NegosyoBuilder.com

Business Tips, Deals & Opportunities in the Philippines

You are here: Home / Archives for Opportunities

Buying A Franchise Business? Look Before You Leap

by 4 Comments

In a nutshell, franchising is a business model that allows the franchisee to sell the products or services of the franchisor (the parent company). It is an easy doorway to entrepreneurship for anyone who wants to take a short-cut and minimize the risks involved in creating and running a business from scratch.

The following are some of the attractive aspects of operating a franchise business:

  • The use of company trademark, trade name or any other similar company identification.
  • Training Programs
  • Marketing and Advertising Assistance

Sounds good enough for you?

Well, as with everything else in business, franchising is not without its problems. There are a lot of jerks in the world of franchising. You may have already heard of “success stories” of franchise companies that started small and have grown by leaps and bounds in a matter of two years! On the surface, that’s indeed very impressive especially if the story is masterfully crafted by the media whose main job is to attract as much attention from a lot of viewers as possible. But, did you ever wonder where the money came from? Was it a result of offering a set profitable products and services? Or, was the “success money” extracted from franchise fees? As a potential franchisee, it’s important that you have to know the real score. Otherwise, you might just become their rich source of cash.

The rest of the article provides practical tips you can use before you buy a franchise business.

1. Check The Company’s Background and Track Record

Tips In Buying A Franchise

Buying A Franchise?

First, it would be good if like the company, its management and the way they conduct their business operations. Ideally, you should have patronized their products and services for a long time already.

Avoid buying franchise from a company that is relatively new in the market — less than five years. You may seem to like their products and the services they offer, but you can’t tell if they are really profitable or they are losing if they just launched their business.

There are only two reasons why businesses survive: (a) they are profitable, or (b) the owners have deep pockets. Common sense dictates that the former is your best bet. You have to be convinced of their track record of success in the marketplace. Otherwise, you might just become their cash cow.

2. Know The Money Involved

At the very least, you need to determine the following:

  • Franchise Fee / Renewal Fee
  • Estimated Capital Outlay
  • Royalty Fees
  • Advertising Fees
  • Estimated Operating Expenses

Beware of the hidden costs and fees that are not clearly spelled out such as the Renewal Fee. You can never find such information from the company’s marketing and promotional materials. You have to be creative in figuring this one out.

Furthermore, there is no point in buying a franchise you can’t afford. And speaking of affordability, you have to check if financing is available. Can you obtain a business loan? Will they extend help in getting a loan?

(See also: How To Fund A Start-up.)

3. Look At Their Earnings Claim

Is it too good to be true? Do you know the average industry standard? If you can have a copy of their audited Financial Statements, that’s good. It’s one way to verify their claims. But I doubt it if they will share such information. This is where your personal research comes in. You have to compare them from the competition, whether those are franchised operations or independent businesses.

Naturally, you want to avoid dealing with outright liars, cheaters and scammers.

4. Talk To Other Franchisees

Remember we talked about hidden fees and avoiding scammers? This is one of the ways to uncover them.

The franchisor should be able to give you list of company owned outlets and as well as franchisees. One of the smartest moves you can take is to personally visit the stores and possibly talk with the franchisees.

5. Obtain A Written Proposal, Sample Contract, Franchise Agreement

Read it carefully. This simple document speaks a lot about the company you are dealing with. Can you spot typos and grammatical errors? Does the proposal even make sense to you?

And most importantly, can you terminate the franchise agreement? In what instances and how much will it cost?

It helps if you consider the help of a lawyer or accountant who is familiar with our local Business or Franchise Laws. But you can do that later when you are already convinced about the business.

Deal Or No Deal?

When it comes to franchise opportunities in the Philippines, you have a lot to choose from. But you have to watch out for the bad apples that could be lurking somewhere and ready to take you for a ride.

There is nothing to rush. You must be in a position to say “No Deal” if you smell something fishy. Always read the fine print and use your common sense.

The 3 Business Entry Options

by 2 Comments

Are you thinking of starting a business in the Philippines? Do you know where or how to start?

Today, there are so many business opportunities available from almost any type of industry in the Philippines that it’s easy to lose focus on what’s really important.

So you want to be in the food business? You say you love to cook. And they say Filipinos love to eat. From Jollibee and McDonalds to those little food carts you see in the malls, there’s no end to the number of franchise operations available in the market. That’s just for the food industry. There a couple more: water refilling, ink refills, schools, laundry shops, salon and spa, and many more… you name it.

In any of these lines of businesses you can either venture on your business starting from scratch, or take over an existing business, or buy a franchise from established brands. These are basically the three options available to you. Let’s discuss each one in the succeeding paragraphs.

1. Start From Scratch

A lot of businesses are started this way. That is, the founders came up with the business idea, setup the plans, raised the necessary funds and so on.

The new business venture is typically unknown in the market. And naturally, it is still struggling to carve a name for itself.

From ideation to launch and then finally running the operations, all these entail a lot of hard work for the owners and his team. It’s even more tough especially if the venture is trying to break into a market dominated by well-known brands.

On the positive side, unlike buying an existing business, which is discussed next, the owners can take comfort in the fact that there is no negative history to overcome. That is, there’s no bad press to haunt you down.

And unlike a franchised operation, which will be discussed later also, you can be creative in the way you deal with the changes in the market conditions by offering discounts and incentives as you see fit, without getting an approval from the parent company (the franchisor).

If you have done your homework well, you have probably identified the weaknesses of your competitors. You can even exploit those areas where they fail to satisfy their clients and customers.

2. Buy An Existing Business

In the Philippines, this is the business road less traveled… and for good reasons. Buying a business from someone else is very complicated and should be avoided by first-time entrepreneurs who can’t even interpret a financial statement.

Business Opportunities

Pick One: Start From Scratch, Buy A Business, Or Get A Franchise

However, buying an existing business at the right price also presents a lot of advantages, among them are the following:

  • It’s less work on your part. The start-up stage is one of the most challenging parts of a business operation. If the business has been in the market for quite some time, you are lucky for skipping this part. It’s like adopting a three-year-old kid. You skip the pregnancy part and you don’t even experience the painful process of delivering the baby from your tummy.
  • If the business is already profitable, that spares you from having sleepless nights.
  • You already have a list of established clients and vendors.
  • Machines, equipment and other tools necessary in the operation of the business would probably stay and you can use them right away.
  • You can learn some lessons from the experiences of former owner. That is, if he can provide you with honest information, stories and data.

But then again, this option should be approached with extra caution. There are a lot of factors to consider when taking this option. You have to know such things as Business Valuation, Financial Statement Analysis, and other similar skills.

3. Buy A Franchise

The International Franchise Association has defined franchising this way:

Franchising is a method of distributing products or services. At least two levels of people are involved in a franchise system: (1) the franchisor, who lends his trademark or trade name and a business system; and (2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system.

Essentially, you as a franchisee can run your own business and leverage on the resources and experiences of the parent company. No more re-inventing the wheel. This is far less risky that trying to start from scratch and venture on your own.

It’s been demonstrated by a number of studies that franchised businesses have much greater chances of success compared with businesses started from scratch.

So basically, when it comes to real business opportunities in the Philippines, you have three options available. Should you start from scratch, buy an existing business or get a franchise? Whatever your choice is, remember that success is never guaranteed. You still have to put in the required work, strategies and creativity in your business.