Starting a Business
1. What is Franchising? Franchising is a business method of expansion that allows an individual or group of individuals to market a product or a service and to use of the patent, trademark, trade name and the systems prescribe by the owner. Who is the franchiser/franchisor and franchisee? • Franchisor/Franchiser – a legal entity which owns the patent, trademark, method and products or services that allows others to use under his name. • Franchisee – a person or a group of persons who invest, own and operate a business under a licensing agreement granted by the franchisor. Likewise, Franchisee are entitled to: use of the trademark or tradename; market the product or service; have access to pertinent trade secrets; enjoy advertising support, and acquire same benefit from the goodwill of the franchisor. 3. What are the benefits of franchising both to franchisor and franchisee? a. To Franchisor • Business expansion does not require huge infusion of capital because franchisee pays the cost of the new outlet. • It provides franchisor a motivated manager for the business expansion. • Multiple outlets can be established simultaneously even when the business is small. • Provides franchisor an effective method of business expansion that combines limited risk with profit potential and short-run growth with long-term stability. b. To Franchisee • Obtain a working business model and a proven method that is successful for running a business; • Less costly than to establish a single company owned outlet. • There is an on-going support service – the knowledge that while franchisee are in business for themselves. • Acquire a strong marketing and distribution system; • Use of a brand or trademark recognized by customers; • Provided with effective mechanism for achieving deep market penetration and saturation a. Self Assessment of the Franchisee • Examine oneself skills, interest, experiences and educational background/ training that can help in choosing an appropriate franchise business. 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 electiricity which is not part of the franchise cost. 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 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...
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