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Archive for April, 2018

Should I open new stores or expand through franchising?

Posted on: April 27th, 2018 by Francorp No Comments

Written by

Sam Christopher Lim

SVP for Marketing and Strategy, Francorp Philippines

 

There comes a time in the life of a company that an inevitable question comes – with the success of my business, how can I expand to new branches and locations? There are 2 main expansion routes that corporations take. The first is through funding their new corporate owned stores and the second is through franchising.

Expanding through corporate owned stores gives the owner more control over every aspect of the business. It gives the business flexibility to change directions and quickly adopt new policies by issuing new orders to store managers. Given that the store staff are your employees, you have the freedom to instruct them with new policies, new operations as well as reassign them as you wish. In addition, it gives you the predictability of being able to plan out when and where to open your new stores.

This strategy, however, also comes with risks and limitations. First, it is more capital intensive. Whether through savings or new loans, you will need to invest in building new branches and funding it’s operational expenses. In addition, it requires more operational management.   Additional expenses are incurred if the corporation has provincial branches.  More staff is required in order to efficiently manage these branches, and more employees will increase overhead costs.

The second option for entrepreneurs is franchising. Franchising gives owners access to unlimited capital and time to expand their business. It allows owner to expand using other people’s time, money and people.

(1) Using Other People’s Money   If the corporation adopts a franchising business model, then it will expand by using the money of other entrepreneurs.  The corporation does not need to enter into a financial arrangement with the bank and/or operate its shares of stock to the public.

(2) Using Other People’s Time.  The franchisor works with franchisees who are owners and entrepreneurs in their own right. These owners will run the business just like the franchisor and will manage the operational staff, thus freeing the franchisor from direct operational responsibilities of the franchised stores.

(3) Using Other People’s Network.  Business is about relationships, and franchising allows entrepreneurs to tap other people’s network to not only run the business, but create stronger local relationships in their specific localities.

Franchising for all its advantages, however, does also come with disadvantages. Firstly, franchising requires a deliberate investment of the owner’s time and money to develop professional franchise systems. From operations manuals, franchise business plans, legal agreements and franchise marketing plans. Secondly, because franchisors are working with franchisee owners, they cannot always just dictate new directions as they would to employees, but instead should work with these entrepreneurs as partners when implementing new ideas & systems. Lastly, franchisors need to invest time and resources in finding the right franchisee partners to ensure long term success.

Successful companies have usually tried to combine both corporate owned store expansion and franchising to achieve their success. The Generics Pharmacy, for example, wanted to focus on supplying quality products, creating a strong trusted brand and giving value added services in store such as free doctor’s consultations and check ups, so they heavily adopted the franchising model. They were able to grow to 1,800+ stores in just 8 years with over 99% of the stores franchised. Bench, for example, has bene highly successful  with their strategy of opening majority company owned stores, while offering key provincial stores as franchises. Many fast food chains on the other hand try to balance with about half corporate and half franchised stores.

There is no one size fit all solution to expansion, the important factor is that entrepreneurs know the advantages and disadvantages of various routes, and understand that healthy growth requires a mix of corporate owned stores and franchised stores. Corporate owned stores help you understand and continuously improve systems and operations and can be used as a test bed for new product introductions and a prototype for new systems you plan to implement. While franchised stores allow for rapid expansion and deeper reach into other cities and provinces. It also brings in top quality ideas as your franchisees are entrepreneurs like yourself, and will continuously look for ways to improve the business.

 

 

Francorp helps businesses scale up through franchising by helping entrepreneurs create detailed operations manuals, professional business plans, franchise legal agreements and conducting regular How to Franchise Your Business Seminars.For more information contact Francorp Philippines at (02) 638-3149,(+63917) 835.55.30, email info@francorp.com.ph, or visit francorp.com.ph.

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Chris Lim is the Senior Vice President for Marketing and Strategy of Francorp Philippines (francorp.com.ph); President of U-Franchise Sales & Management (www.ufranchiseasia.com); and Chairperson and Director for Special Projects, ASEAN Integration-Philippine Franchise Association.

Do I need to create a new company before franchising my business?

Posted on: April 20th, 2018 by Francorp No Comments

Franchise Talk: Do I need to create a new company before franchising my business?

Written by

Sam Christopher Lim

SVP for Marketing and Strategy, Francorp Philippines

 

Speaking to hundreds of entrepreneurs throughout the years, one question is always asked when it comes to franchising – do I need to create a new company when I decide to franchise my business?

When you decide to franchise your business, there are 2 options that you can take.

The first option is to manage the franchise within your current corporation. This may seem the simplest way but is generally not recommended. First of all, this requires modifyingthe articles of incorporation because the corporation must declare in its primary and/or secondary purposes that it is also engaged in the business of franchising.   Otherwise, one of the board directors may question the legality of the franchise expansion on the ground that it is ultra vires, that is, it is beyond the purposes as declared in the articles of incorporation.   Thus, corporate acts may be invalidated because they are considered ultra vires or beyond the purposes of the corporation.  Thus, there is a need to modify the articles of incorporation in order to ensure that all corporate decisions regarding franchising are in line with the company’s declared purposes.

In addition, combining the franchising company with your corporate owned stores can create issues of management & accounting in that revenues and expenses would be mixed together and there will be less clarity on which part of the business is growing and bringing in profits.

The second option is to create a separate franchise corporation, and its main focus will be the management of the franchisees.  This second option is the one adopted by majority of franchising companies and is considered best practice internationally.

The primary advantages of creating a separate franchise corporation are:

(1)  The franchise corporation will focus on the management of the franchisees.   Its managing director’s main role is to ensure that franchisees are supported and that the franchise business grows. While the employees are focused on recruiting new franchisees and ensuring that franchised stores are being managed and operated to the standards of the brand.

(2) The accounting & management system is simplified and there’s a clearer understanding of where profits & growth come because the books & employees of the franchise corporation are separate and distinct from the mother corporation that runs the corporate owned stores.

(3) In the unlikely event that alawsuit is brought up against the franchise corporation arising from its franchise activities, it will not adversely affect the mother corporation because the franchise corporation has an entity which is separate and distinct from the mother corporation. This provides a firewall that protects your corporate owned stores from issues that may arise from franchising.

Although running 2 separate companies may seem more complicated, in the long run, creating a new franchising corporation gives owners & manager improved focus, more clarity on business performance and improved protection if issues arise.

 

Francorp helps businesses scale up through franchising by helping entrepreneurs create detailed operations manuals, professional business plans, franchise legal agreements and conducting regular How to Franchise Your Business Seminars.For more information contact Francorp Philippines at (02) 638-3149,(+63917) 835.55.30, email info@francorp.com.ph, or visit francorp.com.ph.

 

 

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Chris Lim is the Senior Vice President for Marketing and Strategy of Francorp Philippines (francorp.com.ph); President of U-Franchise Sales & Management (www.ufranchiseasia.com); and Chairperson and Director for Special Projects, ASEAN Integration-Philippine Franchise Association.

FranchiseTalk:Speed of Expansion:What Is Urgent and What Is Important.

Posted on: April 13th, 2018 by Francorp No Comments

When the urgency of expansion comes, entrepreneurs need to make sure they focus on what’s important

Joselito Samson, CFE

AVP for Consulting

Francorp Philippines

With the ASEAN community continuing to integrate, borders continue to open for travel and business. With a population of more than 600 million and a robust economy, expansion opportunities are openingfor brands and businesses.

What is URGENT – Expansion

An entrepreneur states: “cease the opportunity as it presents itself”.  If you’re in the middle of growing your business, this mindset is correct because you must build your brand, and you must expand your store’s network to gain market share.

Speed of expansion is the main priority, and it’s vital to secure viable locations. Increasing store presence and brand awareness arecrucial to a startup business, but there are always tradeoffs. The brand will gain market share if it executes the brand’s promise.The key is to consistently and regularly deliver the product/servicein all locations.

What is IMPORTANT – Getting things right from the start

The urgency of expansion should not compromise your brand or quality and franchising has been a tool that forces brand owners and entrepreneurs to focus on what’s important as you expand.

When you start franchising your business, you must consider a new set of responsibilities. Businesses should not rush into franchising without consideringthe financial, operational and legal implications to their business including how these will affect the franchisee.

Getting your numbers right

Like any business endeavor, the franchisee’s three questions are:

  1. How much is the Franchise Fee?
  2. How much is the investment package?
  3. What’s the ROI?

 

A key requirement in franchising is to ensure that both the franchisor and the franchisee is PROFITABLE. This will fundamentally determine the success of the franchise organization.

Developing anin-depth franchise business plan ensures that your numbers are right. This involves planning and strategizing the speed and extent of expansion, the applicable business structure, and determining where your Revenue streams will come from.

Getting your house in order

Clear cut operational parameters should be developed, documented, communicated (thru training), executed, tested, evaluated, adjusted (if, need be), and audited regularly. In short, “winging it” will not work.

Whether you grow your brand organically (company owned stores) or thru other means of expansion, crafting and implementing an operating system will always be a necessitybecause your customer will expect consistency on all locations.If you go to any McDonald’s store in the world (except India) and order a regular hamburger, you will get the samesandwich every time.

Dotting the I’s and crossing the t’s

If your financials are right and your operations systems are in place, then the next step is to focus on your Franchise Agreement.

It is essential that your franchise agreement clearly stipulate the following:

  • Brand execution and protection
  • Responsibilities of both Franchisor and Franchisee
  • Fees and required purchases
  • Territorial restrictions
  • Exit clauses

Having the best crafted franchise agreement, operating system and franchise business does not guarantee instant success. Franchisor must provide continuing value, manage expectations, and provide an open communication line.

The most efficient franchise is the one which is built on mutually beneficial relationship, and it achieves not only the goals of the franchisor to expand its business but also the franchisee’s goal of profitably operating the franchisor’s brand.

Francorp is the world’s leader in franchising. Take a free franchisability test (http://francorp.com.ph/are-you-franchisable/) and learn whether your business is ready to grow through franchising. For more information on franchising, contact Francorp Philippines at (02) 638-3149,(+63917) 835.55.30, email info@francorp.com.ph, or visit francorp.com.ph 

Lito Samson is the AVP for Consulting of Francorp Philippines and is a Certified Franchise Executive with over 15 years of experience in fast food operations from McDonald’s, Burger Machine,Carl’s Jr. and Jollibee.He is a certified Serv Safe Executive and is one of the country’s top speakers on franchising and hasgiven talks in various local and international conferences and trade shows.

Franchise Talk: Franchise Lessons from McDonald’s “The Founder”

Posted on: April 6th, 2018 by Francorp No Comments

Movie on McDonald’s Ray Kroc provides Franchise lessons for today’s franchisors

 

By Sam Christopher Lim, Chief Marketing Officer, Francorp Philippines

 

Spoiler Alert: This article contains information that reveal the plot of the movie “The Founder.”

Franchising has been around for many decades, and as the industry evolves, new lessons can always be learned from all the new entrepreneurs growing their businesses from one to many through franchising. But one rich source of lessons goes back to when one of the largest franchise brands started – Mc Donald’s. The Founder is a movie of how Ray Kroc (played by Michael Keaton) grew the business into a multi-billion dollar fast food empire. In it are a lot of success lessons and pitfalls that would-be franchisors should think about as they build their franchise business.

  • Finds franchisees who have the time & money to run the business, not just the money – When Ray Kroc first looked for franchisees, he looked for rich individuals who could put in the money to build the business. But as he found out soon enough, these were not very well run, and the owners were not interested in any aspect of the operations. When he shifted to finding more owner-operators, he was not only able to scale to many new stores, he ensured that each store was run the way a McDonald’s should be run.

 

  • Be open to innovation from franchisees – franchisees are owners just like yourself. They are in the front lines and may sometimes be closer to the customer than you. As such, franchisees provide a rich source of ideas and improvements that you may miss out. As a franchisor, it’s always best to create formal communication lines where ideas can be channeled to you, and where you can then evaluate and test out the best ideas. Though not shown in the movie, one of the biggest product innovations of McDonalds – the Fillet o Fish – was actually created by a franchisee finding a way to keep sales strong during Lent when Catholics abstain from meat.

 

  • Innovation is not always about products, innovation is aboutsolving pain points– When most entrepreneurs hear the word innovation, they turn to their marketing team and ask for new products. But as the Founder showed, the biggest innovations can come from solving pain points. The McDonalds speedy system, where burgers are consistently churned out every 30 seconds, instead of 15 to 20 mins was McDonald’s first big innovation. They had to practice the system in a tennis court where they used chalk to draw the various stations and ran timed trials until they can adjust it to a perfect system.

 

  • Don’t be overly rigid –Although franchising is about replication and standardization, it’s critical that you don’t become overly rigid and inflexible. When Ray Kroc proposes to use powdered milk shakes to the McDonalds brothers, they hang up the phone on him instead of listening it out. The innovation could save franchisees and operators thousands of dollars in electricity bills, but the brothers did not even want to consider it. As a result, Ray Kroc still proceeded with using the new powdered milk shakes and the brothers could not do anything about it.

 

  • Franchise agreements should be win-win – As Ray Kroc grew his business, his income continued to remain stagnant. The agreement he signed was so one-sided that he could not make decent profits to pay his loans or properly run his operations. As a franchisor, it’s always tempting to maximize your own income, but this is very short-sighted thinking, as eventually, franchisees will get frustrated if they only see your business growing but not their profits. This may bring good profits in the short-run, but as the McDonalds brother learned at the end, franchisees may either copy you, or worse, maneuver to buy your business from you. As a franchisor, invest in the time to build a strategic plan that balances profitability between you and your franchisee and this creates a foundation of a long term partnership.

 

Franchising has evolved since the early days of McDonald’s, but the fundamental lessons that the movie shares is still highly relevant today. And as McDonalds has shown, when you get the fundamentals right and you pair this with a bold vision of growth, franchising can transform one small store into a multi-billion dollar empire with thousands of store globally.

 

Francorp helps businesses scale up through franchising by helping entrepreneurs create detailed operations manuals, professional business plans, franchise legal agreements and conducting regular How to Franchise Your Business Seminars. For more information contact Francorp Philippines at (02) 638-3149,(+63917) 835.55.30, email info@francorp.com.ph, or visit francorp.com.ph.

 

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Chris is the Chief Marketing Officer of Francorp Philippines; president of U-Franchise Sales & Management; and chairperson and director for special projects, ASEAN integration-Philippine Franchise Association