*”Ten Big Reasons Why A Franchise is A Better Investment” is an excerpt from “A Guide to Franchising in the Philippines” by the Philippine Franchise Association (PFA). The book was created to provide essential information in franchising being the most innovative business growth strategy that has since achieved world-class status. Aside from explaining franchising in the context of the Filipino experience, this book features 15 Filipino franchise experiences by remarkable individuals who boldly took on the franchising challenge and succeeded.
One: Business 101
Even if you earned your college degree in something as unrelated to business as Afghan Literature, you may still be qualified to become a franchisee. For most franchisors, the franchisee need not have previous experience in business or in the product or service sold by the franchise company. Franchisors will teach you everything you need to know about running the store. A franchise training program will usually cover areas of marketing, accounting, finance, government relations, and probably even the rudiments of production management. If you skipped classes during those training days, on-the-job experience will take care of business training for you. Managing a franchise is a crash course in running a business.
Two: Your Own Boss
If you invest in a franchise, even if it is a business selling food items from a small cart with a total sales force of one employee, being a franchisee will earn you the title of President or CEO of your company. Putting your money in real estate or in any other financial instrument, no matter how large an amount you invest, will not give you the title of CEO. More importantly, as CEO of your company, you are responsible for the overall direction and well being of your business. Although you comply with the standards of quality and service set by the franchisor, essentially, you are your own boss.
Three: Instant Customers
With an established franchise name and trademark, a franchise business is guaranteed patronage of its products or services from customers who already know the brand. A startup business will have to spend time and money in advertising, promotions, and customer goodwill for its new name to be recognized, yet with a franchise, all you need is to set up the business, open it, and people will start coming. They are already familiar with your product, your service, your price, and the ambiance of your franchise before they even enter your establishment.
Four: Re-saleability of the Franchise
What if your green card was approved and you had to pack your bags and migrate to the US? A typical franchise agreement will allow you to sell your franchise to another franchisee or even to the franchisor himself. A franchise business can usually be resold based on the strength of the brand. If you were running your own startup business bearing your own name, reselling that business will be comparably more difficult. Which will you be more confident to buy or sell—Juan’s Chicken House or Jollibee?
Five: Business Consultants at Your Disposal
Part of the commitment of the franchisors to you as franchisee is to provide you assistance in marketing, finance, sales, accounting, and inventory management. The franchisor’s personnel are business consultants at your disposal, usually minus the exorbitant hourly fees.
Six: Proven Business System
If you were to put up your own business from scratch, you may end up spending many hours trying to perfect your business system. Questions like, “How long should I cook the hamburger? Which supplier offers the best terms? Is my brother-in-law qualified to do my bookkeeping, having spent three semesters mastering Basic Accounting? Sometimes, the money wasted from trial and error is enough to run your startup business.
A franchise normally offers a standardized, tested, well-thought out set of rules and procedures which help ensure the accurate and efficient operations of your business. These are all detailed in the franchisor’s operations manual. Virtually a franchise takes away all the guesswork in running a business and provides franchisees a doable, successful, and teachable system which you can adopt and work on.
Seven: Pooled National Advertising and Marketing Program
The success of a franchise business relies heavily on name recognition. This entails making products or services a household name. A franchise system requires franchisees to pool funds for national advertising and public relations purposes. Franchisees contribute a small percentage of their sales to a marketing and advertising fund which the franchisor uses for print/radio/TV/billboard advertising, promotional materials, point of sales, and other similar collaterals needed to promote the brand and increase the overall sales performance of each franchise unit. A pooled advertising program allows franchisees to get the most from their advertising budget.
Eight: Active Investment
A franchise is not a passive investment. Franchisors typically require their franchisees to be involved in running the business on a day-to-day basis. Unlike real estate and time deposits, franchising allows you to work on your investment to earn more. While real estate is dependent on market value, your earnings in a franchise depend on the efforts you put into your business including sales, marketing, and promotion.
Nine: Purchasing Power
Collective purchasing power is one of the best advantages of buying into a franchise. Everything in the business—from equipment to inventory—can be purchased by the franchisee from the franchisor or their approved suppliers at group discount, somewhat like a wholesaler’s price.
In fact, for franchisees involved in a product business, collective purchasing reduces their cost of goods by 10 to 20% and affords those savings that often exceed the royalty fees they pay. For service franchises, collective purchasing allows franchisees to get better and cheaper equipment that can help them do their business the less expensive, faster, and better way.
Ten: More Chances for Success, Less Risks of Failure
As an investment alternative, franchising is less risky and potentially more rewarding than many other investments. Franchising has a proven success rate of 90%.
In recent years, Filipino entrepreneurs have learned that rather than start their own business from scratch with a failure rate of 75% in a five-year period, it is better to invest in a franchise, where he reduces risk of failure to 10%.
A franchise also enjoys a better, if not higher profitability, compared to stocks or your own business startup because the business revolves around a successful and proven track record, sales and operations, which will not likely fail.
Owning a franchise also allows you to enjoy the product of your franchised business. There are many people who invested in a franchise so they can have hot oil treatment in the privacy of their own salon, or have a restaurant they can hold their parties in. Your stock market or T-bill investment cannot say as much.
THE VOICE OF PHILIPPINE FRANCHISING…
Philippine Franchise Association (PFA)
Unit 701 OMM Citra Building, San Miguel Avenue, Ortigas Center, Pasig City
687-0365 to 67| Fax 687-0635
or visit www.pfa.org.ph