5 'golden rules' in franchising

Armando O. Bartolome

Posted at Oct 03 2015 12:06 PM | Updated as of Oct 04 2015 08:06 PM

MANILA - You dream of getting into business. You're waiting for a big break to finally say to yourself and others that you are an entrepreneur. But before further jumping and investing, better be sure that you have read these five steps, as I will always share with readers to remember the acronym IFBI or Investigate First Before Investing.

"Buyers beware!" Or better yet, "franchisees beware!" Since franchising became popular in the Philippines, the failure rate has doubled from only 6 percent in 1995 to about 12 percent today, indicating that potential investors must do their homework well before signing an agreement.

I’ve had over 20 years of experience in franchising myself, and I’ve discovered a set of “golden rules” that entrepreneurs can use when evaluating a franchiser or franchise business. I’ve used these rules to advise numerous franchise applicants and these guidelines have proven effective both in the local and international scene.

BELIEVE IN THE BUSINESS CONCEPT

Look closely at the business concept. If you believe in it, you’ll be able to overcome the challenges of operating the franchise branch and motivate you to manage the business yourself.

To know whether you’ll like the concept, visit the branches. Be a customer not once, but many times. While you do this visit, ask yourself whether you want to do this particular business. Will you be happy and proud of it? Will you not hesitate to do any of the tasks you see being done? Do you foresee a good future for the business concept? Positive answers to these questions will be necessary for you to continue with the application process.

Years ago, my wife Lyndah and I met a couple who wanted to franchise a business. They agreed to look at various concepts available and as soon as they picked one, they visited its store for three months. They observed and studied all aspects of its operations from a customer’s point of view. By doing this, they learned it was indeed the business they would be happy to do. They applied and were eventually granted a franchise.

Even as franchisees, they were often times mistaken as manager or busboys as they would wait on tables or sweep the floor. But their hard work and confidence in their chosen franchise concept would pay off handsomely; recently they opened another branch, their third in three years.

GET TO KNOW YOUR FRANCHISER

Prospective franchiser evaluates you, do your own qualifying process as well. Insist you meet the franchiser face-to-face despite the presence of employees in the franchise organization. Be sensitive to the feelings you have of the person in front of you. Can you have a relationship with him for the term of the franchise?

Remember, franchising is more than a contractual relationship; it is a personal relationship between you and the franchiser. Your positive feelings should encourage you to continue on or stop when you have negative feelings.

Granting you decide to pursue the application, get more information about the franchiser, his business track record, and his commitment to pursue the growth of the business concept, his ability to retain people and how other business people view him.

TALK TO EXISTING FRANCHISEES


Request from the prospective franchisor a list of existing franchisees, and distance yourself from one who’s not willing to do this. He may be hiding something--like unhappy franchisees, for instance.

A good franchiser will allow applications to talk to existing franchisees. Visit the branches and inform the franchisee you are an applicant. Normally, they would share with you their experiences. Ask what process they went through to get the franchise. Are they happy with it and with the support services provided by the franchisers? Considering the Filipino culture, they may not tell you about their sales. Use indirect questions such as: Would they open another branch of the same franchise?

Experiences and comments from franchisees can help you in your decision-making process. There will always be concerns and problems but the organization can grow if there issues are used to strengthen and improve the system.

We have a client who requires applicants to visit and talk to at least five of its existing franchisees. To this franchiser, these visits will help applicants understand the realities of the franchise system and will put them in a better position to make an informed decision about whether to pursue the application. The visits benefit both parties because the franchiser also asks the existing franchisees to assess the applicants.

UNDERSTAND THE FRANCHISE AGREEMENT

The franchise agreement is a comprehensive contract that spells out details of the relationship during the term of the contract. In my experience, there are two things people normally do when they are handed a franchise agreement: they skim over the pages and sign or give it immediately to a lawyer. I have frequently discouraged both.

When you get a franchise agreement. Take time to read it page by page. Your lawyer will not live with it but you will. No matter how long the contract is, read through. Have a paper and pen ready, and write down your comments, questions and other items that you don’t understand. Then and only then should you give it to your lawyer.

Sit down with your franchiser and discuss the notes you made while reading the agreement. It is good to clarify matters before you sign. Most franchisers welcome the opportunity to explain the provisions of the franchise agreement. Bear in mind, however, that it usually protects the interest of the franchise system, though it must likewise indicate the responsibilities of the franchiser to you as well as your obligations as the franchisee.

A franchiser once requested my assistance because of an ever-complaining franchisee. The issues involved deficiencies in the support of the franchiser. We called a meeting with the franchisee and asked him to bring a copy of the franchise agreement he signed. I did allow the franchisee to narrate his litany of complaints again, which I simply pointed to the section on the responsibilities of the franchiser, and the franchisee had his signature on both pages. His reaction amazed me, because it was as if it was the first time he was reading those provisions. Afterwards, he became a cooperative franchisee and his branch is now successful.

DO A MARKET STUDY

International franchise principles indicate that the franchiser must do the projection and market study. I advocated and used this during the initial years of my work in the industry. But my experiences with Filipino culture have shown, however, that franchisees become dependent on the franchiser, even blaming the latter when sales fall short of projections.

Because of these observations, I encouraged franchisers to make a paradigm shift. Let applicants do the market study on the proposed site with certain data and directions from the franchiser. As applicants, you should convince the franchiser there is a market for the franchise concept in your intended location. You can go further and project sales based on the data and information in your market study.

There was a bank officer who retired early and looked for a business she could invest in. When she applied for a franchise, she was asked to count until midnight the number of persons and vehicles passing by her proposed location. She demurred but the franchiser told her it was part of the application process.

Acquiescing in the franchisers wishes, she did as she was told and got her franchise. Three months later, she said she had understood the rationale for the study. It helped her identify her market and counting the vehicles turned out useful in timing her flyer distribution.

There are franchise shows held every year. Just in time for readers of today’s issue, one can catch the 14th Business and Franchise Show in World Trade Center in Pasay City. There will be around 300 various business models and with entrepreneurs present to answer questions.

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For questions and more information, you may contact Armando "Butz" Bartolome by email: philfranchiseguru@gmail.com or on Twitter. His website is www.gmb.com.ph