So you want to engage in a franchise business.
Venturing into entrepreneurship is not as easy as it sounds. But if you think you are ready to experience being your own boss, have a look at the following things to consider before going into franchise business.
- Know your passion.
Philippine Franchise Association (PFA) president Richard Sanz cautioned that it is hard to do business purely on profit. Even British conglomerate Virgin Group Ltd’s founder Richard Branson said something similar: when the prime motivation in launching a business is just money, it is bound to fail.
Passion is your love, your will and determination to succeed. It will push you to learn skills that may not be to your liking, but critical for boosting your business. Passion is contagious. Your people will imbibe that zest, helping you achieve your goals.
On the other hand, if there is no passion it’s easier to give up or just abandon what you have started during hard times.
- Franchising is not a walk in the park
Like any kind of business, franchising requires the owner’s time, attention and effort. Some franchisors even stipulate in the contract that the franchisee devote a certain amount of time to be physically present in the store.
Sanz says many people have this misconception that a franchise business can run on its own. They think it will make money automatically and that there is no stress involved.
Running your own business can be taxing and frustrating. Experts warn against jumping into the entrepreneurial bandwagon just because you are getting burnt out from employment, hated doing overtime or do not get along with your team. You will certainly experience plenty of struggles, especially at the beginning stages, and perhaps worse than the difficulties of working for a company. Expect the worst but keep your eye on the prize – a profitable franchise business of your own.
- Location matters…greatly
Sanz explained that the biggest factor for success is still location. Nobody wants to do trade in a place with minimal human traffic or where the market is oversaturated with the same brand or type of business. Your product or service should get an extensive exposure to potential customers, particularly your target market. If you have a specific location in mind, conduct a feasibility study first. Some franchisors offer assistance in doing a scientific-based site evaluation. Other times, the franchise applicant may have to execute the task himself or hire an expert on this. It is advisable that the target location is near or accessible from the place of residence of the franchisee so that he can easily devote time to his business.
- Franchising is all about synergy
Sanz described the franchising relationship as a combination of the know-how, experience and successful business model of the franchisor matched with the energy, passion, creativeness, time and attention, and the financial resources of franchisee.
Simply put, it is not a one-sided affair. Many ventures fail because of the franchisee’s over-reliance to the system and not exerting any effort to run the business.
- You are in a business for yourself but not by yourself
The risks are higher in a start-up business because you have to do everything from scratch. According to www.entreprenuer.com, about 25 percent of startup businesses fail within their first year, 50 percent of the remaining fail within five years and approximately 30 percent of the remaining last ten years.
Unlike in franchising, you work with a proven system that has achieved success and you just have to replicate it. Depending on the agreement, franchisors also provide an array of support ranging from Marketing, supply chain to manpower training.
- Establishing a good relationship with your franchisor
Franchising is like a marriage, says Sanz. It is more than a contract but a sharing of same values. It is critical that the franchisor and franchisee are aligned in terms of vision for the next 3 to 5 years, depending on the duration of the contract.
- Due diligence is a must
Do not take things at face value. You are not throwing away a small amount of money here. Find out if there is a demand for a particular product or service, much more if you are franchising a foreign brand. What may be popular abroad does not immediately translate to demand in our country. Include the franchisor’s track record and if possible, financial history in your background check.
- Manage your ROI expectations
The general rule is that a franchise investment worth below Php1 Million will begin to see returns to their invested capital by about 18 months of operations. Those worth between Php1 to 5 Million such as mid-range salons and laundry shops will see results after 2 to 2 ½ years. A franchise worth P5 Million and above like a popular fastfood chain should wait until 3 to 5 years.
- On hiring professional help
You cannot do everything alone. Sometimes you have to tap a specialist to perform necessary tasks that are beyond your capabilities. Hire an accountant to keep your finances in order or an external consultant to conduct a feasibility study when deciding on an ideal location for your business.
- Attend franchise expos
Consider all options before deciding on what brand to franchise. You can do that by physically visiting a store, doing an online research or even better, by participating in franchise expos such as Franchise Asia.
The 4-in-1 biggest franchise show in Asia is an annual exposition staged by the PFA, the country’s pioneer franchise association. This year’s theme is Growing Businesses, Building Legacies with venue at SMX Convention Center on March 27 to 28, 2019.
On March 29 to 31, it will also feature a three-day international expo that is a one-stop shop of franchise and other investment opportunities from home-grown and foreign concepts. At the same time, it will hold a business matching and networking sessions with education seminars.
Lastly, there will be a two-day Certified Franchise Executive (CFE) Program to help professionalize the Philippine franchise sector and help sustain efforts in raising the global competitiveness of Philippine franchising on March 25 to 26. This will be held at the Asian Institute of Management at Makati City.
For details about the event visit www.pfa.org.ph, www.franchiseasiaph.com or www.facebook.com/franchiseasiaph. Those who want to visit the Expo may register online to get a free pass. For inquiries, contact the PFA Secretariat at (632) 687-0365 to 67 or email pfa@pfa.org.ph.###
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