How to Select a Franchise Business

Franchising a business is a good investment choice but there are important things to consider before acquiring franchise business. This is a crucial step to assure that is a legitimate business and to make sure it will succeed. Make a good decision in selecting a profitable franchise business.

How to Select a Franchise Business?

a. Self Assessment of the Franchisee
• Examine oneself skills, interest, experiences and educational background/ training that can help in choosing an appropriate franchise business.

b. Financial Capability of Franchisee
• Prepare a short-list of business franchise appropriate to your criteria and suitable to your budget.
• Know the breakdown of the capital investment requirements such as: franchise fee, royalty fees, furniture and fixture, sinages, equipment, pre-operating expenses and operating capital.
• Consider rental or construction or renovation of stall, wages of employees, water, telephone and electricity which is not part of the franchise cost.

c. Franchise Business Legitimacy
Check the following licensure from the following government and private sector:
• DTI Business Name Certificate
• SEC (if corporation)
• Bureau of Internal Revenue (For VAT and other Taxes)
• SSS (for security of employees)
• LGU Permit (mayor’s permit, sanitary or building
permit)
• Intellectual Property Office ( for patent and trademark)
• BFAD (if in food, cosmetics or drugs)
• DOTC (for internet café or telecom business)
• DEPed (for school or review center)
• BSP (for remittance and pawnshop)
• Affiliated Franchise Association

d. Franchise Business Performance
Examine the following:
• The value, appeal and quality of the product or services
• Direct Sales of products to the franchisee
• Sales of goods and services of the existing Franchisee
• Profit from royalties based on the franchisee’s sales
• Product is rank with competitive product
• Examine the payback period and the return of investment
• Proprietary position in the market
• Be sure to get to know those people you will be working most closely with as you build your business.
• Visit a sufficient number of the existing franchisees to ensure you have a sense of the prevailing attitudes of the group.

e. Franchise Contract
• The operating policies and restrictions of the Franchise;
• The nature and extent of your obligation to buy supplies and materials from the franchisor approved sources;
• Your rights to renew or extend the contract beyond the original term of the contract;
• The geographical area/ location and types of business or customers to whom you may sell;
• Your rights to sell or transfer ownership of the franchise;
• Precise definition of the price, commissions, rental fees, and leases required to own and operate the franchise;
• Exclusive territory awarded to you; and State franchise law;
• The terms and conditions to terminate a contract;
• The rights of the franchisor to assign unpaid portions of the initial franchise fee to financial institution or other “holder-due-course”;

f. Packages and Benefits
• Find out who will be providing the operational support and training directly to you and form an opinion about their competence.
• Description of the exact training and support services that franchisor provides like accounting services, advertising, rental of equipment or facilities and many others.

g. Consult experts
Consult experts to guide you through the franchising process and help you review and discuss unfamiliar topics or materials.

h. Franchise Terms and Conditions
• Know the investment capital requirement.
• The amount of Franchise Fee and the terms of payments.
• The Agreement to remit a royalty or commission fee based on gross sales or number of units sold to the franchise firm.
• In some companies, payment of separate fees for training, accounting services, advertising, and rental of equipment or facilities is being shouldered by the franchisee.
• Computation of the true cost of a franchise, i.e. all special fees, royalties, as well as the interest charges on the unpaid balance of the initial franchise fee.

What are the various frauds and schemes used by illegitimate franchisor?
• Promise exorbitant profits with meager investments;
• Demand that you “act immediately” before investigating in order to “get in on the ground floor”;
• Fail or unable to provide vital statistics on franchise sales, profits, locations, etc.;
• Promise “easy sales” of the franchised product or services;
• Fail to identify company officers or principals;
• Promise profits through chain sales or pyramid schemes in which you make your money by selling other franchises or distributorship;
• Use names, which sound like, but which are not connected with nationally known, reputable business firms; and
• Promise large income from “work-at-home” or spare-time” effort.

Technical Assistance
Philippine Trade Training Center (PTTC)
International Trade Center Complex
Roxas Blvd. corner Sen. Gil Puyat Avenue 1300 Pasay City
Tel. No.: (632) 468.8963 to 64

Source: dti.gov.ph