Franchising is what everyone is talking about these days. While some become successful because they are tried and tested franchise businesses, some are not so lucky and end up with weak or dodgy brands.
Entrepreneur.com.ph asked franchising expert Armando \\\'Butz\\\' Bartolome what the telltale signs that a franchise opportunity is not what it promises to be.
Bartolome share three signs that every aspiring entrepreneur must look out for and protect themselves from falling victims to franchising scams.
The franchise agent would make you believe:
1. That the franchise comes very cheap;
2. That you can recover your investment in such a short time;
3. That you would become a millionaire as a franchisee and could then afford to stop working.
Bartolome warns that all these simply can’t be true with legitimate franchises. “One more thing, people pushing a franchise scam won’t even let you know who owns the franchise,” he says. “Often, the agent of a franchise scam will simply give you a three-page franchise agreement to sign. When this happens, simply ask yourself: How can you put down all of the franchiser’s and franchisee’s obligations in just three pages? A real franchise agreement will probably be as long as 35 to 45 pages. In fact, some very thorough agreements can have as many as 200 pages.”
In a legitimate franchising arrangement, Bartolome explains, the franchiser and franchisee have to work together in running a specific business. Their relationship will be defined by a contract called the franchise agreement. Without this agreement, there’s no franchise to begin with.
To be on the safe side, Bartolome suggests that the prospective franchisee should do the following:
1. Evaluate the prospective business franchise;
2. Check out the longevity of the product to be sure that it isn’t just a fad;
3. Appraise the product’s competitiveness with other products in the market;
4. Find out how profitable the product is;
5. Identify the business model (Is it a cart investment? Will it be located inside or outside a mall?);
6. Determine the total investment a franchisee needs to put up;
7. Identify the various support programs that will be extended to the franchisee.
“When you buy a franchise, you’re actually buying the experience of the franchise owner in running the business, and you’ll be selling the name of the franchised product,” he says. “Obviously, you can’t get all of these for cheap. These days, you may be able to get a legitimate franchise for as low as P150,000, but you should be suspicious of those being offered for only P10,000 or P15,000. They are likely to be scams.”
This article was originally published in the May 2007 issue of Entrepreneur Philippines.