The Ins and Outs of Franchising Your Business

By Excel V. Dyquiangco

When thinking of how to franchise your business, Ma. Alegria S. Limjoco, Chief Executive Officer of Francorp Philippines, the worldwide leader in franchise development and consulting, has this to say: “Have competent experts customize your franchise program to facilitate the roll out of your franchises to prospective franchisee-partners so that you are covered when it comes to a strategic plan, system documentation, franchise agreement, operations manual, marketing services, sales training and general consulting.”

We asked her about the benefits of franchising your business, factors to consider when you want to expand your business, how to develop a franchise system and others.

What are the benefits of franchising your business?

Franchising is the creative solution to the entrepreneur’s problem of money, time and people. The entire cost of expansion is transferred from the franchisor to his franchisees because it is the franchisee who provides the working capital, constructs the building, pays the rent, buys inventory, pays the employees until sales makes the business profitable. What is the cost to the franchisor? Often, it is not more than it would cost to establish a single, new company-owned unit.

As to time, a franchisor can move more quickly towards expansion using franchising. Once there is a hot, new concept, with already a certain level of success, the route to go to is through franchising because it allows a viable system to grow exponentially. Selling individual units enhance growth. Selling multiple units or territories to sub-franchises mean faster growth.

As to people, franchisees make excellent managers because they have a vested interest in the business. They own it. Franchising relieves franchisors from problems associated with hiring and managing personnel.

What are the factors to consider if you want to expand your business through franchising?

Francorp has identified 12 criteria for franchiseability that are used as benchmarks for determining whether franchising is a successful growth vehicle for a businessman contemplating on expansion through franchising.

1. Credibility – to be able to sell franchises, your company must be credible in the eyes of your prospects. It can be reflected in the size of your organization, number of units, years of operation, looks of the prototypes, brand awareness, and strength of management.
2. Differentiation in product or service with a reduced investment cost, unique marketing strategy, and varied target markets.
3. Transferability of the system which can be taught to the franchisee in a short period of time.
4. Adoptability from one market to another, over large geographic areas.
5. Successful prototypes that demonstrate that the system is proven. Prototypes also act as testing ground for products and services, marketing and operational efficiencies.
6. Documented systems communicate to franchisees that a business is franchiseable. This means a well-crafted, user friendly and comprehensive operations manual and training modules.
7. Affordability reflects a franchisee’s ability to pay for the franchise.
8. Return on Investments (ROI) allows enough profit after a royalty fee. Typically, Francorp would like for the franchisee to achieve an ROI of at least 20% by the second to the third year of operations.
9. Market trends and conditions are key to long – term planning. How will this affect your future business? Will your products and services remain relevant in the years ahead? What are your competitors doing? How will the competitive environment assure your long-term success?
10. Capital is still needed in franchising to initially implement a program and it will vary depending on the expansion plans.
11. Franchisors’ commitment to long-term relationships with franchisees should be based on mutual rewards.
12. Strength of the franchisor’s management is needed to make start-up franchises take off. This is reflected in expertise in marketing, leads handling, sales, ad fund management, training and multi-unit operations.

How do you go about developing a franchise system which you can offer to franchisees?

To concept owners who have passed the franchiseability criteria and display a real passion for franchise expansion, Francorp offers services that allow a business owner to roll out a franchise. Francorp has development programs and consulting services such as strategic planning and program structure, documentation, operations documentation and manual development, marketing services, sales services and one-year general consulting.

To franchisors with specific needs, we offer our experience, strategic network and flexibility in international franchising, master franchising, area development franchising, prototype consulting, franchisability study, franchise audit, management training and consulting.

What are the critical terms you need to include in your franchise agreement?

A Franchise Agreement, just like any other contract, covers the important elements in the relationship of two contracting parties. However, a franchise contract gives greater emphasis on the use of the Name, System, and payment of related fees. Aside from the typical contents of a contract, a Franchise Agreement should comprehensively cover rights given to the Franchisee to use the mark or any other intellectual property; territorial or location rights granted to the franchisee; franchise fee, royalty, advertising fees or any other type of payment that the Franchisor may require; duration of the franchise and terms of renewal, if any; obligations of the franchisor and franchisee; termination, transfer, and expiration clauses; and restrictive covenants that the Franchisor may impose, among others.

How do you set the franchise fee and royalty for your franchise?

Francorp uses its own system in recommending a franchise fee and royalty for a given type of concept. While we also use a competitive approach in determining fees of competing or similar concepts and what the market can bear, our own cost-based approach puts bearing on how a Franchisor can recover its costs in setting up its structure, marketing and selling its franchise, training franchisees, and providing continuous support to the whole franchise system.

How do you market your franchise system?

Our franchise programs are marketed through our monthly “Franchise Your Business” seminars at the Franchise Academy of Francorp, Unit 2807, Jollibee Plaza, Emerald Avenue, in Pasig City, as well as in the regional roadshows and expos we join under the auspices of Philippine Franchise Association. We also have a website (www.francorp.com.ph) where you can download our quarterly publication “Franchise Talk” as well as have access to free online franchisability assessment and if needed, preliminary consultation.

Should you develop your system on your own or work with a franchise consultant?

It is best to work with franchise consultants who have real world experience, competence, dedication and access to global solutions to local franchisors’ needs that link them to a network of strategic partners in financing, business, government, service providers and suppliers. Francorp consultants, for one, approach every project objectively and analytically then customize strategies to meet the business owner’s long-term and short-term needs.