Franchising

The local franchising industry is still riding high since experiencing a boom in the 1990s. A winning combination of low capital, low risk, and a high success rate (up to 90 percent) has enticed a lot of Filipinos to get into franchising. The increasing number of franchisors (from almost 600 in 2000 to over 1,000 in 2010) and a much bigger group of franchisees (from 30,000 in 2000, growing over four times to 124,000 in 2010) are concrete proof.

These numbers are conservative estimates though, limited to legitimate business entities that have remained profitable and supportive of their franchise network. Working under the radar, despite going head-to-head with legitimate franchise firms, are small-time, dishonest individuals who pass themselves off as franchisors. The Department of Trade and Industry (DTI) has received complaints every year about these franchise scammers. While franchising is a lucrative industry to be in, aspiring franchisees and franchisors must know how to properly conduct background checking to avoid losing money to swindlers. Here are some guidelines:

The qualification process

A franchise company’s qualification process is almost always unique to that company. Requirements and qualifying criteria vary for every franchisor, but the basics are:

1 Interested applicant sends a letter of intent;

2 Applicant answers a pre-qualification form;

3 He waits for the approval of the franchisor;

4 He prepares the documents that the franchisor needs; and

5 He studies the franchise investment package and understands the franchise agreement.

While the franchisor primarily has the upper hand in most of the stages, the applicant is expected to take a close look at every step of the process to avoid franchise pitfalls.

The anatomy of a reliable franchisee

As a franchisee, examine your readiness for your impending enterprise. You should have an insatiable desire for learning, and part of that is obeying and following the business directions of the franchisor. Quality control and site visits are mandatory duties of the franchisor too, so if you find it difficult to meet standards, you might have to think twice before getting a franchise.

The anatomy of a credible franchisor

To protect prospective franchisees, the DTI-Bureau of Trade Regulation and Consumer Protection (BTCRP) recently released a Bureau Order stating the characteristics of a reliable franchisor. The franchisor must have, among others:

1 A certified trademark from the Intellectual Property Office of the Philippines;

2 A certified, strong, and successful business franchise;

3 A clear system in running the business

4 A contract and franchise agreement; and

5 Documents and permits from government bodies relevant to the business.

Apart from the technical methods and procedures, the franchisor should have strong business principles and an excellent organization. A future franchise partner should also look for a company that has a good assistance program in providing continuous training and updates to improving the quality of service of the business.

For the Galileo Enrichment Learning Program, a Math and English enrichment program for children ages 3 to 12, franchisee training is imperative, says chief executive officer Ma. Rowena Matti. “In Galileo, we conduct a thorough process in choosing partners,” she says. “This process allows us to see if the potential franchisee is genuinely into the business and the advocacy of educating the youth.”

Fritz Weber, chief operating officer of Specialty Beans Philippines, says that in choosing a franchisor, one should know who are the people behind the company. Aside from managing homegrown restaurant Kangaroo Jack Steak & Grill, Specialty Beans is also the master franchisee of Gloria Jean’s Coffees in the Philippines.

“For Kangaroo Jack, we show the business plan to potential franchisees for them to see how fast they could recover their investment. We present to them different business scenarios,” says Weber.

Franchising as a partnership

A partnership between a franchisee and a franchisor can only happen when both are on the same page. “One must not just jump into the business—he must look into the history of the company that he wants to be part of, making sure that its reputation is respectable in the industry it is in,” says Matti of Galileo.

When someone expresses interest in partnering with Galileo, the company does its own research. They check for financial qualifications to see if interested franchisees have the means to acquire the materials and meet the requirements of setting up a learning center.

“It is also important to know if our future partners have the credibility in running an education business. This business is about educating the young and it is not an easy task. Promising commitment to the company involves taking full responsibility of their students,” says Matti.

It is important that the franchisor and franchisee have the same ideals, Weber of Specialty Beans says. “There’s a lot of ‘getting to know you.’ There would be times that people come and you feel that your personalities would clash,” he says. “If you get into the business together, you’ll have a lot of problems and it becomes a contentious relationship.”

In franchising, as in any business relationship, you should choose your partner well. Open communication anchored on mutual trust and aligned values is the key to a successful partnership.