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Franchising 101: Understanding the basics

Franchise Asia 2011 chair tells us what it really is
By Carlo P. Mallo |

Franchising is one of the most popular methods of expanding or entering a business, depends on which side of the fence you are in.

If you are a business owner, chances are you are already thinking of going into franchising to grow your business without having to shell out as much cash as you would if you opened another company-owned branch.

If you are an aspiring entrepreneur, you most probably have been to one of the many franchise expos this year looking for that perfect franchise brand that you would want to invest in.

But do you really understand what franchising is all about?

Entrepreneur.com.ph asked Bing Sibal-Limjoco, the chairman of Franchise Asia 2011 to discuss the basics of the decade’s most popular business trend.

“Franchising is a method of doing business by which a franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor and which is substantially associated with the franchisor’s trademark, name, logo or advertising,” Sibal-Limjoco said, explaining the gist of the franchising concept.

In a franchising agreement there are usually three important things that are discussed. These are the use of the company name, the use of a system, and the payment of a fee.

The use of the company name is actually what makes franchising a successful business model. No need for an aspiring entrepreneur to think of a brand and how to establish the brand. One can simply “borrow” the name of a popular brand.

One of the most difficult aspects of starting your own business is creating a system. Whether it is for payment, delivery, inventory, the creation of a system is one of the most daunting aspects of a business. In a franchise, one is lent the system of the franchise brand.

But as the adage goes, there is no such thing as free lunch. So, there is the franchise fee. The franchise fee is what is paid to the franchise brand once the agreement is signed. A royalty fee may also be imposed, depending on the terms of the agreement.

While franchising a brand may seem a sure-win agreement, it is not an assurance of business success. Hard-work and a hands-on approach are still the top secrets of succeeding in business.

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