Entrepreneurship through Franchising

Part 1: The process of getting into business

There have been many Franchise-related Exhibitions and Symposia.  In these various activities, the focus was on what business opportunities are available.  In fact, in many instances of people wanting to enter business, the focus is on the type of business and not in the process.

I like giving the example of an OFW in Hong Kong whose lifelong goal was to put up her own business. She invested all her life savings in a balloon making business and lost all her capital in six months.  She could not understand what had happened and wrote me for advice.

To help her, I asked her some questions.  When I asked her what her real interests were and why she went into balloon making, she told me that she was really into cooking but that her auntie had strongly recommended balloon making because she had enough money to start such a business.  Her auntie also told her that it is a good business because she has a friend that does well in that business.

The cause of failure was quite obvious.  First, she took the advice of one who was clearly not a capable business advisor.  Second, she decided based on the amount of capital she had readily available.  Third and the biggest mistake of all is that she went into a business which she did not know anything about and where she had no real personal interest in, and most likely, had no technical capability to contribute.  It was clearly a wrong decision for this lady entrepreneur “wannabee”.

There are also those who want to know what their business options are.  One such enterprising lady had the opportunity to set aside PhP5,000 cash every month from the household and personal expense budget that her husband would give her.  She had an accounting background and some work experience with an appliance sales and service company.  In that company, she worked as part-time bookkeeper and customer service supervisor for more than three years.  She really enjoyed the customer relations part of her experience. Today, she is a full-time housewife and loves food-related activities.

Given this personal background, she would probably do well in food and/or service type businesses.  The question is what type of business and will she have the necessary capital to do it? As much as possible, she also doesn’t want to bother her busy husband for frequent advice and she wants to experience setting up her own business.

This is a situation where getting into a Franchise business may be a viable alternative.  Serious franchise businesses provide you tested business models along with market planning, technical support and logistics systems as well as personnel training, accounting procedures and financial controls.  This allows you to learn the business at the soonest possible time with the least number of mistakes which you would otherwise incur if you started on your own without experience.

Part 2:  How to choose a Franchisor and a Franchise Business:

There is a list of Filipino Franchisors and their broad range of small businesses available.  Some are new but quite a number have proven track records.  Let’s assume that you are the housewife who is competent in a food or service type of business and you choose a business that requires first year investments (including franchise fees) of around PhP200,000. Most good franchises demonstrate payback of about three (3) to five (5) years and impressive service support.  Your most logical starting point is to seriously consider a food-stall business, particularly one with an available franchise near your home. As my partner Entrepguru Andy always says, most opportunities can be found just around your neighborhood. Look around you and observe what is it that your community badly needs?  Don’t just follow what everybody is already doing.

Another good thing about Franchise businesses is the business training included in the package.  Usually, the training period is three months but you would need to pay 10% or PhP20,000 (subject to negotiation with the Franchisor) as soon as you sign the franchise agreement. This type of a Franchise business might project minimum net cash earnings of PhP3,500 and possibly up to PhP6,000 per month.

Here are some tips on how you can move forward:

  1. After determining your preferred line of business, make sure that your chosen Franchise business has a sufficient and sustainable market in your location.  This is where successful and responsible Franchisors can provide you meaningful information and advice.
  2. Validate the Franchisor’s legitimacy and claims through the Association of Filipino Franchisors, Inc., or through other Franchising Associations to which your chosen Franchisor may belong;
  3. Validate the actual experience by directly interviewing the FIRST Franchisee and some other Franchisees to validate the truth or falsehood of the market and financial claims of the Franchisor.  I am personally aware of situations where franchisors do not live up to their claims. Do not allow a franchisor to keep you from talking directly to his existing franchises for any reason. If the franchisees are happy, it is for the Franchisor’s and your best interests to learn all about it.
  4. Find out if the Franchisor has any pending legal cases with any of the Franchisees, and if there is any, find out why.
  5. Secure serious legal advice on the merits and demerits of the Franchise Agreement. Make sure that you are satisfied with all the provisions of the Franchise Agreement, particularly on your option to terminate your Franchise Agreement for good reason, without any difficulty.
  6. Be aware that anything not written in the agreement, even if promised by the Franchisor, may not be fulfilled. That being said, in the final analysis, aside from the technical know-how, the sincerity and good heart of a Franchisor will be the deciding factors on your success;
  7. Make sure that all the sources for funding are in place, before you even start investing your first peso.

Will this lady succeed in a franchise business?  I always emphasize that in any business, there are no guarantees but there are ways to reduce the risks.  If she at least follows the advice already given above, she has a good chance of success.

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