Franchising ABCs

I attended a franchise trade show last Saturday (September 20) sponsored by the Association of Filipino Franchisers and it reminded me again of my dream of starting a business...to have the chance to live life to the fullest and be a blessing to others...

How do you know if franchising is right for you or you're better off starting on your own? This question led me to a story I wrote two years ago for a local magazine focused on parents, the ideas are still very much relevant today. Hope you will learn as much as I did...

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Increasingly more couples are planning to have their own businesses to secure their growing family and ensure a good future for their children in these trying times. But few realize that having a business is like having another baby. It must be nurtured and attended to with its growing pains, parents who know what it takes to care of children can also understand that the rewards of a business if handled properly. With great risks and hard work bears much fruit not only materially but psychologically as well with the peace of mind that comes with financial freedom and the joy of doing what you love.Yet some don’t know where to begin or can’t figure out what they would like to get into.

For Marvey Mariño, father of two boys, ages 3 and 5, buying a franchise was the way to go.“ I did not have time to ‘invent’ a new business and experiment along the way. I was in a hurry to recover my investment and make a profit since at the time my wife and I were expecting a child,” he shares. He relates having found a good location in Batangas city even before he knew what type of food franchise he would get into. He would stand across an abandoned structure in the middle of a commercial intersection at P.Burgos street , daily observing countless workers and students passing by the area that also became a favorite route at night coming home from gimmicks and parties. Going with his guts, he wasted no time depositing money to secure the lot.

And then began his search for a 24-hour food business that will serve his market and finally bought a Goto King franchise with his sister-in-law who invested additional capital. That was in 1999, and he hasn’t looked back since then because his instincts have been right. Now, his store has the most sales among Goto King franchisees in the country today.Robert Trota, president of the Philippine Franchise Association says buying a franchise business is more beneficial than putting up your own from scratch.

“When you buy a franchise, you don’t need to reinvent the wheel. Instead of developing your own business system, you just need to use theirs, which is already proven and tested.” He says the benefits are immediate because you already have an established brand and therefore a guaranteed market. “If you follow the procedures already set, in most cases, your franchise will already be successful,” he adds.

Indeed, research has shown that most franchised businesses have higher chances of survival and success than developing a new business since it already has a working blueprint and has gained a loyal following with its recognized brand. Even banks are kinder to grant loans to franchisees rather than entrepreneurs with new ventures since they are backed with an established company’s history and track record. Mall owners also prefer to have tenants with recognized and reputable brands, usually franchise companies, to attract more customers. To get a franchise for a business means you are actually buying the business system a company which works for them.

You will benefit from the lessons they have learned and their technology and skills along with valuable information that have made them successful, knowledge they will transfer to you. You may get a franchise business anywhere from P50,000 to P25 million depending on your budget and the type of business concept you want to get into. You can choose from low, middle and high cost investments. Aside from what interests you based on your personality, skills, and preferences, the capital is usually a main consideration in choosing what franchise to get.

Low-cost franchises would include kiosks and stalls such as those offering potato fries, soft serve ice cream, cell phone cards and accessories while the more sophisticated and capital intensive franchises include your fast food joints, coffee shops, casual dining restaurants, and clothing retail stores among many others. The PFA alone have 150 members having a total of 800 business concepts. Franchisees usually give a franchise package which include the use of their trade name and logos, store design and layout, equipment, uniform, initial inventory, recruitment assistance and training, use of operations manual and pre-opening assistance.

Be sure to ask for the total investment required to set up shop, which is different from the franchise fee you pay up-front for the use of their system. The franchiser requires you to write them a letter of intent, fill-up an application form and send directions to your proposed site. Be ready for a location visit and personal interview with you to assess if you are fit to be a franchisee. They may decline your application if they see that the location is unsuitable, have a lack of resources or lack of skills in running the business.

Your values and character are also a big consideration as well as your enthusiasm, commitment and passion for the business. “It goes both ways. You and your franchiser want to make sure that your investment will not go to waste,” says Trota. The relationship of a franchiser (one who owns the business) and a franchisee (the one who buys the business system) is comparable to marriage. You and your franchiser must have the same vision and values that prevents a strained relationship.

“Divorce is very hard. With legal battles, it is not going to be good for both of you. The brand is going to be affected as well,” explains Trota. So, one must be very sure first, before taking the plunge by doing your home work and asking the experience of fellow franchisees who are in the business you want to get into. Although you have an option to sell a franchise if you want out and the franchiser has the first option to buy it or have another buyer to run it, both parties always hope for the best in the beginning of the relationship and expect to stay for the long haul, usually the franchise terms have a minimum of three years to as long as 24.

When you finally tie the knot with a franchise agreement, be sure to read it even if it’s 30-pages long, to make sure you understanding everything before the franchiser can start transferring his knowledge and system to you. Because it is up to you to grow it, with the support of the franchiser who receives royalty fees or a percentage of sales which he in turns invests into marketing campaigns and advertisements which translates to more sales for you.

A good franchiser should be able to give you continuous training, guidance and support in the duration of your business relationship. Bards Montanido, owner of Chicharific by J.E.E. Lapid, now with 12 franchisees, says having a franchise does not necessarily guarantee success. “You have to nurture it also to make it grow. Para ring anak iyon, you also have to take care of it,” says Montanido. “It’s so easy to put up a business. It’s hard to sustain,” says Trota.

Although franchises offer you better chances of success, the hard work is still up to you.

Montanido shares that her franchisees can except to recoup their investment of P200,000 at an average of 8 months, but her franchisee in Baguio city’s Session Road recouped their investment in just two months. The franchiser is also a big brother or sister you can go to when problems arise. “We can tell them what to do since we’ve been there,” explains Montanido of the value of experience. With a proven system in place, franchisees do not have to go through trial and error and the possibility of making mistakes are less. However, some people are simply too creative to be bound and limited by a system and will probably not make good franchisees.

“Some entrepreneurs would want to create their own businesses and control the direction of their companies rather than follow the standards of the franchiser,” explains Mariño. Creative people may be able to work better putting up their own businesses where they can have more freedom.Having a franchise can have its side-effects too. “The more obvious disadvantage is having couples fight or spend a lot of time in the business and neglect the kids,” says Trota. Mariño admits that the first two years of his business was very difficult since he was really working at the restaurant on a daily basis.

“Eventually I re-organized my priorities and put time with the family on top of the list,” he says. Now that he has learned to delegate operations and has empowered to make decisions when he is not around he says, ““I have more time for family and more time to pursue other interests like other businesses.”

He also takes his young children to Goto King to say hello to customers that can help develop their people skills and tags them along when going to the bank to teach them values of proper handling of money.For Oscar and Gail Santos who owns a Max’s franchise in Olongapo and SM Marilao expanding their family business through a franchised restaurant has been a good decision. When they opened their store, all the children who were studying in Manila came home to help. “It was a family undertaking,” they say.

Two children are now assisting them with their business particularly in handing the technology side and have been given management reins over the family’s donut franchise. “We have grown closer now that they take part in our business.” Santos says the secret for a harmonious relationship in business is harmony at home. Max’s Restaurant which require a larger investment, with a franchise fee of P3 million and a total investment of P10 million to P20 million, observes that 12 out of their 30 franchisees thus far are wife and husband tandems who complement each other.

They are able to balance their time for business and accommodate the needs of a growing family by managing their time well. “You can schedule in the way that would fit you best. As against working professionally, you are dictated with the company’s policies and time,” says Trota.
Montanido agrees and believes that as long as “you can manage your time properly, you can have quality time with children,” says the single mother of three.

The key is to prioritize, schedule the needs of the family and the needs of the business and stick to it. Parents who want to go into business together must also share responsibilities and complement each other. The Goto King franchisee advises that if you are planning to buy a franchise, make sure you do your homework and research. “Look for reputation, quality of product or service and support,” he says.

For the franchiser’s part, they have to make sure that prospective franchisees like what they are getting into. “My first question is, Do you really like chicharon?,” says Montanido. She also advises that they ask other franchisees of their experience to learn what the business is. You must also have clear plans on who and how will the business be managed. Ask your self if you can live with a prospective franchiser’s business system- which has been proven—even if you don’t fully agree with it. Remember that once you buy into its franchise, you can’t stray from its established rules and procedure.

Make sure also you have the money to invest in the franchise and if it is better for you to have one than put up all the expenses it will require for your to put up and run your own business concept. Taking out a loan will help you cover all you initial expenses but it will also add up to your costs and affect your returns.

Trota says, the best time to scout for possible franchise business is in during the annual franchise show held every July where you can get as much information you need from franchisers who join the exhibition. While you wait for this, it’s best to start your business with your own savings while you are working. “Maganda rin talaga yung nagtrabaho ka muna sa iba, it helps you learn, how to take care of your own people,” Montanido says.

Look for a franchiser with the same goals and values as yours, one who is committed, dedicated, and adheres to quality standards and seeks to continuously improve his business. And when you do find the perfect match: “Go into it wholeheartedly. If you find out that you like it, it would be a very successful business. You’ll be able to share it with your kids,” ends Trota.

Shopping for the right franchise?

It is best to ask from recognized associations like the 10-year old Philippine Franchise Association that include local and international franchisers as members, and the Association of Filipino Franchisers composed of local and home-grown businesses.

Search their web sites at the http://www.philippinefranchiseassociation.com/ and http://www.affi.com.ph/ for a listing of your preferred concepts or call PFA at (632) 687-0635to 67 and AFFI at (632) 873-8435 and ask for a list of legitimate franchises and their contact details. Their members undergo a screening process before they can join. This will secure your self from fly-by –night franchisers. Good luck!