few years. No other approach even comes close to the market scope and growth rate offered by franchising.
The franchise method of expansion is rich with potential for both the franchisor and the franchisee.
Advantages to the franchisee
The franchisee buys into an already proven business concept – he does not have to “einvent the wheel”.
Through training and manuals, he has a well-defined track upon which to launch and operate his business.
As issues arise, he can turn to the franchisor for advice and expertise.
As the franchise network expands, he receives the benefits of enhanced brand recognition.
As the franchisees as a group gain experience, they can provide ideas and answers to each. other’s questions.
In short, the franchisee is in business for himself, but not by himself. Despite these powerful advantages, franchising, like any other business activity, does carry risks and requires significant effort. It is not without its challenges and headaches.
Advantages to Your Business for Franchising
Some of the advantages to franchising include:
Your brand name becomes widely known through franchising.
Strong possibility for rapid growth with minimum capital expenditures.
Your share of the franchising program becomes a valuable, marketable asset.
You receive an ongoing share of revenues of the program.
As the number of franchisees grows and they learn the business, they will provide new ideas that can be used in your own business as well as in the franchise network.
With increased volume comes increased buying power for the entire franchise network and your business. This should result in the potential to lower your overall cost of sale, and therefore increase profits.
As you develop new products and services, you benefit not only by marketing them in your original business, but also from having them sold throughout the network.
This business expansion is accomplished while you maintain and run your original business.
Franchisees will have invested quite a bit of money to get into the business, have a pride of ownership and self-motivation that enables them to showcase your original concept and business in the best possible light.
Benefits of Buying a Franchise
Earn what you are worth
Thousand of franchise owner report they were handicapped in their corporate careers by Company policies and Superiors that put a cap on their earning. When you own your own Company, your efforts are rewarded and your personal income shows it!
Build equity
Financial strength comes to those who succeed in running a business. Approximately 95% of all millionaires in the Philippines own their own business. If great wealth is one of your goals, entrepreneurship is the answer.
Satisfaction of achievement
Much business owner report that seeing their actions turned into realty without stagnating for month in committee meetings as so oft happens in big companies is a major reward of owning their business.
Choose your own job description
When you’re the owner, you can delegate certain aspects of the business to others and create a job description that suits your personality, skills and interests. Naturally, the industry you choose and the size of your operation will affect your flexibility in this area.
Control your future
Business owners live the scripture “you reap what you sow”. You can manage your work schedule against family needs and recreation – if you’re willing to share some profits with additional employees.
Never transferred, laid off or fired
Major companies are notorious for relocating their employees and downsizing their staff at the most inopportune times! When you run your company, you’ll decide when and where to operate.
Why a franchise?
There are many reasons why franchising is the best type of operation for the majority of first time business owners. Most revolve around the increased probability that the business will succeed and provide profits to the owner in a shorter time frame than an independent business. This allows the owner to address her/his personal goals both financially and personally.
Lower costs than an existing business
When buying an existing Company, you often don’t know what you are buying or if the price is right or the existing business profitable. Starting a franchise is almost always less expensive.
Less risk than an independent start-up
One spends up to 5 years in an industry before considering owning a venture in that field. Buying a franchise eliminates this need and puts you on the road to success quickly
Gain advice on site selection, design, operation, capitalization and marketing
A good Franchisor provides instruction and support on all aspects of running a business in its industry.
Receive a proven profitable system for doing business
When you’ve had a chance to talk to other Franchisees, you’ll recognize how important it is to have a system to follow for your venture. This plan is easily worth a few hundred of thousands of Pesos or more.
Benefit from quality research and development
Most small business owner are just too busy making money to research the future trends in the industry and develop new products or services to meet the needs of their customers. A Franchisor will always be searching for ways to make its network more successful.
Access to trained support personnel
Your royalties and advertising fees provide regular improvements in the Franchisor’s systems and these are provided to you for implementation in your venture.
Quicker start-up than independents
A proper plan outpaces an independent’s hit and miss operation almost every time. Looking at just independents that succeed – you’ll find that franchises grow quicker, reach break-even sooner and succeed more regularly than others in the same industry as depicted in the accompanying chart.
Benefits of Getting a Business Franchising
Lower Risks. Most business experts agree that a franchise operation has a lower risk of failure than an independent business. The statistics on this vary depending on the definition of failure. Yet, whatever statistics are used, they consistently suggest that a franchise is more likely to succeed than are independent businesses.
Established product or service. A franchisor offers a product or service that has sold successfully. An independent business is based on both an untried idea and operation. A great factor that will help you predict the potential success of a franchise is the length of time that the franchisor have been in successful operation.
Experience of franchisor. The experience of the franchisor’s management team increases the potential for success.
Group purchasing power. It is often possible to obtain lower-cost goods and supplies through the franchisor. Lower costs result from the group purchasing power of all franchises. To protect this benefit, most franchise agreements restrict the franchisee from purchasing goods and supplies through other sources.
Name recognition. Established franchisors can offer national or regional name recognition. This may not be true with a new franchisor. However, a benefit of starting with a new franchisor is the potential to grow as its business and name recognition grow.
Efficiency in operation. Franchisors discover operating and management efficiencies that benefit new franchisees. Operational standards set in place by the franchisor also control quality and uniformity among franchisees.
Management assistance. A franchisor provides management assistance to a franchisee. This includes accounting procedures, personnel management, facility management, etc. An individual with experience in these areas may not be familiar with how to apply them in a new business. The franchisor helps a franchisee overcome this lack of experience.
Start-up assistance. The most difficult aspect of a new business is its start-up. Few experienced managers know about how to set up a new business because they only do it a few times. However, a franchisor has a great deal of experience accumulated from helping its franchisees with start-up. This experience will help reduce mistakes that are costly in both money and time.
Marketing assistance. A franchisor typically offers several marketing advantages. The franchisor can prepare and pay for the development of professional advertising campaigns. Regional or national marketing done by the franchisor benefits all franchisees. In addition, the franchisor can provide advice about how to develop effective marketing programs for a local area. This benefit usually has a cost because many franchisors require franchisees to contribute a percentage of their gross income to a co-operative marketing fund.
Proven system of operation. An attractive feature of most franchises is that they have a proven system of operation. This system has been developed and refined by the franchisor. A franchisor with many franchisees will typically have a highly refined system based on the entire experience of all these operations.
What Does a Franchise Provide?
The advantages of a franchise over an independent business are aplenty. A Franchisor must furnish valuable services to its Franchisees.
Business Name
Franchisee will have his own corporate name as Incorporation or individual business owner but the franchised business operates under the Trade Name of the Franchisor.
Market Studies
Franchisors should knows where franchised businesses should be opened, which locations are good for a Franchisee and which not, which may be determined generally by location, most important with food franchises or other aspects, like purchase power of a certain area, etc.
System Standards
Sensible and complete specifications, standards and operating procedures, the so-called system standards, effectively communicated to Franchisees and readily understandable.
Operational Manual
The “How To” documentation of the business operation and the implementation of the system.
Proprietary Marks
The right to use the logos, signage, slogans and Trade Marks of Franchisor. It is not enough that a Franchisor has a DTI Business Name registration or a SEC registration, he has to obtain a Trademark from the Intellectual Property Office, which is located at Sen. Gil Puyat Avenue in Makati.
Experience
Transfer of business experience is transferred from Franchisor to Franchisee
Wisdom of Franchisor
The Franchisor went through the “labor pain” of opening the business by himself some time ago. For a new Franchisee that trial and error period is eliminated.
Training
Effective initial training is critical to achieve positive Franchisee attitudes regarding system standards, the operation, the Franchisor and the value of the franchise and depending on the business can take from 5 days up to 6 month.
Site Selection Assistance and Approval
Franchisors in the Philippine usually do not provide locations and prospective Franchisees have to find them by themselves. However, Franchisors will know where a franchised business shall be located within a certain area and will inspect the site prior to the start of construction or operation, if the location is suitable for the franchised business.
Store lay out
Franchisors will provide lay out assistance and supervise the construction of a new franchised store. The entire construction cost is at the expense of the Franchisee, and has to be paid as due to either the Contractor or Franchisor, depending on the arrangement.
Exclusive Territory
Most Franchisor will award new franchises with an exclusive Territory, which depends on the kind of business can be a certain radius in meters or a floor in a mall, a whole City or a whole province or City or several of them as Area franchise or even a whole Country as Master franchise.
Procurement Programs
Franchisor will provide a listing of authorized suppliers for equipment’s, goods, materials and services.
Opening assistance
Franchisor assistance in hiring personnel for the Franchisee by giving the guidelines for needed staffing and training them, and set-up of the franchised outlet. Franchisor’s management and staff assist new Franchisee upon opening of the franchised outlet to operate it smoothly from day one onwards. Franchisors representative will remain in the Franchised Facility for a period of time as determined by Franchisor to assist Franchisee in the initial operation phase.
Marketing Strategies
Franchisee may have to contribute to a National Advertisement Fund, a Co-op Advertisement and spend some amount for the initial Opening Advertisement and the ongoing Local Store Marketing activities.
Effective Field Service
Operational support is needed by Franchisees for occasional questions and problems. Knowledgeable and well-trained personnel with positive attitudes and a willingness to help Franchisees are provided by Franchisors. Franchisors shall also be available to Franchisee via phone, email, fax or text for urgent problems arising from the operation of the franchised business. Important is also that Franchisor and his representative regularly visit the franchised outlets.
Research and Development
Businesses face tough competition and new products are constantly to be tested and introduced in the market. The job is with the Franchisor in development of new products and service, improvements of equipment’s, formats, operating efficiency and trying to beat competitors.
|
