Francorp - The Franchising Leader in the Philippines
Francorp - The Franchising Leader in the Philippines

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Avoid these 3 pitfalls when investing in a franchise

“This article first appeared on www.entrepreneur.com.ph200451597-001 Figuring out the business you want to get into is finding out the things you are passionate about.

One of our greatest successes as a country is having over a 150,000 franchise outlets with thousands of happy franchisees. With its high-acceptability and 90% success rate over traditional do-it-yourself businesses, it has been a pretty typical case that a franchisee can own two or more franchise stores. Another great story is that a franchisee can actually own two franchise concepts, differing in category, because of the great business experience with the first. Although there are a lot of success stories, there have still been a few that have failed, and it almost always starts with their mindset. Here are the three common pitfalls you have to avoid when plunging into franchising:

 

1. Wanting fast returns.  In starting up a business, most Filipinos are more enticed on how fast the returns can get. The mindset is “I don’t care about the brand and products, I just need fast returns.” Some are frenzied by one to two months return on investment, without thinking about long-term sustainability. We tend to generally think that it is safer to get your capital back 100%, the fastest way possible, than thinking about how long the business can compete in its industry and its potential to be a market leader. When thinking about the franchise business you have been waiting to have, it is a good exercise to do a long-term, big picture way of seeing things. It may not necessarily protect you from a whole list of failures, but it will surely give you the morale to just keep going and be more equipped as a franchisee. Returns may took a longer time to come back, but would not it be a lot better to have a sustainable business for five to 10 years versus six months?

 

2. Dispassionate about the franchise.  Every time we dive into franchise consultations, we often tell aspiring franchisees to franchise a brand or industry that they love. If they have that zeal for food, then try not to invest into a car parts retail or a salon business concept. Your brand should be something that makes you your first and last customer. Figuring out the business you want to get into is finding out the things you are passionate about. Thinking of it as a hobby that you soon do and soon forget will make things more perplexed for your franchise. Your passion for the business will supply you with more reasons to work harder, bring up your a-game, makes you a better employer, as well as you share the passion with your people.

 

3. Lacking understanding on franchising.  One question we always get asked with our inquiries is if the franchise fee is all they have to pay to start the business. The franchise fee is the upfront fee paid to the franchisor for the use and privilege of using the former’s business name, system, and support. Capital is the total amount of money to be invested for putting up the physical store and making it operational, which may sometime already include the franchise fee. More often than not, aspiring franchisees get a little uncomfortable once they see the numbers towering higher than they expected. And they will soon get uninterested to the entire business structure of the franchise concept they are inquiring about. But the franchise would be more than just about the initial numbers. It is appreciating the professional system model, financial structure, and how it contributes to grow the business exponentially. If you really plan to get a franchise—or any business for that matter, it is indeed important to be aptly educated about your planned venture. Meet with franchise consultants to help match the right franchise concept for you. They should be able to unlock more insights, the pros and cons, financial and market feasibility studies, among related matters, to boot your confidence to engage in the business.

 

For more information on investing in the right franchise, U-Franchise is organizing “How to Invest in the Right Franchise” seminar on Tuesday, March 15, 2016. U-Franchise also offers free franchise matching consultations. For inquiries, please contact (02) 634-0586, e-mail franchising[at]ufranchiseasia.com, or visit www.ufranchiseasia.com.

***** Chris is the senior vice president for marketing and strategy of Francorp Philippines; president of U-Franchise Sales & Management; and chairperson and director for special projects, ASEAN integration-Philippine Franchise Association.

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