Entre 12 Module Franchisee

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ENTRE 12

(Introduction)
Don’t be fooled into thinking that you have to start a business from scratch to be a business owner, or
that you aren’t an entrepreneur unless you go it alone. That is non-sense. Being a franchise owner is
one of the greatest ways to achieve business ownership and satisfy your entrepreneurial spirit by being
in the driver’s seat of your own destiny. Since it is a great way to get start in this chapter we will cover
the basics to give a solid understanding of what it means to be a franchise owner.

Intended Outcome/ Learning Objective/s


1. Trace the history of franchising
2. Define what is franchising as a business
3. Identify the elements of franchising
4. Identify the two main types of franchising and it’s exampleS
5. The Pros and Cons of Franchise Ownership

Inspire Oneself
Stimulating Learning (Motivation)
Before we start our lesson 1 in franchising, let’s have some review in your early management subject.
In your management 1 you’ve learned the basic forms of business ownership namely, sole
proprietorship, partnership, corporation and cooperatives. Now, where does franchising belong?. In
your business finance you’ve learned the different concepts in the proper assessment of your business
financing. Now, what are the odds of franchising in terms of financial management and returns?
Can u still remember when the 1st franchise of Jollibee established in the province was? When is the
second and the third? Why is that milk tea shops, burger stands, ice cream parlors, siomai carts is just
popping out in every corner? The very reason why franchising is included in your curriculum is because
it is the fastest growing industry in the field of business. This course will give us the answers in the
questions above mentioned. So lets start your amazing journey in the field of FRANCHISING.
LESSON 1 History of Franchising
Franchising developed over time as an efficient way to do business and there were versions of
franchising employed in Europe centuries ago. The origin of the word franchise goes back to Anglo-
French, meaning freedom, liberty, and from Middle French, franchir, to free, and earlier from Old
French franc, free. A proven business model that has stood the test of time

Franchising really began to blossom in the post-war 1950s and 1960s. Franchisors of convenience
goods and services seemed to be popping up on every corner. McDonald's, Kentucky Fried Chicken,
laundry services, dry cleaners, hotels, and rental car franchises flooded the marketplace.

LESSON 2 What is a Franchise?


The first and most important question we will address in this guide is what a franchise actually is. What
makes it different from your typical startup or independent business?
The International Franchise Association defines franchising as “a method for expanding a business and
distributing goods and services through a licensing relationship.”
What happens is a person or company (the franchisor) grants the license to a third-party person or
company (the franchisee) to conduct business using the franchisor’s products/services. The franchisor
also provides the franchisee with an operating system, brand and support.
Simply put, in a business franchise an established brand/company will allow you to sell its
products/services by selling the license to you.
Franchising is a more risk-free business endeavor for newbie entrepreneurs because they don’t need
to build a brand and an audience. Because you get to sell products from a known and established
brand, the better the chances that your business will not fail.
Another benefit of getting a franchise is usually the company provides franchisees with the equipment
and the products needed to run the business as part of the package, so starting your operations will be
less of a hassle.
A franchise is an arrangement where the owner of the brand and business model gives you the right to
use said brand and business model (with all attending trademarks, products, systems, etc.) in exchange
for money. In the franchise system, the owner is the franchisor and you are the franchisee.
Franchising is the practice of the right to use a firm's business model and brand for a prescribed period
of time.
LESSON 3 The Difference Between Franchising, Chains & Licensing
So how does franchising differ from a chain or licensed business? The concepts are similar, but each
has specific qualifiers that hold it apart from the other.
A chain is a group of identical businesses that use the same logo, products, marketing, etc. (just like a
franchise) where each individual location is owned by the parent. This means that a location can have a
store manager who runs day-to-day operations, but that person does not own the business. With a
franchise, as we know, each location is owned by the individual.
Restaurants are the most common form of this, but not the only option. Costco and Walmart are
chains: multiple locations, each owned by Costco or Walmart’s central business structure.
A licensed store has slightly more subtle differences. It is very similar to a franchise in that the brand
owner (licensor) gives permission to the individual (licensee – are you sensing a theme here?) for the
brand to be used and products to be sold, but the structure and fees associated differ widely. Typically,
the licensor has little to no operational control of the licensee, and the licensee receives significantly
less training from the brand. Additionally, there is typically no one-time fee upfront, like with a
franchise. Instead, an ongoing licensing fee is typically assessed.
An excellent example of licensed stores are Starbuckses that appear inside of other stores, like a Target
or Safeway, often in the form of a big kiosk rather than a self-contained space. These mini-Starbuckses
still carry all of the same coffees, snacks and merchandise, but they are not held to the same standards
as traditional Starbucks locations. Nor are the Target Starbucks baristas employees of Starbucks:
they’re employed by Target.

LESSON 4 Elements of Franchising


Franchise - Authorization of a right or brand name to a person to sell or distribute the company’s goods
or services.
Franchisee- The one who is granted a franchise. The person or company that gets the right from the
franchisor to do business under the franchisor’s trademark or trade name and benefits from it.
Franchisor / Franchiser- the person or company that grants the franchisee the right to do business
under their trademark or trade name.
Franchise Agreement-Positions the nature of the business and the expectations of the franchisor. The
legal, written contract between the franchisor and franchisee which tells each party what each is
supposed to do.
Franchise Fee- the payment given to the franchiser for joining the network. It can be seen as an entry
fee paid for the “secrets of the business”.
Royalty Fee- represents the amount the franchisee pays the franchiser every month (or whenever
agreed) for commission of its sales. In return, the franchiser provides continuous training, market
studies and release of new products.

LESSON 5 Two Main Types of Franchising


RODUCT DISTRIBUTION FRANCHISE
Franchise that simply sells the products of the franchisor and have supplier-dealer relationships
The franchisor licenses its trademarks and logo to the franchisee but does not necessarily
provide them with an ENTIRE system for running their business
Usual examples: soft drink distributors, automobile dealers and gas stations

BUSINESS FORMAT FRANCHISE


Type of franchise includes not only a product, service and trademark but also the complete
method to conduct the business itself, such as the marketing plan and operations manual
Usual examples: fast food, service, restaurants, retail, lodging, automotive, building &
construction
LESSON 6 Pros and Cons of Franchising
Franchising Advantages
1. Recognized and established brand
When you buy a franchise, you have the right to use the franchisor’s trade name and trademark or
company logo.
This gives you access to the well-known brand’s customer base, so attracting and finding your first
customers won’t be that difficult.
2. Tried-and-tested business model
The business operating systems of franchising brands have been tested in various markets in the
Philippines and have already been proven to be effective.
The policies, procedures, and control systems for running the business are laid out in the operating
manual—all you have to do is to follow it.
Thus, franchising suits you if you have no background or experience in business management.
3. Easier to get a great location
Having the backing of a large corporation or popular brand makes it easy to get a lease for your
franchise business site.
If your target site is a mall, you can easily get approved for a lease because the established franchise
brand can draw in more customers.
If you’re planning to start a food cart or kiosk business, location won’t be much of an issue because
franchisors typically require just a small space of at least 4 square meters.
4. Training support
Starting a franchise business is a great way to learn how a successful company operates.
Franchisors provide training to help franchisees understand their business model and learn the day-to-
day operations, customer service, and use of trade secrets such as proprietary recipes for food
franchises.
Franchise packages may also include employee screening and training.
5. Pre-opening assistance
Franchisors help in the pre-opening needs of their franchisees such as site design, evaluation, and
construction. Some franchise packages also include assistance for the grand opening.
6. Marketing support
Franchise brands in the Philippines have solid marketing and advertising campaigns in place, and their
effects trickle down on their franchisees.
For example, if you get a shawarma food cart franchise, the package might include marketing materials
such as a standee of a famous celebrity endorser like Daniel Padilla or Piolo Pascual. You won’t get
such a crowd-drawer when you start a similar business on your own.
7. Continuous research and development
No need to worry about spending time and money for product development and innovation because
the franchisor will take care of that. You can just focus on operations instead.
8. Faster ROI
Compared to starting your own business, you can expect a quicker return on investment with a
franchise business.
The access to an established brand name, customer base, operating system, and all sorts of opening
support cuts down the time it takes to recover your investment.
9. Higher chances of success
Running a franchise business has a success rate of 90%, based on a study by the United States Agency
for International Development (USAID).
This fact is hardly surprising because all the franchising pros listed above contribute to raising the
chances of success.

Franchising Disadvantages
1. Expensive startup costs
The capital needed to start a franchise business is its biggest drawback. Usually, the initial investment
is twice as (or even higher) that for opening a business from scratch.
The following are the typical startup expenses when starting a franchise business.
• Franchise fee – This one-time, upfront fee is what you pay to gain the license to use the
franchise brand’s proprietary information legally, such as its trademark, logo, and trade secrets. The
more popular the brand is, the higher this fee is charged.
• Royalty fees – The royalty payments for franchise businesses in the Philippines typically range
from 3% to 10% of the monthly gross sales. It’s paid every month, so this can reduce your net income.
Not all franchisors charge this fee, though.
• Advertisement and marketing fees – These are a small percentage of the gross monthly sales,
which are used to fund the franchisor’s marketing support.
• Cost of supplies – Although some franchisors provide the initial supplies as part of the franchise
package, franchisees have to keep buying the next batches either directly from the franchisor or its
accredited suppliers. This can cost you higher compared to sourcing your own suppliers.
2. Limited flexibility and autonomy
Franchising doesn’t offer much to franchisees in terms of creativity and innovation. You’re bound to
follow the rules in the operating manual and franchise agreement.
When you want to do something differently, like switching to a cheaper and more accessible supplier,
you’ll have to seek the franchisor’s approval first. If the company doesn’t agree to it, you have no
choice but to comply.
3. Lock-in period
Franchise contract terms range from two to five years or longer. Within that period, you’ll be stuck
with the company regardless if it’s performing well financially or not.
Renewing the contract depends on the franchisor’s evaluation of your business relationship and your
franchise business’ performance throughout the contract term.
4. Business risk
Just like any kind of business, franchising is also a risky venture. Your success will depend on the
franchisor’s success. If the company fails, the reputation and performance of its franchisees will suffer
as well.

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