A Closer Look at Starting a Franchise Business in the Philippines

When COVID-19 swept through the Philippines in 2020, the entire economy suffered a severe setback. Both large corporations and small businesses found themselves grappling with bankruptcy or forced closure, resulting in countless workers being displaced from their jobs.

This adversity prompted many individuals to explore alternative avenues for earning, securing, or augmenting their income to attain financial stability. Among them were newcomers to entrepreneurship, who chose franchising— and for valid reasons.

Understanding the Pros and Cons of Franchising

Every business venture presents both positive and negative aspects. It's crucial to carefully weigh these factors before committing to any endeavor. Below, we outline some of the pros and cons associated with franchising.

Pros of Franchising

Starting a franchise business has many good points. Here are some of them:

  1. Reduced Business Risk

Franchising involves replicating a proven and established business model, thereby minimizing potential risks.

  1. Brand Recognition

As a franchisee, you inherit a familiar brand name and an existing customer base, simplifying marketing efforts.

  1. Established Operating Model

Franchising provides access to established systems, procedures, and best practices, eliminating the need for trial and error.

  1. Accelerated Return on Investment

With everything set up for success, franchisees typically experience a quicker return on their investment capital.

  1. Support from Franchisors 

Franchisors often offer support to new franchisees through marketing materials, training sessions, and assistance with site selection.

Cons of Franchising:

 While franchising offers numerous benefits, understanding its limitations is crucial to navigating the business landscape effectively. Here are some of them:

  1. Fees and Royalties

Franchising entails financial obligations such as processing fees and royalties, which can be substantial depending on the specific business. You can explore money-saving strategies to manage these costs effectively.

  1. Limited Control and Creativity

Franchise businesses come with restrictions on innovation and changes without prior approval from the franchisor. Compliance with brand and operational guidelines is mandatory.

  1. Shared Accountability

Issues in one franchise branch can impact the overall brand reputation, affecting all franchisees. Consequently, individual franchisees may face consequences for the actions of others, leading to shared accountability and potential challenges during difficult times.

Starting a Franchise Business in the Philippines: A Step-by-Step Guide

Having a franchise business in the Philippines involves a series of steps aimed at ensuring a smooth and successful venture. Once you've chosen the type of business you want to franchise and pinpointed a suitable location, you can begin contacting potential franchisors. This process typically consists of four main steps, which we'll detail below:

Step 1: Contact Your Desired Franchise Companies

Start by contacting various companies offering franchises in your desired industry to gather crucial information. You can reach out directly through their website or social media for immediate insights. 

Alternatively, local associations like the Philippine Franchise Association (PFA) provide directories of franchise opportunities. Attending franchise expos is also beneficial, allowing you to explore multiple options and attend informative seminars.

Step 2: Organize and Provide Franchise Documentation

After establishing initial contact with potential franchisors, you'll need to fulfill certain requirements to proceed with franchising a business in the Philippines:

  1. Complete the Franchise Application Form, downloadable from the franchisor’s website. Ensure all sections are filled accurately. 
  2. Submit a Letter of Intent (LOI) detailing your reasons for seeking the franchise, along with your contact information and the proposed site address.
  3. Provide a map of your proposed site, which can be a simple sketch or a Google Maps screenshot, supplemented with photos of the location.
  4. Prepare a detailed Resume or Curriculum Vitae, emphasizing any relevant entrepreneurial experience.
  5. Include photocopies of at least two government-issued IDs, as requested by most franchisors.

Step 3: Arrange a Meeting with the Franchisor

The franchisor will carefully assess your franchise application, examining your financial resources, professional background, academic qualifications, and industry connections. Concurrently, they'll evaluate the suitability of your proposed site for the franchise. Upon passing this initial screening, you'll be invited to a meeting at the franchisor's office. 

During this meeting, you'll discuss key aspects such as the company's overview, your management strategy, site ownership, and the subsequent steps if you proceed with the franchise. Additionally, you may be required to attend further training sessions to prepare for franchise ownership.

Step 4: Examine the Franchise Agreement Thoroughly

After concluding your discussions with the franchisor, you'll be presented with a draft of the franchise agreement—a crucial legal document outlining the terms and obligations for both parties. It's essential to meticulously review the agreement before signing. Consider seeking legal advice to ensure full comprehension of its contents. 

Pay particular attention to key details such as the agreement's duration and renewal terms and fees. Also, consider the total investment costs, including franchise package elements, designated territory, approved suppliers, and grounds for termination. If satisfied with the terms, proceed with signing the document; otherwise, continue exploring alternative franchise opportunities.

Wrapping up

We hope this guide empowers you to embrace franchising with optimism, as its advantages outweigh the drawbacks. Considering the Philippines' status as the franchising hub of Asia, numerous opportunities await. 

ER Creative Group of Companies stands ready to support your entrepreneurial endeavors, whether you're seeking investment opportunities or financial assistance. We're eager to discuss your options and help you succeed in building your business while fulfilling your dreams.