All About Franchising 20121

8/11/2019 All About Franchising 20121

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ALL ABOUT FRANCHISING 2012

BY RUDOLF A. KOTIK

1

LEARN EVERYTHING YOU EVER WANTED TO KNOW ABOUT FRANCHISING.

WRITTEN BY A MULTI-AWARDED EXPERT WITH MORE THAN 30 YEARS OF

FRANCHISE MANAGEMENT EXPERIENCE IN 3 CONTINENTS.

BY RUDOLF A. KOTIK




BY RUDOLF A. KOTIK

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RK FRANCHISE CONSULTANCY

G/F MINNESOTA MANSION267 ERMIN GARCIA STREET, CUBAO

1109 QUEZON CITYTEL. / FAX (02) 912-2946, 912-2973, 911-1966

EMAIL: [email protected]

VISMIN OFFICE:UNIT 11 ST. PATRICK SQUARE

DON RAMON ABOITIZ STREET

6000 CEBU CITYTEL./FAX (032) 253.5010, 254.0473

EMAIL: [email protected]

WEBSITES:

Franchise Development: http://www.rkfranchise.com

Franchise Webportal: http://www.franchise.ph

FranchisingPH Magazine: http://www.franchising.ph

FIFA Franchise Association: http://www.fifa.ph

Cebu Franchise Expo: http://www.cebufranchise.com

Mindanao Franchise Expo: http://www.mindanaofranchise.com

Franchise Schedules: http://www.filfranchise.com

mailto:[email protected]






http://www.rkfranchise.com/


http://www.wefranchise.com/

http://www.franchising.ph/


http://www.fifa.ph/

http://www.fifa.ph/

http://www.cebufranchise.com/


http://www.mindanaofranchise.com/


http://www.filfranchise.com/





http://www.fifa.ph/


http://www.wefranchise.com/







BY RUDOLF A. KOTIK

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C o n t e n t

PAGE

What is Franchising 5History of Franchising 8

Franchising 101 10What does a Franchise provide 26

Franchising Questions 33

Benefits of buying a Franchise 40How to select a Franchise 44

Defining Franchising 47Advantages and Demands 50

Mistakes by Franchise Buyers 58Area and Multiple Units 60

Buying a Master Franchise 64Franchising your business 71Fees 83

Franchise Legal Requirements 86

Franchise Relations 89DTI Bureau Order 10-24 regulating Franchising 93

The Future of Franchising 98RK Franchise Consultancy 100

FIFA Filipino International Franchise Association 106

All rights reserved. No part of this publication may be reproduced

without the written permission of the copyright owner.




BY RUDOLF A. KOTIK

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ABOU T TH E AUTH OR

RUDOLF A. KOTIK

Born in Vienna, Austria, a graduate of HRM and Marketing. Got intoFranchising 1978 by joining the Franchise Division of McDonald's Europeand stayed with the fast food giant for 6 years, prior to joining a Hotelfranchise chain.

Developed in the USA Franchises for an International FranchiseConsultancy prior to settling in the Philippines. From 1995 to 1998 heoperated RAK Franchise Consultancy in Cebu and transferred 1999 toManila to open RK Franchise Consultancy, Inc. with Company offices inQuezon City and Cebu City, and seasoned Franchise Agents in TaclobanCity, Butuan City, General Santos City and Zamboanga City, as well astwo international representations in Vienna, Austria and in California, USAto promote Philippine Franchises abroad.




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I .

W H A T I S FRANCH I SI NG

Franchising is the most successful business system in the world. Yet thevast majority of people, including many who are involved in this segmentof free enterprise, don't have a true understanding of what franchisingreally is.

Whenever you hear the word "franchise" you think of fast food restaurants

like "Jollibee" or "McDonald's", but there is more to franchising than thetwo giants.

Franchising is simply a special type of licensing arrangement for thedistribution of services and products.

Franchisors allow another entity - the Franchisee - to use their businesssystem, trademarks and corporate identity for a certain period of time. It isbased on an interdependent relationship between the two parties. Bothmust work as a team and accept responsibility and accountability for thesuccess of the system and business. In other words, it's like a marriage - it

should last forever or at least 5-10 years.

The job of the Franchisor is not to make a Franchisee successful, as theFranchisee must take an active role in marketing the brand, working theoperating system, etc.




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If properly executed, franchising is a win-win situation. There aresignificant advantages to Franchisor, Franchisee and the consumer. For aprospective Franchisee, it represents an opportunity to own and operate a

business involving a proven concept, product, or business format with aminimum of financial risk. For potential consumers, franchising provides away to receive goods and services in a reliable and predictable manner.

A Franchisee also benefits from consumer recognition of the FranchisorsTrademark and products.

The big advantage of franchising shows this statistic: 75% of allindependent owned businesses don't survive the first five years, infranchising only 5% have the same faith.




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I I .

H I STORY OF FRANCH I SI NG

The word Franchise comes from the Old French meaning freedom orprivilege. In the middle ages of Europe, the local lord would grant rights tohold markets or fairs. In essence, the monarch gave someone the right fora certain type of activity. They were the first Franchisors - and did notknow it.

In 1851, Isaac Singer accepted fees from independent salesmen toacquire territorial rights to sell his recently invented sewing Machine. TheSinger Company began granting distribution franchises and was the firstCompany to write franchise contracts.

In the late 1880's Cities began giving franchises to newly establishedelectricity companies. Around the turn of the Century oil companies andautomobile manufacturer began to grant rights to sell their new inventions.

White Castle was the first fast food hamburger franchise chain in America,opening 1921 and sold since then over 12 billion hamburgers.

A&W started franchising their root beer stands in 1921.




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Business format franchising, which is the dominant mode of franchisingtoday, started after the Second World War. In the 1950's all kind ofservices and products started to franchise in the USA.

In 1955, a certain Ray Kroc came to the idea of franchising a then littleknown fast food place named "McDonald's" - and in the meantime theysold more than a 100 billion of hamburgers worldwide!

Many well-known restaurant franchises started during this time. ColonelHarlan Sanders initiated his first KFC franchise, so did Dairy Queen andDunkin Donuts.

Franchising has powerfully transformed the entire perception of businessculture and practice. In the USA over a trillion $ in revenues is generated

by more than 5,000 Franchisors and their Franchisee yearly.

The "American Dream" is becoming a dynamic reality for hundreds ofthousands of additional entrepreneur around the world.

In the Philippines, where Business Format Franchising started in the1970's (except A&W, who was earlier here), one of the first was again was"McDo", who opened its first outlet in 1981.

To that time, a small chain of ice cream joints began selling burgers -"Jollibee", which is today our number one Franchise Company in the

Country. The success of Jollibee is a mystery to the top guys ofMcDonald's in Chicago, since they are the number one in fast food inevery Country they operate - except the Philippines.

Today, more than 1,100 Franchisors, 200+ foreign and 800+ local,operate in the Country and the number keeps growing to the advantagefor the consumer - more competition, more choice, more bargains. Almostall of them in the food business offer some kind of value mealcombinations. Some of them are exporting their Franchise System to otherCountries. As example, 25 of the more than 400 Franchisor clients of RKFranchise Consultancy are already franchising in foreign Countries

throughout Asia, the Middle East, Europe and America.




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I I I .FRA NCH I SI NG 1 0 1

In a world in which business strategies and techniques are continuallyimproving, superior customer relations and outstanding supplierrelationships are critical. In many ways the franchise relationship is thedefinitive expression of this principle.

A Franchisor and its Franchisees jointly contribute to a supply system for

products or services focused on the customer. They obligate themselvesto each other under an agreement and endeavor to establish a durable,long-term relationship that will impact virtually every aspect of theirrespective business and protect that supply system. Few other businessarrangements are so all encompassing. Unless a Franchisor and itsFranchisee deliver to each other what they have promised, the supplysystem to the customer will be compromised.

The mutual commitment of the Franchisor and Franchisee to their networkand resulting consistently high level of customer approval of their productsor services easily recognize good franchise systems.

A Franchise Relat ionship must have an ef fective Structure

Franchising is a contractual relationship. The Franchisor and theFranchisee each make commitments and agree to operate under certain




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constraints. In the aggregate, these commitments and constraintsconstitute the structure of a franchise relationship. That structure mustprotect the Franchisor and all Franchisees of the franchise network and

afford opportunity and security of the Franchisee. There are a number ofelements of the structure of a franchise relationship that are critical to itseffectiveness as the foundation for an expanding franchise network.

Control of products and services that Franchisees are permitted tosell

Franchisors control the products and services that their Franchisees arepermitted to sell in order to control quality of the goods and services soldby Franchisees. Limiting the scope of the franchised business to those

products and services that are within the scope of the Franchisor’sexpertise and to preserve a uniform image. It is common for Franchisorsto permit some Franchisee experimentation and variation becauseFranchisees are an excellent source of innovation, regional variations maybe necessary and different customer bases may require variations inproduct or service mix or different emphasis.

Control of operating assets, goods and services utilized and sold byFranchisees

Franchisors controls the sources from which their Franchisees purchaseoperating assets (equipment, fixtures, furnishings and signs) and goodsand services required to operate the franchised business for one or moreof four basic reasons:

• to control the quality and uniformity of the goods and services soldby the Franchisee,

• to assure sources of high and uniform quality goods at prices thatare competitive with or lower than those available from othersources,

• to protect confidential information,• to be a profit center for Franchisor.

These are legitimate reasons for controlling the sources of supply utilizedby Franchisees, provided that the restrictions do not cause the costsincurred by Franchisees to exceed what such costs would be for




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comparable products without such restrictions. Ideally, and in manyfranchise networks, supply restrictions are part of supply programs thatlower costs to Franchisee.

As a general proposition, Franchisors should limit source restrictions tothose products and services that are important to the development andoperation of the franchised business and cannot be simply specified bybrand, model and/or grade.

A Franchisor also can derive revenue from supply programs. Franchisorsevaluate the total revenue produced by a franchised business from:- Royalties and Continuation fees- Advertising contributions or National Advertisement funds- Sales of goods to the Franchisee

- Commissions paid by suppliersSome Franchisors rely primarily on fee revenue and other Franchisors relyprimarily on the sale of goods to their Franchisees.

The aggregate revenue received from a franchised business must besufficient to support essential Franchisor services that maintain thesystem, standards and keep the network competitive, and to produce aprofit for the Franchisor. The aggregate of the revenue a Franchisorderives from a franchised business must allow the Franchisee to realize asufficient rate of return on its investment. Several franchised networkshave reduces or eliminated royalties and advertising contributions. Such

networks rely on sale of products to their Franchisees and the sale ofservices at the Franchisee’s option. If Franchisees elect not to buy suchservices, the network’s competitiveness could be jeopardized.

When a Franchisor relies primarily on product sales to its Franchisees, itsrevenue base may be less secure and competitors may target itsfranchised network, but it is less dependent on monitoring its Franchiseesto insure proper royalty calculation and payment or may not charge anyroyalties at all.

Control of the Franchisee’s business premises

Franchisors sometimes control the Franchisee’s business premises byleasing or subleasing the premises to the Franchisee or requiring theFranchisee to sign a collateral assignment to the Franchisor of the lease




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for his business premises. Control of the Franchisee’s business premisesgives the Franchisor more effective control of the Franchisee and hisbusiness.

The premises continue to be part of the Franchisor's network even if theFranchisee does not. However, such control increases the capitalrequirements of the Franchisor or involves contingent liability andadministrative effort and cost, unless control is implemented by means ofcollateral lease assignments.

This practice is common in the Philippines mostly with the 3 leadingPetroleum Companies only. In the USA, most franchise location areleased by the Franchisor and sub-leased to the Franchisee. In thePhilippines Franchisee have to find their own location and sign up direct

lease agreements.

Another way to secure the location for the Franchisor in any eventuality isto let Franchisee and Landlord sign a three party agreement called the“Agreement with Landlord”, which secures the location for the Franchisorin the event Franchisee defaults on Landlord or Franchisor. It is generallydifficult to secure consent to such assignments from malls and it may bedifficult to secure consent from any landlord without at least someguaranty.

Mall chains such as SM even require Franchisor to sign a 3-party

agreement guaranteeing the payment of rent in the event Franchisee failsto pay for it.

Grant of exclusive or protected territor ies

Franchisors grant exclusive or protected territories to their Franchisees tofacilitate sales of franchises and to motivate effective market developmentby the Franchisee that, theoretically, will be more inclined to invest in thedevelopment of his business if he has no competition of the same brand inhis area.

Many Franchisors have discovered that they made to large initialestimates of the population required for a successful franchised business(once their network trademark became more widely recognized) and thatlarge spaces between franchises only invited competitors. Large




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territories also may interfere with adjustment to changing markets andinhibit the offering of additional franchises to productive Franchisees.

Structuring the franchise to enable the Franchisor to achieve greatermarket penetration by granting limited territorial protection and reservingrights to sell to some customers within the Franchisee's territory will tendto result in more system expansion conflicts with existing Franchisees.

Control of the geographic area

The corollary of the exclusive or protected territory, a right granted to theFranchisee, is a restriction on the area within which the Franchisee mayconduct his business.

If Franchisees have the ability to sell outside their immediate markets andare able to market and sell in the territories of adjacent Franchisees,restrictions on such marketing may be necessary to make exclusive orprotected territories meaningful.

Franchisors also impose such restrictions to force a Franchisee to fullyexploit his assigned territory and to maintain the quality of the product orthe service sold by the Franchisee.

Confining Franchisees to their specific markets can result in troublesome

enforcement problems for the Franchisor. The Franchisor will be expectedto enforce the restriction against the invading Franchisee and may have alegal obligation to do so. The invading Franchisee may be highlyproductive, have effectively penetrated his own market and invades theterritory of the adjacent Franchisee primarily because that territory has notbeen effectively penetrated. Disciplining a productive Franchisee to aid alazy or ineffective Franchisee is not an enviable task. Some competitionamong Franchisees may be beneficial to the network.

Exclusive relationship

Franchisors typically prohibit their franchises from having investments inor performing services for a competitive business. This prohibition isintended to protect confidential information, maintain the Franchisor’s




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revenue, prevent the use by competitors of the Franchisor’s know-howand focus the Franchisee’s efforts on his franchised business.

Such prohibitions are sometimes limited to the Franchisee’s territory or alarger territory, but frequently have no geographic limitation. Prohibitedcompetitive business may be defined broadly, including related types ofbusiness. Such prohibitions are a deterrent to the Franchisee and a risk totermination of his franchise if he does not comply. We call that theCOVENANCE clause in the Franchise Agreement.

Transfer of the franchise

Franchisors restrict transfers of their Franchisees in order to maintain

control over the persons who operate them. Such restrictions should applyto the franchise agreement, ownership of Franchisee and the assets of theFranchisee’s business.

Typically the Franchisor reserves the right to approve the transferee andthe terms of transfer. The right to approve the terms of transfer isimportant to insure that the buyer of the Franchisee’s business does notsubstantially overpay for it, or accept burdensome payment terms, whichcould jeopardize his ability to operate the business in compliance with theterms of the franchise.

Some franchise agreements merely provide that the Franchisor will notunreasonably withhold approval of a transfer.

Others specify in considerable details the criteria for approval relating tothe proposed transferee and the terms of the transfer.

It is common for Franchisors to reserve a right of first refusal to buy theFranchisee’s business on the same terms as are offered by a bona fidepurchaser.

Franchisors exercise this right to acquire franchised businesses as

company-owned outlets and, occasionally, in lieu of denying approval of aproposed transfer when the Franchisor is unsure that it has sufficientgrounds to disapprove a prospective transferee.




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Expiration

Franchises are granted for a definite term, usually between 5 to 10 years

for local franchises and up to 99 years for master franchises and thereforewill expire at the end of such term.

Franchise agreement should deal with this significant element of thefranchise relationship, providing for the preconditions for the grant of asuccessor and the terms on which it will be granted.

If a franchise is not renewed, the restrictions on the business activities ofthe Franchisee and its owners and members of their immediate familiesare an issue.

Some franchise agreements provide for a post-expiration covenant not tocompete. If the Franchisee is prohibited from operating the same type ofbusiness in the same market under a different trademark subsequent toexpiration he will lose whatever “going concern” value his business hasapart from value of the expired franchise. Such value may consist oflocation value and the personal goodwill of the Franchisee in his market.

A good Franchise Agreement contains a renewal provision, which givesthe Franchisee the right to renew if he followed the rules of Franchisorduring the original term of the Franchise Agreement and he may have topay a small renewal Fee upon renewal of the Franchise Agreement.

Some Franchisors reserve an option to buy the Franchisee’s businessupon termination or expiration of the franchise. The purchase price maybe determined by a formula or may be the fair market value of thebusiness, without any value attributed to the expired franchise.

A Franchisor’s Management Philosophy and Culture must beconsistent with the Franchise Relationship.

The management philosophy and “culture” of a Franchisor is manifest in a

variety of attitudes and interfaces between Franchisor's managementpersonnel and franchise owners. Though the franchise relationship isgoverned by a contract, a contract cannot anticipate all contingencies orproblems. It is essential for a successful franchise relationship that mutual




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trust and respect develops between Franchisor and Franchisee tosupplement the contract.

Initially, management must develop criteria for identification of highpotential Franchisees and the patience to select qualified candidates.Management must include good motivators with the commitment andpatience to develop and cultivate sound, durable and positive franchiserelationships.

Such franchise relationships require real two-way and regularcommunications with Franchisees. A Franchisee must believe that hisopinion is respected and management must be sensitive and responsiveto Franchisee concerns and problems.

Management must have a flexible approach to Franchisee problems andwillingness to assist Franchisees in solving them. A franchise networkshould have impartial internal dispute resolution procedures and genuineefforts should always be made by the Franchisor to resolve disputesamicably.

Franchise networks also need systems for obtaining, evaluating andsharing ideas developed by Franchisees scope for creativity and decision-making and permit some degree of innovation by Franchisees who, maybe the network’s best source of ideas and productive innovation.

Management must have a commitment to Franchisee profitability andequity growth and the creativity to maintain the value of the franchise. AFranchisor’s management must sometimes be willing to sacrifice short-term profitability of the Franchisor to ensure Franchisee success.

A Franchisor and its Franchisee each assume a responsibility to support anetwork of business that operates under a common trade identity as theperformance of one reflects on all of the others.

In the most successful franchise networks, the Franchisor and the greatmajority of the Franchisees do not view their responsibility and

commitment as limited by their contract. They think of it as being whateverlevel of effort is required to assure that the network continues to be aleader in its industry.




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A Franchisor must expand i ts network at a manageable rate

Initially, a Franchisor must determine the markets in which the franchised

business is most likely to be established successfully. These usually willbe markets that meet of the following criteria and markets in which:

• Franchisees can be effectively monitored,• Franchisees can be effectively supported,• Which good sites are available at affordable costs,• Areas that are not saturated with competitive business,• One or more large competitor does not dominate that area,• In which suppliers can effectively and economically deliver

essential products and materials,•

In which the network trademark is recognized.

It is generally advisable to concentrate expansion in one or a few marketswhere “critical mass” can be achieved quickly in order that the networkhave in such markets effective advertising, support and assistance andeffective monitoring of Franchisee performance. A Franchisor’s ability toexpand is limited by its financial, management, supplier and field serviceresources.Franchisors who fail to understand the limitations on their ability toeffectively expand are more likely to fail in improvidently selectedexpansion markets.

In mature franchise systems, decisions by the Franchisor to establishadditional outlets in proximity to existing Franchisees is seen by thoseFranchisees as encroachment on their business.

Franchisees resent and resist such perceived encroachment and theFranchisor is confronted with a choice between fully penetrating themarket and preempting competition, at the cost of impairing existingrelationships, and accepting a lower level of market development.

Encroachment problems also arise when a Franchisor attempts topenetrate franchised markets through nontraditional outlets or distributionchannels in department, grocery, convenience or general merchandisestores, on school campuses, through mobile carts and kiosk facilities andin combination or dual branding arrangements.




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Achieving the optimal balance between effective market penetration andgood franchise relationships is difficult. Even the best-managed franchisenetworks have difficulty resolving the problem of balancing the imperatives

of network expansion and competition with perceived interests of existingFranchisees.

A Franchisor must develop and implement effect ive Systems tosecure high quality and cons istent operations at Franchised Outlets

A Franchisor generally has less control over franchised outlets than itwould have over company-owned outlets. Maintenance of high andrelatively uniform standards throughout a network is of significant value tothose Franchisees that voluntarily maintain system standards and

perceive system standard as a valuable element of their franchise.

If a Franchisor fails to establish and maintain system standards, itscompetitive position and the value of its franchise will decline. The mostproductive and successful Franchisees may break away and the ability ofthe Franchisor to sell franchises and to expand will be impaired.

The franchise relationship can be inflexible. Franchisees may resistchanges needed to adapt their businesses to changing markets byupgrading their business facilities, changing the products/service mix,modifying operating procedures, adopting different marketing strategies

and modifying the standards at company-operated outlets.

A Franchisor must implement policies, systems and procedures that helpmaintain standards by rewarding compliance and enforcing systemstandards where positive motivation proves to be in- sufficient. ManyFranchisors make effective use of peer pressure by other Franchisees toachieve compliance with system standards.

Inspection reports should be reviewed with Franchisees and realistictimetables should be determined and agreed upon for correctingappearance and operating deficiencies. Follow-up inspections should be

timely conducted and a Franchisor should be prepared to offer assistanceto a Franchisee who is making a bona fide attempt to bring theappearance and operation of his business into compliance with systemstandards.




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The tension between a Franchisor’s need to control the appearance andoperation of the Franchisee’s business and the heavily promoted“independence” of the Franchisee is not always satisfactory resolved.

Independent business ownership is promoted as a positive aspect of thefranchise relationship, but the requirements of quality control and uniformimage impose limits on such independence.

If a Franchisor fails to secure voluntary compliance from the great majorityof its Franchisees, it faces potentially difficult and costly enforcementobligations. Longstanding neglect of system standards can results in lossof ability to effectively implement those standards.

Non-complying Franchisees may damage the reputation of a franchisednetwork. Termination of franchise relationships can be difficult and

expensive. In some instances, a Franchisor may have to buy a non-complying outlet to achieve a quick end to substandard appearance andoperations.

Maintain the Value of a Franchise

The benefits and services furnished by a Franchisor must have continuingvalue to Franchisees relative to the cost of the franchise. Franchisor facesseveral obstacles in achieving a general perception among itsFranchisees that the value of the services furnished by the Franchisor, are

equal to the fees they pay. Fees payable to a Franchisor typically increasewith increases in franchise revenue.

The scope and frequency of the services furnished to maturingFranchisees may remain level or decrease and Franchisees may perceivea declining need for and value of the services furnished by theirFranchisor.

This problem can be compounded by the tension inherent in a fee basedon gross revenues. The Franchisor’s interest is perceived to be tomaximize profits.

Services designed to increase sales may not be perceived by Franchiseesas likely to increase profits, especially when the sales enhancementprogram involves a capital investment by the Franchisee or higheroperating costs.




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Franchisees and members of the Franchisor’s management; and thirdparty, non-binding mediation.

These are all non-binding methods used to resolve a dispute withoutresort to some form of binding dispute resolution like litigation orarbitration.

Non-binding dispute resolution methods are generally effective inresolving disputes, but will not always produce a mutually satisfactoryresolution.

A Franchisor should consider arbitration as the method of binding disputeresolution instead of relying on litigation. Though arbitration is not withoutproblems and costs, it is, on balance, a faster and less costly method than

litigation of resolving a dispute that cannot be otherwise resolved. Casesin Philippine Courts can easily take five years or longer.

The accelerated resolution and lower cost of arbitrated dispute resultsfrom the elimination of most discoveries and various techniques commonlyused in litigation to narrow the issues to be resolved. Cost is furtherreduced and a final result achieved more quickly because an arbitrator’sdecision may only be appealed in limited circumstances.

However, inability to narrow the issues in dispute and learn by pretrialdiscovery the other side’s theories and factual support, and the limited

scope for appeal of an arbitrator’s decision, is viewed by some as asignificant disadvantage of arbitration.

Nevertheless, if a franchised network’s formally decided disputes areprojected over an extended period, and assuming that the Franchisor’smanagement has the good sense to informally resolve disputes in whichthe Franchisee’s claims or position is reasonable or the facts do notstrongly support the Franchisor’s claims or position, arbitration is likely toprove an effective dispute resolution method from the respective of costand minimizing the strain of disputes on the franchise relationships.

To assist Franchisors or Franchisees in disputes, FIFA FilipinoInternational Franchise Association offers arbitration services at veryaffordable rate.




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The 4 P of Product Marketing

Four elements play a role in a customer’s decision to buy a product: the

product itself, the price of the product, the place and the promotion of theproduct.

Product:

• What is the physical product?

• What additional features are needed?

• What are the functions or uses of the product?

• What services need to be provided?

• Does the customer expect guarantees or warranties?

• How should the product be packaged for shipment?

• How should it be packaged for the consumer?

• What images should the product project?

• What brand name should be used?

Price:

• What price is needed to make a profit?

• What price will customer be willing to pay?

• Who determines the price customers will pay?

• Should discounts and allowances be provided?

• Should coupons, rebates, markdowns or sales be used?

• Should credit be extended to customers?

• How should the business respond to competitor’s prices?

Place:

• How will the product reach the customer?

• How will products be handled, stored, displayed and controlled?

•

How will orders be processed?• Who will be responsible for products that are damaged or not sold?

• What kind of traffic pattern fit the buying patterns of target customers?




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Promotion:

•

What information do customers need?• Should promotions be informational or persuasive, or merely reminder

messages?

• Do all customers need the same information?

• What combination of advertising, personal selling, sales promotion,and publicity is needed?

• Will mass or individual promotion be most effective?

• What media should be used?

• How often must information be communicated to franchisees and

customers?

Finding and developing good employees

Some Franchisors do offer some assistance in recruiting employees, atleast you find job descriptions in the Operations Manual, however in mostcases the Franchisee has to hire his own employees, and Franchisorprovides initial training for them.

As a rule, the Franchisor expects you to bring appropriate human resource

skills to the business along with your business management skills.

If you need a lot of semi-skilled or unskilled employees, a TemporaryEmployment Agency can be of help providing you with the employees,then you need to hire directly only the key personnel, who shall beespecially good trained so they can help also in training the peopleprovided by the agency.

In the job description section of the Operations Manual shall be listed theknowledge an applicant shall have, together with the interpersonal skillsrequired.

Once you select the employees, a detailed interview is necessary todetermine weather the applicant possesses those attributes you arelooking for. Use a mix of close-ended and open-ended questions. A close-ended question can be answered with “yes” or “no” while in a open endedquestion the applicant have to give the details.




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Finding the right employees is just the beginning. Your long-term successwill depend on your ability to manage and motivate your staff.

The type of work your business offers will also impact how you manageand motivate employees. In a restaurant or service business mostemployees will not be in career positions. You may often be the firstemployment experience for many of your employees. Having complete,detailed instructions and clear, straightforward rules will be important.

The most important part of managing your employees is to remember youare the leader. The buck stops with you. Just as the coach is a role modelfor players on the team, you are the role model for how things get done inyour business. You set the example for how things get done how thebusiness operates.




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I V .

W HA T DOES A FRANCH I SE

PROV I DE

The advantages of a franchise over an independent business are aplenty. A Franchisor must furnish valuable services to its Franchisees.

Business Name

Franchisee will have his own corporate name as Incorporation orindividual business owner but the franchised business operates under theTrade Name of the Franchisor.

Market Studies

Franchisors should knows where franchised businesses should beopened, which locations are good for a Franchisee and which not, which

may be determined generally by location, most important with foodfranchises or other aspects, like purchase power of a certain area, etc.




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System Standards

Sensible and complete specifications, standards and operating

procedures, the so-called system standards, effectively communicated toFranchisees and readily understandable.

Operational Manual

The "How To" documentation of the business operation and theimplementation of the system.

Proprietary Marks

The right to use the logos, signage, slogans and Trade Marks ofFranchisor. It is not enough that a Franchisor has a DTI Business Nameregistration or a SEC registration, he has to obtain a Trademark from theIntellectual Property Office, which is located at Sen. Gil Puyat Avenue inMakati.

Experience

Transfer of business experience is transferred from Franchisor to

Franchisee

Wisdom of Franchisor

The Franchisor went through the "labor pain" of opening the business byhimself some time ago. For a new Franchisee that trial and error period iseliminated.

Training

Effective initial training is critical to achieve positive Franchisee attitudesregarding system standards, the operation, the Franchisor and the valueof the franchise and depending on the business can take from 5 days upto 6 month.




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Inadequate training is a common cause of poor Franchisee performance.Good Franchisors provide ongoing training on a regular basis.

•

The Franchisor is able to explain the concept, philosophy andoperation of the Franchise to the Franchisee

• The Franchisee gets hands-on experience in operation andmanagement

• Indicates the capability or lack thereof of the Franchisee tosuccessfully operate the business of Franchisor

• Motivates Franchisees to perform at their best level once theyunderstand all aspects of the franchise business

• Increases satisfaction of the Franchisee as well as the employeeworking for the franchised facility

• Reduces complaints from consumers and employees

• Helps maintain quality of products and services based on thestandards set by the Franchisor

• Promotes adherence to sanitation standards in all functional areas ofthe business

• Reduces breakage and spoilage within the Franchised facility

• Reduces number of accidents

• Creates an identity for the Franchisee within the franchised system andfosters development of Franchisee loyalty

• Improves operational skills of the Franchisee and employees

• Establishes the Franchisor and the Franchisee as a team rather thantwo separate partners

Site Selection Assistance and Approval

Franchisors in the Philippine usually do not provide locations andprospective Franchisees have to find them by themselves. However,Franchisors will know where a franchised business shall be located within

a certain area and will inspect the site prior to the start of construction oroperation, if the location is suitable for the franchised business.

Franchisors will require Franchisee to conduct preliminary research onpotential sites. In most cases, property owners, real estate brokers orshopping mall managers provide the demographics and other commercial




BY RUDOLF A. KOTIK

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information pertaining to a potential site. Franchisee or his employeesmight have to spend some time at a location to do traffic or pedestriancount and to study flow of people and traffic.

Franchisors should approve only suitable locations, those locations thatthey would approve also for Company owned outlets. Plenty ofFranchisors approve also not suited locations just for the sake of gettingthe Franchise Fee from Franchise applicants.

Good Franchisors turn down up to 90% of location applications to makesure the location is profitable for Franchisee.

How to evaluate a location:

•

Accessibility and traffic patterns: Is it easy to exit and enter into traffic? Are difficult intersections, major road construction or otherimpediments? What time of the day is traffic heavy? Where is thetraffic going? Are people shopping or merely commuting toneighborhoods where they can purchase your product or service froma more convenient store?

• Zoning: does your municipality or City allow that kind of business at acertain location?

• Visibility: Is visibility important to the success of your business? If yourproduct is an impulse item or geared towards mass markets, then youneed to be where customers can see your business.

• Hours of operation: Do the hour of operation match the needs of yourcustomer?

• Parking layout: Determine how much parking you need and select alocation that offers it.

• Public transportation: Extremely important if it is a product for the“masses” that your outlet is in front of public transportation. Also if youhave a lot of employee in the Franchised business who have tocommute to work.

• Neighborhood development: Is the neighborhood stable or declining?What kind of subdivisions or living conditions are in the neighborhoodof the outlet?

• Competing outlets: Are competing businesses located in the immediatevicinity? If so, the good news is that your location is attractive; the badnews is that you’ll have competition.




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• Size: Do you require space for selling, storage, production, ormaintenance of equipment? The larger the space the higher the rent,

electricity and maintenance. The Franchisor shall recommend orrequire certain square meters as minimum space. Don’t rent more thanyou need.

• Lease term: Look for a lease whose term matches your franchisecontract but can be renewed.

• Utilities: Water supply, electricity, sewage, telephone lines play anessential role in determining the suitability of a location.

Store lay out

Franchisors will provide lay out assistance and supervise the constructionof a new franchised store.

Interiors, color schemes and other identifiable marks of the Franchisorhave to be followed in putting up the business. The same goes with indoorand outdoor signage, lightning and decoration.

The entire construction cost is at the expense of the Franchisee, and hasto be paid as due to either the Contractor or Franchisor, depending on thearrangement.

Exclusive Territory

Most Franchisor will award new franchises with an exclusive Territory,which depends on the kind of business can be a certain radius in metersor a floor in a mall, a whole City or a whole province or City or several ofthem as Area franchise or even a whole Country as Master franchise.

Procurement Programs

Franchisor will provide a listing of authorized suppliers for equipment's,goods, materials and services.




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Pre-opening Assistance

Franchisor assistance in hiring personnel for the Franchisee by giving the

guidelines for needed staffing and training them, and set-up of thefranchised outlet.

Grand Opening Assistance

Franchisor's management and staff assist new Franchisee upon grandopening of the franchised outlet to operate it smoothly from day oneonwards. Franchisors representative will remain in the Franchised Facilityfor a period of time as determined by Franchisor to assist Franchisee inthe initial operation phase.

Marketing Strategies

Franchisor may provide advertising and marketing programs to maximizethe advantage of the common trade identity of the network with nationwideadvertisements, radio and TV commercials, etc. through a National

Advertisement fund, to which each and every single Company outlet andFranchised Facility have to pay a certain percentage of gross sales.

Franchisee will be required to spend a certain amount for the initial month

of operation, so called Grand Opening Marketing. Those amounts arespent directly by the Franchisee and not collected by Franchisor.

Franchisees have to take their part in implementing the so-called LSM(Local Store Marketing) within their territory.

If there are several Franchisees operating in a certain area, they might berequired to operate a Co-Operative Marketing Fund, wherein theyadvertise the business as a group (e.g. billboards).

Effective Field Service

Operational support is needed by Franchisees for occasional questionsand problems. Knowledgeable and well-trained personnel with positiveattitudes and a willingness to help Franchisees are provided by




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Franchisors. Franchisors shall also be available to Franchisee via phone,email, fax or text for urgent problems arising from the operation of thefranchised business. Important is also that Franchisor and his

representative regularly visit the franchised outlets.

Research and Development

Businesses face tough competition and new products are constantly to betested and introduced in the market. The job is with the Franchisor indevelopment of new products and service, improvements of equipment's,formats, operating efficiency and trying to beat competitors.




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V .

FRANCH I SI NG QUEST I ONS

How does a franchise chain start?

Imagine a store owned by an individual with a particular concept. If thebusiness is successful, the owner may develop a second store and hire

employees for the day-to-day operation.

At that point, if the entrepreneur still wants to expand but prefers not toown and operate additional stores, he/she may decide to franchise thestore name and business system to an independent business person - theFranchisee.

In return, the Franchisor may ask for an initial fee and continuing royaltypayment based on a percentage of that Franchisee's sale. The business isnow franchised.

When I visit a store how can I know whether that store is owned by theFranchisor or a Franchisee?

It's difficult to tell just by visiting the store. Many companies have storesthat are owned and operated by Franchisees but also have stores that arecompany-operated.




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It's entirely possible that of two stores with the same name, one may beowned by a Franchisee and the other owned by the Franchisor Company.

In both cases, the products, services and quality should be identical.

How wide spread is franchising?

There are more than 10,000 Franchisors around the globe, and alone1,100 in the Philippines, operating revenues of more then 100 TrillionPesos yearly worldwide.

Where does franchise sale comes from?

Most franchised sales are still by product and trade name franchise chains- food, automobile services, general retail, courier services, real estatebrokerage, building services and improvements, and domestic, businessand maintenance services.

What is BUSINESS FORMAT FRANCHISING?

In business format franchising, the Franchisor prescribes for theFranchisee a complete plan or format for managing and operating the

establishment, not just product, service and trademark.

The plan provides step-by-step procedures for every aspect of thebusiness and, anticipating most management problems, provides acomplete matrix for management decisions confronted by the Franchisee.

It comes with marketing strategy and plan, operating manual andstandards, quality control, research and development and a continuousprocess of training, assistance and guidance. The Franchisee is requiredto comply with the Franchisors guidelines pertaining to all aspects of thebusiness, including operating procedures, the quality of products and

services, and the physical appearance of the business facility.




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What are the major growth sectors in " business format franchising"?

As we become a more service oriented economy, as more women enter

the workforce, and as larger percentage of the population grows older,growth areas in franchising are responding to these changes.

While it is important to consider industry growth before investing in afranchise, it is more important to analyze an individual franchisecompany's track record, keeping in mind that quick growth does notalways spell success. A franchise organization that grows too quicklymight not have a service team in place to support all of the units properly.

Overall, long range trends indicate a steady, solid growth in businessformat franchising. Some will fall by the wayside, as is natural with any

business, but others may well be the "household name" franchise successstories of tomorrow.

What kind of business to franchise?

Virtually every business form you can imagine lends itself to franchising.The International Franchise Association (IFA) lists more than 60categories to describe its members.

Is the look-alike characteristic of franchises a disadvantage? Don'tconsumers want variety?

The increasingly mobile consumer has come to depend on and appreciatethe consistent quality of franchised products and services. Today, nomatter where they go, people expect and want the same quality, which iswhy consumers so often shop at franchised establishments.

The ability to easily recognize an establishment from the outsideguarantees there will be no surprises or disappointments on the inside.

What kind of investment is necessary to buy a franchise?

Investment requirements differ tremendously. It all depends on theindustry and the type of business. Discuss this with the individual




BY RUDOLF A. KOTIK

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companies or with RK Franchise Consultancy. Franchises might bepurchased for a starting price of 100,000 Pesos and range right up to 27Million Pesos for a single unit store and anything from US$ 20,000 to US$

5 Million for a master franchise.

Would I make a successful Franchisee?

A successful Franchisee should be suited to the industry, which he or sheintends to join, suited to the particular Franchise Company and suited tothe franchise system generally. Important questions to ask you include:

• Am I suited to the industry physically and be experienced, education,

learning capacity, temperament and financial ability?

• What type of work is most appealing to me? For example, do I enjoyworking with food? Mechanical things? People? Property? Books?Computers? Sporting Goods? Etc.

• Am I prepared to work hard and take a financial risk?

• How do I react to controls?

• Do my advisers, family and friends think I am adaptable and trainable?

• Am I a loner, resisting authority and restraints, or can I acceptguidance and directions happily?

• How do I personally feel about the company's image, products andservices?

The right answers to these questions help determine your potentialsuccess as a Franchisee.

How do you explain the success rate for franchised businesses?

The franchising system is designed to provide a pre-tested formula forsuccess, plus ongoing advice and training.




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The unavoidable business mistakes have been worked out of the systemthrough experience.

Most independent businesses fail because of lack of management skills.

With a franchised business, your Franchisor should be eager to help youovercome problems. Your hard work and the Franchisor's expertise spell along partnership.

No one can be 100% sure of success. Although the majority of franchiseowners are satisfied, successful business people - some do sufferfinancial loss.

Regardless of earning claims made by Franchisors, recognize that

success or failure ultimately depends on you.

What are some of the drawbacks of owning a franchise?

In exchange for the security, training and marketing power of the franchisetrademark, you must be able and willing to give up some of yourindependence.

If you are a person who likes to make most decision on your own or tochart the course of your business alone, a franchise may not be right for

you.

As a Franchisee, you will be required to comply with the various controlsand procedures established by the Franchisor. Then too, all successfulbusinesses require a lot of dedication and plain hard work. You must beprepared to make that commitment.

Are there special franchise advisers and consultants to assist?

Franchising is a mature sector, which over the years has developed quite

a number of consultants who specialize in advising to the sector, amongthem yours truly who assist in transacting the purchase or to develop anew franchise.




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For a good understanding of what you are getting into, you need to makefull use of a range of expertise a Franchise Consultant is the right answeror you may contact FIFA Filipino International Franchise Association or

the other two Franchise Associations.

Otherwise it's do-it-yourself, which is cheap - in every sense of the wordand can become expensive if done wrong and a Consultant has to becalled in to straighten out the mess.

What is the best advantage that franchising has over independentbusinesses?

Franchisees are never alone, which is one of the best benefits that one

could hope for in this tough business world. On one hand they have theFranchisor to support them and on the other they have Franchisees, whichare having parallel business experience.

Furthermore, as franchise matures, the brand name and trademarkbecomes more valuable. So as Franchisees consolidate in the marketplace they are actually adding value to the group as a whole.

Similarly, as a franchise grows in numbers, the multiplication of sitescreates a stronger market presence, which benefits all Franchisees.

Buying an exist ing Franchise Outlet

Just like any business, existing Franchisee can sell in many Franchisesystems their franchised outlets if they no longer want to operate it. TheFranchise Agreement has provisions when, how and to whom aFranchised Facility can be sold. However you can only purchase theremaining term of the Franchise Agreement.

In purchasing an existing franchise, make sure there is an assumablelease and the landlord will consent to the transfer.




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Questions regarding to Franchisors obligations from a Franchise Appl icant

• What is the total investment we are talking about, beside of FranchiseFee, rental deposit and utility deposits, such as renovation,equipments, initial investment in merchandise, grand openingmarketing, etc.

• What products have to be purchased from Franchisor?

• What kind of training do you provide? If so, when, where and for howlong?

• Do we have to pay for the training? In most cases training fee isincluded in the Franchise Fee except Lodging, transportation and

allowances for Trainees.• Are we entitled to continuous training throughout the term of the

Franchise Agreement?

• Will you provide us an Operational Manual?

• Will the Franchisor provide advertisement or does have anyadvertisement schemes, such as National Advertisement Fund, LocalStore Marketing or Co-op advertisements?

• What continuing service do you provide after starting the operation?

• What are the terms for renewal and is there any renewal fee to bepaid?

• Payment of initial franchise fee? Usually to be paid upon signing of theFranchise agreement.

• When do we pay royalties? Most franchise systems have monthlyroyalty payments.

• Shipment of goods, who pays for it?

• Can I sell my franchise if I want to migrate or lost my interest in thebusiness?




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V I .

BEN EFI TS OF BUY I N G A

FRAN CH I SE

Earn what you are worth

Thousand of franchise owner report they were handicapped in theircorporate careers by Company policies and Superiors that put a cap ontheir earning. When you own your own Company, your efforts arerewarded and your personal income shows it!

Build equity

Financial strength comes to those who succeed in running a business. Approximately 95% of all millionaires in the Philippines own their ownbusiness. If great wealth is one of your goals, entrepreneurship is theanswer.

Satisfaction of achievement

Much business owner report that seeing their actions turned into realtywithout stagnating for month in committee meetings as so oft happens inbig companies is a major reward of owning their business.




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Choose your own job description

When you're the owner, you can delegate certain aspects of the business

to others and create a job description that suits your personality, skills andinterests. Naturally, the industry you choose and the size of your operationwill affect your flexibility in this area.

Control your future

Business owners live the scripture "you reap what you sow". You canmanage your work schedule against family needs and recreation - if you'rewilling to share some profits with additional employees.

Never transferred, laid off or fi red

Major companies are notorious for relocating their employees anddownsizing their staff at the most inopportune times! When you run yourcompany, you'll decide when and where to operate.

Why a franchise?

There are many reasons why franchising is the best type of operation for

the majority of first time business owners. Most revolve around theincreased probability that the business will succeed and provide profits tothe owner in a shorter time frame than an independent business. Thisallows the owner to address her/his personal goals both financially andpersonally.

Lower costs than an existing business

When buying an existing Company, you often don't know what you arebuying or if the price is right or the existing business profitable. Starting a

franchise is almost always less expensive.




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Less risk than an independent start-up

One spends up to 5 years as an apprentice in an industry before

considering owning a venture in that field. Buying a franchise eliminatesthis need and puts you on the road to success quickly.

Gain advice on site selection, design, operation, capitalization andmarketing.

A good Franchisor provides instruction and support on all aspects ofrunning a business in its industry.

It's as though you are hired and trained to open a branch for a majornational company - except that you own the "branch"

Receive a proven prof itable system for doing business

When you've had a chance to talk to other Franchisees, you'll recognizehow important it is to have a system to follow for your venture.

This plan is easily worth a few hundred of thousands of Pesos or more.

Benefit from quality research and development

Most small business owner are just too busy making money to researchthe future trends in the industry and develop new products or services tomeet the needs of their customers. A Franchisor will always be searchingfor ways to make its network more successful.

Access to trained support personnel

Your royalties and advertising fees provide regular improvements in theFranchisor's systems and these are provided to you for implementation in

your venture.




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Quicker start-up than independents

A proper plan outpaces an independent’s hit and miss operation almost

every time. Looking at just independents that succeed - you'll find thatfranchises grow quicker, reach break-even sooner and succeed moreregularly than others in the same industry as depicted in theaccompanying chart.

Survey

A recent Gallup poll in the USA of 994 franchise owners produced thefollowing snap shots of the field: 94% consider their franchise successful.75% said they'd "do it all again" and only 6% reported unhappiness with

their Franchisor.

The Philippine Franchise Association reports a 95% success rate.

Buyer Beware

More and more relatively unknown Franchisors with little or no know-howabout Franchising offer their business system as a Franchise. Make surethese Franchisees are properly developed. Ask the Franchisor whodeveloped the Franchise for him. If they had a professional Franchise

Developer, it might be good to proceed, if they did the entire Franchisework by themselves without professional help, you are bound to fail due tothe complexity Franchising has which only professionals can understand.

There are only three successful Franchise Developers in the Philippines inbusiness since 1995, with RK Franchise Consultancy having the largestnetwork and the most clients. Take a look at www.franchise.ph onavailable franchises and www.franchising.ph for Franchise stories andFranchise Advertisements.

Beware of SCAMS in Franchising. Insist on reading the Franchise

Agreement first, talk to Franchisees, do not pay the Franchise Fee prior togetting a Contract, that’s the first rule of the scammers, get the money andthat’s it.

http://www.franchise.ph/









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V I I .

H OW TO SELECT A FRAN CH I SE

Since Franchising is the most successful method of doing business, weshall look at how to select and choose the right franchise. Since allfranchises require money, the first and foremost consideration is whichfranchise you can afford. At least P 200,000 can buy a small franchiseoutlet.

Then think if the preference is a food or non-food franchise. If you venturein the food business, it is not necessary you have any experience asrestaurateur, since you receive a full training from your Franchisor.

The more critical factor in a food-franchise is the location of the business,as the accessibility to a great number of people as well as parking spacefor dine-in clients is most important, unless it is for delivery only, but stillthen parking is needed for take-out orders and your own delivery vehicles.

Your active role in the management of the food franchise is more

important than if you chose a non-food franchise. Most Franchisorsrequire hand on Franchisees and do not allow absentee owners.

Provided you have a certain amount to invest in a franchise, let's say 20Million Pesos, to put this money into a local franchise or in a masterfranchise.




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The advantage of a unit franchise is you can concentrate on that specificlocation, however, at the same time you are limited to that single outlet.

By a master franchise we speak about the grant given by a foreignFranchisor to operate that trademark and system anywhere in the Countryand are not limited to one outlet only.

Since a master Franchisee is factually the Franchisor in the Philippines,most likely can resell franchises to third parties. Some International MasterFranchises cost less than a single local franchise from a popular fast foodchain.

Non-food franchises are available in almost all business directions andagain, one may chose between being a single unit Franchisee or to get a

master franchise from a foreign Franchisor. Franchises with an excellentfuture are those in the business-to-business segment, in the Internet oreducation business, and specialty retailing.

Before purchasing any franchise, investigate the franchise first. Somefranchise fees are priced much too high, others don't offer any support,and some give you a short contract period, which should be at least fiveyears.

There are also some Master Franchisees, which have a very highdevelopment program in the master franchise agreement with their foreign

Franchisor and if they will not be able to fulfill this target, their unitFranchisees future is in limbo.

If you buy a single unit franchise from a local master Franchisee, ask himabout his development program to find out, if the local Franchisee will beable to retain his master franchise grant in the future.

A good franchise in the eye of a Franchisee is one with an ROI of lessthan three years.

There are three professional franchise consultants in the Philippines,

which can help find the right franchise; one of them is yours truly. Weadvise not only on the available franchises, but also to which franchisetype you fit most from your financial standing, background and interest.




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In assessing a franchise opportunity, consider the Franchisor's financialposition, how thoroughly has the business been market tested here orabroad, asses how well the system works in practice, are existing

Franchisees pleased with their business and does the business havestaying power or is it based on something which is temporarilyfashionable.

When finding the franchise of choice, visit as may units as possible andtalk to Franchisees and closely examine the franchise agreement, which isalways biased in favor of the Franchisor, that's just the way it is.

Local Franchisors usually charge a higher royalty fee compared tointernational master franchises, which are limited to a maximum of 5% ofthe gross revenue.

Ask the Franchisor upon proper application with them for a Copy of aFranchise Disclosure Information, which every Franchisor has to provideto applicants in accordance to DTI Bureau Order 10-24 series of 2010.

Pay the Franchise Fee upon signing of the Franchise Agreement only andnot earlier. Scammers want the money from you without signing anycontract. Scammers are mostly in the Cart and Kiosks businesses.




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Franchising, under a business microscope, has more meanings. There aretwo types of franchising: Product franchising, like Pepsi Cola or Toyota,and, business format franchising, like McDonald’s. Product franchising is

very big business, but it is not an investment consideration for all but avery few.

The true fame of franchise investments has come as a result of businessformat franchising, which, from this point forward I will be referring to as Ispeak of franchising.

Retail franchises require retail space, a store, a building or an office,service franchise generally do not. Customers come to retail locations topurchase franchise products or services. Virtually any product or servicethat is sold to the public can be purchased through a retail franchise store

or mobile franchise service.

A generic use of the word “business opportunity” may be applied todescribe a franchise, but generic or otherwise the definition of the word“franchise” cannot be applied to describe a “business opportunity”.

There are success stories in non-franchised opportunities as well. Thelimited non-franchise businesses that succeed are owned by “types” that Ihave classified into just two groups. The first group consists of geniusinventors of excellent and unique products or services that hire first classsalesmen. The second group consists of extraordinary hard-working

people willing and able to do everything by themselves.

The word success has two basic meanings: one; satisfactory completionof something, and two; the gaining of wealth and fame. People areattracted to franchising primarily because of the published fail-safe offranchising. They were not foolish enough to trade their savings and theirego just to open their own business. The glowing reports of franchisesuccess, being in business for yourself, but not by yourself offers a chanceto financial success.

In contrast, there are many people who have the same objectives and

expectations of owning their own business, but shun franchising. This isthe group who takes a dim view of accepting, needing or wanting anyone’shelp to succeed. They are not familiar with the infrastructure of franchisingand they usually don’t care to learn. They perceive franchise fees,royalties, control and restrictions to be unreasonable, costly impositions.




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According to them, they can and do succeed, by both meanings, totally ontheir own without the benefits of franchising. They exist in extremely smallnumbers, as noted in the high failure rate of non-franchising business.

Generally, the prospective, in his enthusiasm, has been open to theglowing reports of franchise success as reported by the media. He seesthe advertising of hundreds of well-known franchises and assumes that allof these costly promotions are free. These self-preconceived notions,along with many other misinterpretations, often lead him to assumeamenities that simply do not exist even though they were never offered bythe Franchisor. And, these expectations are the root of the problem thatbreeds bad feelings between a few Franchisors and Franchisees.

Ambitious reporters and attorneys who are unfamiliar with the franchiseselling process fuel the distorted allegations that evolve from this dilemma.

The real confusion arises when the franchise is not a real franchise butactually a “business opportunity”. The business opportunity is oftenmistaken for a franchise because the difference is not known orunderstood.

Investors, who desire to be in business for themselves, usually perceivethemselves as entrepreneurs. No Franchisee is an entrepreneur, but mostfancy themselves as such. Entrepreneur is another word that needsfurther illustration, particularly in the world of franchise investments.

Entrepreneurs engage in high-risk venture. Franchisees do not have thesehigh-risks because Franchisors have provided a fail-soft opportunity. But,this cushion is a “fail-soft” against business failure, not a “fail-safe”.Franchisors have no such business failure cushion. There are companiesthat enter the franchise format to form a franchise system and fail.

But once a company has properly formed a franchise system, then all thebenefits of franchising fall into place, for the Company and theFranchisees of the system. Important is the development of the Franchisesystem by a competent Franchise Consultant. Franchisors which failusually did their Franchise system without professional development

assistance from a Consultant, sometimes to save money; in the end it costthem dearly. The initial investment in a professional Franchise Developeris easily recovered with the sale of some Franchises.




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I X .

AD VAN TAGES, DRAW BACKS ANDDEMANDS

FOR THE FRANCHISOR

Advantages

Franchising provides the Franchisor’s company with a package ofcommercial and financial means:

• An increased global financial capacity to support the commercialnetwork;

• A reduced capacity to react for the competitors of:-a most rapid conquest of the market-the overall financial power of the economic coalition of thenetwork (buying capacity)-the coverage of the territory with prime quality sites.

•

A trademark considerably valorized and easily identified and anenhanced fidelity of the customers thanks to the concerted actionsin advertising at the regional and national levels.

• Control of the distribution




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• Business expansion as more people will be aware of the brandname, making it more valuable

• Buying power if the chain purchases centralized

• Operational convenience since the day-to-day operation isdelegated to Franchisee

• Franchisee contribute valuable information on the operation, ondevelopment of new products and pricing

• Motivation and Cooperation by good Franchisee can be veryinspiring to Franchisors doing better and growing bigger

Drawbacks

• Financial demands

• The array of means and steps to take when a Franchisor exceedsthe immediate needs of this single company. From the verybeginning, the Franchisor must take the demands of his networkinto account before he has even launched it, when launching it andwhen the network has reached its maturity stage.

• Strategic demands: The Franchisor ought to develop a strategy ofdifferentiation towards his competitors.

• The Franchisor gives up the exploitation of a part of the territory tothe Franchisee(s).

• Lack of Freedom: Franchisors have to consider now in all theirdecision the operation of franchised facilities not only their ownoutlets.

• Franchisee selection and recruitment can become a difficult taskand Franchisors have to be extremely careful in their selection. Theglamour of franchising may attract several absentee investors who




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are not interested in the operations. Those people should invest inthe Stock Exchange!

• Many Franchisor-Franchisee relationship problems can be traced tothe communications between them. One common problem is themisunderstanding of quality standards of the reasoning behindthem. Franchisees may not appreciate the methods used tomaintain those standards or the inspection procedures used by theFranchisor.

• Franchisee may also develop a sense of independence and maynot take advice of the Franchisors. They may feel that they arebetter qualified than staff the main office.

• Franchisees may be reluctant to disclose gross sales on whichroyalty fees are dependent or may not report accurately. Non-cooperation from Franchisees may require adequate policing ormay end up in legal battles that may adversely affect an otherwisehealthy business.




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FOR THE FRANCHISEE

Advantages

• The Franchisee owns his own company and is legally independent.

• The Franchisee profits by the brand image and the reputation of thetrademark with regard to the consumer.

• Established Concept: The Franchisees gain by a system ofcommercial management devised by the Franchisor in the firstplace and already tested, so he saves time in using this existingknow-how and faces a minor financial risk.

• The Franchisee takes advantage of the overall competitiveadvantage of the economic coalition of the network and of thecapacity of innovation of the Franchisor.

• The Franchisee comes to a better professional control, far superiorto its initial position, because of regular training and support offeredby the Franchisor.

• The Franchisee gets a higher profitability on the capital invested

than the sole trader, because of the scale economies achievedthrough the standardization of operations and the overalloptimization of the capital.

• Major advantages of Franchising include the technical andmanagerial assistance provided by Franchisor and the continuationof assistance to Franchisee.

• Standards of quality control.

• Minimal risk, as it is tested and proven profitable.

• Less Operating capital compared to independent businesses.




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• Benefits from Research and Development.

• Access to credit from suppliers of Franchisor.

Drawbacks

• The Franchisee has to put the commercial strategy of theFranchisor into operation.

• The Franchisee ought to respect the norms attached to theconcept, especially the quality standards.

• The Franchisee has an obligation to follow the evolution of theconcept and know-how.

• The Franchisee often has to buy directly from the Franchisor or anyother referenced supplier.

• The Franchisee needs to pay the Franchisor in exchange for hiscontribution at all levels, for instance under the form of:-an initial development payment or franchise fee;

-royalties in return for: the trademark license, the permanentassistance, the training, research and innovation.

• Overdependence on the advice of Franchisors in areas such asoperations and pricing strategy.

• Monotony and lack of challenge

• Franchise Termination is an important issue for franchisees due tothe power of Franchisors to terminate, to decline to renew or to

deny the Franchisee the right to sell or transfer a Franchise.




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Do you have what it takes to be a Franchisee?

•

Motivation It is commonly found in people who have worked hard on the jobbefore but never quite fulfilled.

• Maturity Motivation gets you going; maturity helps you persist as you worklong hours without complaining, get along with your personnel,handle money responsibly and handle crises with patience andgood judgment. A Franchisee must be a dreamer and realist at thesame time. You need to set goals and plans to achieve yourdreams while being realistic and planning the attainable. You need

to accept your limitations as short term handicaps and hunt forways to grow beyond them. That’s maturity.

• Money Starting a business takes money. You must be willing to lookhonestly at your financial situation and determine how much youcan put into your business. You also need to determine whether thebusiness you are considering can provide enough income –especially if you are accustomed to a high income.

•

Knowledge and Experience To gain the confidence and loyalty of staff and customers, you mustprovide a quality product or service at a competitive price. Thatmeans knowing your business well, which you will learn how toduring the training program, which every Franchisee should take

just like the employees of a Franchisee. For Franchisees,Franchisor training is the source of knowledge. BecauseFranchisors know that how well the new owner applies their systemdepends on how well the new owner is trained.

• Even Temper

A Franchisee must be able to make decisions logically and withgood judgment. That means handling pressure, conflicts and crisescalmly and thoughtfully. If you are impulsive, you may make poordecisions. If you are hotheaded or have a quick temper, you may




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alienate customers and employees alike, putting your business atrisk.

• Tenacity “Stick to the business” is a must for every Franchisee. When a jobneeds to be done, an employee needs feedback, or a customerneeds special attention, you will need to see that it gets done.When faced with setbacks, you must draw on experience andmaturity to make the best possible business decisions. It takestenacity and determination to weather the bumps on the road tosuccess.

• Family Support

Strong family support is invaluable to a Franchisee. Your familymust understand that business will come first.

• Franchisor’s Game Plan A happy Franchisee wants to follow the game plan that is in placeand doesn’t mind taking directions. When he or she sees room forimprovement, the Franchisee speaks up but isn’t disappointedwhen the suggestions are not implemented. A Franchisee needs tobe able to accept things as they are.

•

Tolerant

As Franchisee you have to have the ability to tolerate different pointof views with Franchisor and accept consensus. You can expressyour opening but it takes patience and tolerance to hear all sidesand to live with a consensus decision that, while maybe the best forthe franchise group as a whole, isn’t the one you would make onyour own.

• GracefulIt is in the Franchisors main interest to make sure everybody isfollowing the game plan and staying in line. If the Franchisor thinks

you need to implement the system more diligently or believes youare ignoring certain practices or even taking your franchise inanother direction, you’ll hear about it. If you have a hard timeaccepting suggestions or criticism, franchising may not be for you.




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• TrustTo succeed in franchising, you must believe in and support your

Franchisors system and policies. After all, Franchisors make moneyfrom royalties, so its in their interest to help Franchisee build thelargest possible business. Your Franchisor will search constantlyfor ways to help you achieve that potential, often developing newapproaches or policies for you to implement. As a good Franchisee,you will accept policy changes in the spirit they are intended – evenif react negative to the new policy.

• CommunicationFranchisees communicate often and openly with the Franchisor.The more Franchisees share their experience, the better the

Franchisors operation can offer assistance and ideas. You will needto work closely with supervisors who can share their broadknowledge of how other outlets are operated and provide solidinformation from trusted and valued associates.

• Operational Systems All Franchisees in a system follow their Franchise Agreement andoperations manual as they conduct their business. Living by thesame rules means you and your colleagues are building the systemusing the same blueprint. But now and then, some franchisees feela little stifled by always “going by the book”, especially when it

appears to prevent a Franchisee from implementing a great newidea.




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X .

M I STAK ES BY FRAN CH I SE BUYERS

A great industry assures your success

Some Franchisors point out how large an industry segment they address.While it's generally important that you are addressing a growing market,this alone will not make succeed. The Franchisor’s training, marketingplan, site selection, how you implement their plans and many others

factors will be more important to your success than just the size andgrowth trend of the industry served.

I open my franchise for less

Don’t mislead your Franchisor. If you are overly optimistic andundercapitalized you may be doomed to failure—through no fault of yourFranchisor.

Bigger is Better

The more franchises exist in a chain, the more successful they all mustbe. Great marketing aggressive salesmen and an attractive industry cancause a franchise system to grow even though there are better




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Franchisors in the same industry. Call many Franchisees and ask themhow much TLC they receive.

Then check in other systems to evaluate the satisfaction level of theirFranchisees. Sometimes, in their eagerness to grow, a system will“overpopulate” an area with many units causing each to steal businessfrom others.

Never be the First Franchise in a System

Who could get more care and attention than the first Franchisee to join? Ifthe Franchisor has good experience in its industry and you are confidentthat they will be able to help you replicate their success, being the first

should be excellent.

I’ll use about 80% of the Franchisor’s business plan, but I’ll modify itenough to fi t my sty le of management and my town.

If you buy a franchise, use their system. If you insist on doing it your way,you may violate your agreement and be terminated. Believe me, stick tothe whole plan—or don't buy a franchise.

Al l franchise systems are about the same. Therefore, the biggestwith the lowest price should be my choice.

Each system has a culture of its own. Meet with the Franchisor and meetor talk to several Franchisees to see how you’ll fit in. Some Franchisorsnow offer lower royalties, minimal renewal fees and other features to showtheir commitment to your success.

When you buy a franchise, your success is assured.

Any new business venture involves risk. You must be ready to work longhard hours to implement the Franchisor’s business plan in order tosucceed. The advantage is—you have a plan. The unknown is—how wellyou’ll implement it.




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X I .

A REA AN D M ULTI P LE UN I TS

So you’re thinking about buying a franchise. Well, if operating one facilitylooks like a good idea, might not running two or more facilities be better?The answer isn’t a simple yes or no.

Overview

Multiple units franchising offers a number of advantages, economies ofscale and diversification among the most important.

With more locations, you reduce the general and administrative per-unitoverhead.

You also minimize the adverse possibility of placing all your eggs in asolitary location or unresponsive market. Three successful units can

greatly outweigh the impact of a single low-producing unit.

Another plus: the more units you operate, the more influence you are likelyto have in advertising decisions and expenditures.




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Multiple units franchising benefits the Franchisor as well. The companythat licenses you can use your financial resources to grow faster, spreadrisks and deal with fewer Franchisees. Multiple units franchising is a two-

way street, with potential benefits accruing to both Franchisees andFranchisors.

How It Works

You can get involved in multiple units franchising in several ways. Youmay be asked to sign a single franchise agreement, which provides for theopening of more than one site, usually with a specific territory. More likely,you will be required to enter into an area development agreement and paya development fee to open a number of units within a designated

marketing region, usually according to a time schedule.

Another form of multiple units franchising is a hybrid between a Franchisorand a developer. In an area franchise arrangement, the Franchisor grantsyou the right to act as a Franchisor within specific area, typically for asubstantial fee. With rare exceptions, the master Franchisee is required topay the Franchisor a portion of the initial and ongoing franchise fees he orshe collects. Area Franchisees also incur sizable expenses for personnel,advertising and office costs.

A very common way to become a multiple unit Franchisee is to purchase

operating multiple outlets from the Franchisor or from one or more existingFranchisees. This method provides the normal advantages of buying anongoing enterprise rather than starting a new business from scratch, inaddition to gaining the usual support in training and continuing existence.

On the other hand…

As with all business strategies, area or multiple units franchising has somenegatives. Consider these points.

Unless you are purchasing existing facilities, you will need to commit tounit growth development by specific deadlines. Almost all Franchisorsretain the right to revoke your future development rights if you don’t meetthe schedule.




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While you may enjoy reduced overhead on a per-unit basis, your overalladministrative burden will be greater. You’ll probably have to hireadditional management and supervisory personnel.

The lack of an on-site owner/operator at each site can be a disadvantage,especially in the cases of those franchised business that require personaland close attention to customer’s needs. Such business may not lendthemselves well to multiple units franchising.

Decision-Making Guidelines

Consider area or multiple units franchising only if you have strong financialresources. If you do have those resources, choose a business field in

which you are knowledgeable. This quality will make you more attractiveto a Franchisor and will help you attain a successful future.

Select a financially strong Franchisor with a proven commitment ofsupport to Franchisees.

Determine the experience of the Franchisor and/or other Franchisees inoperating units in the kinds of locations you want. Inquire, too, about theadvertising assistance you will receive.

Investigate all areas of the entire franchise system, with the same concern

you would exercise in selecting a single unit franchise. How long has thefranchise system been in business?

Has the management bounced around from franchise system to system,or has it been dedicated consistently to the franchise operation thatinterests you?

Be sure you know exactly which rights are being granted to you and whichare retained by the Franchisor. Can the Franchisor open company-ownedunits in your territory and thus be your competitor? Most Franchisorsmeet expected standards of integrity, but failing to ask critical questions

could prove to be a costly error. Check the facts.

Examine whether an area development schedule is reasonable and canbe met, and understand what happens if you should fail to meet that




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schedule. You should also understand your right to develop additionalfranchise sites outside that territory.

Buying a franchise, and particularly an area or multiple unit franchise, ispotentially the largest personal investment decision you’ll ever make.Don’t be impulsive. Take you time, and enlist the assistance of franchise-experienced professional like yours truly.




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X I I .

BUY I N G A M ASTER FRANCH I SE

Over the past several years there has been a marked increase in thenumber of Franchisors from the USA, Canada, Europe, Australia andother Countries expanding internationally.

As a consequence, there is an ever-increasing chance developer willencounter Franchisors with great sales pitch, lots of enthusiasm and,perhaps, the best of intentions, but not the necessary experience andresources to effectively support the developer.

An “area development franchise” is an agreement that authorizes an areadeveloper to open multiple franchise units within a Country in accordancewith an agreed-upon development schedule.

A “master franchise” differs in that the agreement allows the so-called“master franchise” to open franchise units itself and “sub-franchise“ toothers within its territory.

A franchise system that has not taken local consumer preferences intoaccount be doomed from the start.




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One of the best tools for discerning a franchise system’s potential forsuccess in any country is to evaluate the concept at a prototype unit orthrough other market testing methodologies.

More often than not, international Franchisors want the full territorydevelopment fee before a pilot can be established.

If the Franchisor has conducted market studies in the Philippines, thedevelopers certainly should request to see the results. If the Franchisorhas not, but has conducted studies in neighboring countries, the developershould request to see those results.

This may offer some insight into what the developer may expect toencounter in the Philippines though, depending on the degree of cultural

and economic similarity between the countries, the results may not beconclusive.

Even if timing makes it impractical to conduct market testing before adevelopment agreement is signed, the Franchisor may assist in testmarketing after the deal is signed.

The Philippines laws may prevent a Franchisor itself from opening andoperating retail business, thus effectively precluding it from conductingmarket testing prior to entering and into a development deal.

U.S. Offering Circular

In the USA, law requires every Franchisor to deliver a Uniform FranchiseDisclosure Documentation (FDD) to its prospective Franchisees in theUnited States before they pay any money or sign any binding agreement.

The FDD is divided into 23 “Items” which contain detailed informationfalling within three broad: Facts about the Franchisor and its history,details about the terms of the deal and Information about the Franchisor’ssystem.

In some cases, the Franchisor “internationalizes” its FDD so that itspecifically is relevant to the proposed international developmenttransaction. Other Franchisors simply provide the FDD they use fordomestic franchising in the USA without modification. Still others provide




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no FDD to developers at all; some companies who franchise ininternational markets do not franchise in the USA and may have prepareda FDD, while others have a domestic FDD but choose not to provide it

unless asked.

If the Franchisor has not “internationalized” the FDD, typically it will reflectcontract provisions and operating practices relating to franchising activitiesin the USA, which may be substantially different from the terms of theproposed development agreement. For example, many U.S. Franchisorsengage in master franchising and area developments franchising only ininternational transaction, so the FDD may not accurately describe the dealterms that apply to the developer. So, the Franchisor may resist deliveringa copy of its standard U.S. FDD.

Nonetheless, even if the FDD has not been customized specifically for thedeveloper or generally modified to discuss international transactions, theFDD is worth examination by the developer. It still contains detailed andvaluable information, about the Franchisor, its history and its system. Eventhough the information describing the deal may not provide directlyrelevant information, it may provide a benchmark against which thedeveloper can compare the deal terms being offered.

There are highly technical legal requirements for preparing a FDD andunless the reviewer has had considerable experience in preparing orreviewing them, it may be difficult or impossible to perform a

comprehensive and penetrating analysis of the document. It is asimportant to understand what the FDD is supposed to disclose as it is toexamine what it actually discloses. Without an in-depth knowledge of USAdisclosure laws, the developer may overlook danger signals an expertmight spot. For this reason, among others, it is becoming increasinglycommon for non-US developers to retain an International experiencedConsultant - like RK Franchise Consultancy - to assist in reviewing theFDD and offer advice regarding key provisions in developmentagreements.

Trademarks

What steps, if any, has the Franchisor taken to protect its trademarks andservice marks in the Philippines, and to investigate whether any third party




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already has begun to use those marks locally. If there are such third partyuses, what will the Franchisor do to stop such use?

Product Sourcing

It is essential for the developer to determine as soon as possible whetherit is likely to encounter difficulties in sourcing any necessary products,equipment or ingredients locally.

For example, in a food franchise, are all key ingredients available locally inthe same grade and quality as used in the Franchisor’s US operations? Ifnot, what is the cost of importing them from the US or other countries?

How many international deals has the Franchisor completed? Whatcountries were involved? What is the history and current status of thoseother international deals in terms of the developer’s success in meetingdevelopment goals and profitability? Have disputes risen between theFranchisor and developers or international Franchisees, and how werethey resolved?

Potentially, the most informative source of information and insight into theFranchisor, its experience, practices and capabilities may be found bycontacting a Franchisor’s existing international developers, and its US andforeign Franchisees.

In the USA, it is extremely common for prospective Franchisees to contacta Franchisor’s existing Franchisees. Surprisingly, in the internationalcontext, few developers make the effort to contact them.

What’s the franchise name worth?

There are few franchise systems whose names are commonly knownworldwide. A prospective international entrepreneur who is well traveledmay be familiar with a specific brand. The main question, though, is

whether most consumers in a selected country recognize the brand name.

In many instances, the creation of brand recognition – so vital tofranchising success – will have to be established by Master Franchisee.




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Of course, the Franchisor will provide basic marketing materials, but thecore effort must be made inside the territory itself.

This will require a substantial commitment of time and financial resourcesto build momentum, which is relevant not only to the sale of franchisedproducts and services, but also to the expansion of the franchise systemin the new country.Does the Franchisor know anything about the world?

If the Company you are interested in has never franchised outside itshome country, then you both may well be in for an interesting joint learningexperience.

It’s usually easier for a Developer to work with Franchisor already

experienced in the international arena. Such a company will haveencountered and dealt with the cultural, legal, financial and economicdifferences involved in developing franchises in new countries and willrecognize the need for sensitivity and flexibility. The Staff will have beentrained to “think global”. You would be wise to ask, “How many people inyour organization are dedicated to supporting international franchisegrowth?

An international franchise agreement typically will remain in effect formany years. Although there are no guarantees of success you must beconfident your Franchisor is going to be around for some time.

An important question to ask is, “What portion of your franchise company’sincome is derived from royalty fees and what proportion comes fromfranchise licensing fees?” The answer will give you a sense of howdependent a Franchisor is on the scale of new franchises and how muchthe Franchisees contribute through royalty payments.

Its is critical to your success in international franchising that the Franchisorhave a plan for transferring the accumulated system know-how clearly andcompletely – and provide you with the necessary support resources tohelp put that proven expertise to work. The basic requirements are:

The training of your staff to become skilled in daily operations including“how to franchise” if you intend to sub-franchise. This instruction usuallywill be provided at the Franchisor’s corporate headquarters.




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A set of procedures manuals that describe in detail the operation of thebusiness.

Marketing programs that can be used in their present from adapted for usein the Philippines.

Active marketing support for the opening of the first – and possiblysubsequent – units in the PhilippinesMany large franchise systems can pass on their Franchisees substantialsavings, made possible by purchasing-power relationships establishedwith suppliers of equipment's and raw materials. You’ll want to know whatpurchasing opportunities and restrictions exist for expansion in thePhilippines.

The international Franchisee should expect fairness and consistency inthe level of fees (perhaps related to demographic and consumer incomestatistics) and in the amount of the royalty percentage.

It is essential to make a realistic financial projection – based on theFranchisor’s experience – for both the proposed individual units and forthe master franchise operation itself.

The Franchisor should provide you with information that will enable you toprepare budgets for both of those levels.

Adjustments will have to be made to take account of local conditions. Forexample, rent maybe higher and wages lower in the Philippines than in theFranchisor’s home country.

However, you’ll need to make a best-guess of the overall cost of gettingstarted, the pace at which sales of product or service will build in each unitand the rate at which you’ll be able to open additional units, whether sub-franchised or corporately owned.

Beware of being too ambitious when you agree to the number of units youcan open within specified time frame.

Be sure to add in the overhead cost of being, in effect, a Franchisor, andinclude the cost of training and supporting your Franchisees. Finally, don’tforget to include the cost of the master franchise fee, royalties and anyother payments to the Franchisors.




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In summary, international franchising is arguably the largest world ofbusiness potential entrepreneurs around the globe have ever seen.

Venturing forth into this expanding universe is well worth the time andeffort it takes to explore its almost limitless possibilities.

Like undertaking any journey, knowing your destination is only the firststep. The main idea is to follow the map and read the road signs.Get assistance from an International acclaimed Franchise Consultant likeRK Franchise Consultancy, who was involved in many Master Franchisearrangements in the Philippines with foreign Franchise Companies.




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X I I I .

FRANCH I SI NG YOUR BUSI N ESS

Before implementing a franchise program, a company should evaluateitself on several criteria. An important consideration is the success of theinitial or pilot operation. If the products or services offered have foundreasonable acceptability and if these products or services are readilyadapted to other areas, then the market potential for the franchise may begood.

Does the company have a marketing niche that can be used to itsadvantage? It the business similar to many others in a crowded businesssegment and, if so, is there a targeted customer bases so that advertisingand selling can be focused effectively?

It is important to note that to be successful, a Franchisor must have somedegree of distinctiveness, or the potential to achieve distinctiveness, in itsbusiness segment. If it does not, it will have difficulty attracting highcaliber Franchisees in an increasing competitive market for such persons.

A franchise may be distinctive in terms of its products, services, operatingand delivery systems or marketing. If a business is to be successfullyexpanded by franchising its success must be attributable to its products orservices, business format, operating or management systems or




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marketing. It cannot be attributable merely to the unique character of itsfounder or its location.

The elements of the success of the business must be teachable topersons with capabilities that exist among prospective franchise buyersand must be replicable by such persons. To be successful, a franchisedbusiness must appeal to high caliber franchise buyers and comparefavorably with other franchises.

The investment requirements of the business must be realistic and thepotential for a return on the investment should be appropriate to the riskinherent in the type of business.

Any operating, marketing and financial problems should be addressed and

solved, for the Franchisee must receive a tested and refined businessformat.

Is Your Business Franchisable?

The franchise method is now used successfully by all sorts of business inall sorts of markets; but not all businesses are franchisable.

If your business has one or more of the following characteristics,franchising may not be suitable:

• A product or service, which is only likely to have a market for ashort time.

• Gross margins which are too low to offer a return on investment toboth as the Franchisor and Franchisees

• Skill levels for each operating unit that require very long trainingperiods (more than 6 months)

• Predominantly repeat business customers whose loyalty relates to

the individual providing the service and which would be difficult totransfer to a brand.

• A geographically defined market that doesn’t have the potential tobe repeated in many places.




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• A business with audit and control requirements, which are toocritical to involve Franchisees operating as separate legal entities.

• A business which is failing.

• Don’t franchise as a means of getting yourself out of trouble

• Don’t franchise unless you have a prototype, you can’t franchise anidea only.

• Don’t franchise if you’re doing it “on the cheap”

Your business is franchiseable if:

• "every City needs one" can be said for your business

• you can handle sharing your ideas with many

• you can handle your role becoming increasingly administrative

• you are people oriented

• you can afford to weather a likely difficult start

• your success rests largely on your product or service

• you can create an ongoing long-term relationship with a team ofpeople.

Before evaluating your business as a potential franchise, evaluate yourselfas a potential franchisor. Are you ready to share your success, yoursystem and your profit with other people? Consider your qualities andremember that franchising is more than the business of selling servicesand products to consumer. In addition, as a Franchisor you will be an

educator, Trainor and hand-holder to your Franchisee.

If you think your business might be franchisable then you will need to offerFranchisees a business format which includes you brand businesssystem, training, opening assistance, marketing and support services




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under the contractual terms of a franchise agreement which will, amongstmany other things, set out the financial arrangement.

Considerable development work is required before you will be in a positionto draw up offer documents and begin recruiting Franchisees.

As a Franchisor you will be building a brand with a reputation that otherpeople will want to buy and invest money into.

You will therefore need a brand, which is distinctive and appropriate for allthe places you would want to have Franchisees in operation.

It will also be your responsibility, and your obligation to Franchiseespaying for the benefit of using your brand, to protect it against abuse, both

by outsiders and by ex-Franchisees.

The System

The principal benefit, which Franchisors hold out to prospectiveFranchisees, is the opportunity to run a business which has alreadyproved its capacity to deliver products or services profitably to an identifiedmarket.

You cannot sell an idea as a franchise. You must have proven in practice

that the idea works and that you can successfully transfer the “know how”to another person operating at “arms length” from you.

You will need to draw up and prove a comprehensive operations manualthat details what a franchise does, how to do it, and to what performanceand quality standards. The manual will need to cover the setting up phaseas well as continuing operation.

You will also need to develop and prove an initial and continuing trainingprogram that ensures that the “know how” contained in the operationsmanual can be transferred successfully to a third party within the time

available.

The work involved in proving and documenting your operating and trainingsystems is extensive and ordinarily calls for highly skilled and experiencedadvice.




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A critical phase of the development of a franchise program is the firstoperation or the creation of prototype business to test and refine theconcept of the business to be franchised.

In its prototype businesses, a prospective Franchisor can test operationalsystems, controls, décor, designs, layouts, equipment, training methods,advertising and marketing programs, products and services, jobrequirements and descriptions, financial models, etc. The prototype is alaboratory at which problem areas can be identified, enabling the companyto develop solutions and truly see if the business can be franchised.

Before franchising, a company should have been operating outletssuccessfully at least at one, and preferably several, locations to verify theviability of the business and its profitability.

A minimum period of time to test the pilot outlet would be one year to takeinto consideration seasonal factors and to ensure that the business isproducing attractive results. Two or three years of actual experiencegained from the operation of exiting outlets are ideal.

The business to be franchised must be capable of producing a reasonablereturn on the Franchisee’s investment, after deducting the value of theFranchisee’s labor. If Franchisee is merely buying a job, his motivationand loyalty to the network may be short lived. The business must also beable to generate sufficient revenue to the Franchisor.

A Franchisor can capture only a portion of the gross revenue of afranchise outlet through continuing fees or royalties and the gross profitrealized on sales of goods and services to the Franchisee.

If a business cannot generate a sufficient rate of return on theFranchisee’s investment and sufficient revenue to support essentialFranchisor services and a sufficient profit to the Franchisor, the businessis a poor candidate for successful franchising.

The Trademark

If you have a product or service that is unique or in demand, you mustcapture the trademark for your Company. It is not enough that you have aDTI Business name registration or a SEC registration, in order to license




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out your trademark to your Franchisee, you have to own it therefore everyFranchisor has to have a TRADEMARK! To get a Trademark, you have toapply at the Intellectual Property Office in Taguig City or let FIFA Filipino

International Franchise Association do it for you.

Trademark is a component of Franchising Right to use proprietary marks of others Protection of the Franchisor Protection of the Franchisee Protection of the Public

The Initial Training

Each Franchisor has to make a training program for his Franchisee sothey will be able to learn the trade as they have to. Length of trainingalways depends on the complexity of the operational procedures of aparticular Company.

The Operations Manual

As part of the operational function in a well-developed franchise system,you should prepare and provide an effective operations manual thatdocuments the functions of the franchise business in a written,

chronological, step-by-step format, so that the franchisee can easily followthem after completing the initial franchise training program.

The Operations manual can easily reach up to 2,000 pages for RestaurantFranchises and 300 pages for simple cart or retail franchises. YourFranchise Consultant will provide you with your tailored manual as part ofthe Franchise Development service. Each Franchisor’s operations manualis unique, because in a given industry, each successful Franchisor has aquality that distinguishes the business from its competitors.

A sample layout of an operations manual of a franchised business:

• Essential Characteristics• Pre Opening Activities• Payment to Franchisor• Insurance• Advertising




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• Recruiting Personnel• Payroll• Personnel Policies• Non-Competition Agreement• Job Descriptions• General Operation Procedures• Initial Preparation of product• Product Preparation• Service Procedures• Customer Handling• Cashier Flow• Daily Store Opening & Closing Procedures• Cleaning Procedures• Procurement

• Supply Delivery Procedures• Recipes (for Restaurants)• Forms & Reports• Inventory

The Support Service

One of the biggest practical differences between a simple distributionscheme and a fully-fledged business format franchise is the extent of theinitial and continuing support services offered by Franchisors to

Franchisees. Franchisors take on responsibility for product and servicedevelopment, for national promotion and PR, for purchasing financial andadministrative services, for quality control and national accounts fornetwork communications and discipline.

You will also need to make sure that your franchised business isstructured so that your Franchisees need your services on a continuingbasis and in consequence will want to go on paying you to belong to thenetwork.

Well-trained Personnel

Your success lies in your ability to recognize the business insightnecessary to operate a smooth-running franchise. To help you do this,review carefully your current management and supervisors. You must




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have a person or a team who is able to train the incoming Franchisees onthe same levels as your Company owned outlets.

One of the biggest practical differences between a simple distributionscheme and a fully-fledged business format franchise is the extent of theinitial and continuing support services offered by Franchisors toFranchisees. Franchisors take on responsibility for product and servicedevelopment, for national promotion and PR, for purchasing financial andadministrative services, for quality control and national accounts fornetwork communications and discipline.

You will also need to make sure that your franchised business isstructured so that your Franchisees need your services on a continuingbasis and in consequence will want to go on paying you to belong to the

network.

Well-trained Personnel

Your success lies in your ability to recognize the business insightnecessary to operate a smooth-running franchise. To help you do this,review carefully your current management and supervisors. You musthave a person or a team who is able to train the incoming Franchisees onthe same levels as your Company owned outlets.

The Financial Arrangements

You’re in business to make money and there’s no point choosing a growthstrategy, which doesn’t maximize your profit potential. Some Franchisorswould be more profitable if they owned their own outlets themselves. Onthe other hand they would never have grown to a fifty or two hundred unitchain without franchising.

As with any business planning process the financials have two differentapproaches:

What will it cost me, so how much must I charge to make a sensiblereturn?




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What price will the market bear, so what can I afford to spend to make thebusiness profitable?

In franchising you have to address these questions both from your point ofview as the Franchisor, and from the point of view of your Franchisees.

In constructing a viable financial plan for franchising a business, don’t:

• Underestimate your initial costs and the associated financial prospects;

• Overestimated the early growth rates when you’re just learning how toattract the right prospects

Assume you can make any real profit element on the initial fees. Profitcomes later from the on-going charges to Franchisees based on theirtrading success.

A good approach is to keep initial fees to Franchisees as low as possibleto maximize their chances of a successful business entry, and then tomake sure that Franchisees can see a value for money return on theroyalty fees they pay.

Royalty fees calculated as a percentage on turnover are preferable, butsome product distribution franchises inevitably rely on a mark up on goods

supplied.

Franchise Marketing

If you are selling Franchises to use your brand and your business system,with the benefit of the support systems you offer, within the framework of afranchise agreement and initial and continuing feed, you will need abrochure. Potential Franchisees will want to know what business they canexpect to do and how profitable it can be.

Since your business is already up and running, and since you will havealready run a pilot scheme discrete from your own operation, you will havesome facts on which to base your projections.

Good Franchisors have to draw a fine balance between generatingexpectations which can be met, and giving Franchisees targets which are




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so low that they do not need to fully exploit their business opportunities.You shouldn’t oversell or undersell, but that’s also a matter of matchingthe presentation of your offer to the norms of the franchises’ recruitment

market, so experienced advice can be helpful.

Many Franchisors provide a Franchise Marketing Kit with an attachedapplication form to serious Franchisees. These confidential questionnaireshelp Franchisors in selecting their Franchisees.

Recruit ing Franchisees

Recruiting Franchisees is probably the hardest and most expensive job forFranchisors. Franchisors have conversion ratios of serious inquiries to

appointment of round 30:1 sometimes higher than 100:1.

The recruitment mechanisms available are Franchise Shows and Expos,newspaper advertising, referrals, websites such ashttp://www.franchise.ph and the seminar series of RK FranchiseConsultancy.

International Franchising

Franchising of Philippine Companies in the International market is

expanding rapidly. Increased population and available disposable incomehas created a worldwide expanded market, plus the fact that Filipinos canbe found in any corner of this world, a certain “home advantage” helpsalso bringing Philippine Franchisors to other Countries.

Most Franchisors head overseas after an unsolicited query gets theiradrenalin pumping. Others pursue international markets out of ego. Stillothers simply like the appeal of international travel.

Before entertaining international proposals, Franchisors should have astrong and profitable base at home. To do otherwise is like serving dessert

before the main course. We can’t pinpoint an exact number of Facilitiesyou should need in the Philippines, but your domestic operation shouldhave a significant number of franchises in various regions. A saturateddomestic market is a clear green light.







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Considered in bringing your Franchise to other shores has to be:

•

Political climate between Manila and the Country you like to award aFranchise. Are there agreements on trademarks or bilateralagreements existing?

• Regulations on imports or operational procedures in the Country of theFranchisee.

• Language barriers, cultural differences and traditions in taste of food orproducts.

•

Religion can be a factor particular in the food business or the internetbusiness.

Points to consider in International Franchising your business:

• Include local business people in decision making, planning, and theoperation of the franchise.

• Base the concept on the local population preferences, habits andcultural features.

• Be sensitive to the needs of the local population and be respectful oftheir beliefs and practices, both political and religious.

• Be patient and tolerant and follow the legal steps with as littlechallenge to rules and regulations as possible.

• Conduct a good environmental scan, taking into consideration social,political, and economic circumstances of the country.

•

Examine the per capita gross product and the population of the country

• Carefully examine the demographic data of a country, with emphasison the emerging population that can be classified in the middle incomegroup and relatively young.




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• If it is a food franchise, select menu choices carefully and be flexibleand prepared for menu adaptations and modifications.

METHODS AND MODE OF ENTRY

• Direct Franchising, also referred to as licensing, allows a Franchise toset up a Franchise using the system, products and to function as doesa Franchisee in the Philippines.

• Developer Agreement, wherein the developer agrees to develop thearea and own all outlets.

•

Master Franchisees act like mini-franchisors in other Countries. MasterFranchisees may open their own outlets or grant Franchises to others.

• Joint Venture, wherein the Franchisor has more control than in thecase of a master franchise.

In addition, no training is universal. You need to weave adaptations forinternational operations into your standard training. If you offer sub-franchising to master franchisees which will select franchisees in theirmarkets and also provide franchisees with support, you need to preparethem and train them on how to be a Franchisor. After all, they will e

performing the same tasks as you do as a Franchisor.

Hiring a Franchise Consultant

To do all the works for you in developing a Franchise, you might considerprofessional help. There are only three Franchise Consultants in thePhilippines with a long list of experience and successful clients. It is notthat the most expensive Consultant is also the best, consider the longterm offers those Consultants offer you. As this writer is in this businessfor a very long time, we don’t stop serving our clients once we finished our

development work, but assist our friends and clients even long after andactively market the franchise opportunities in behalf of our Franchisors.While we charge for that service, it is in most cases lesser than the initialFranchise fee you collect from your first Franchisee and therefore you paythe services off with your first franchise sale, which can be fast.




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X I V .

FEES

FRANCHISE FEE

Many Franchisors fail because they expect to immediately profit bycharging high initial franchise fees, high royalty fees or high advertisement

fees. However if you look at the Philippine Franchise market, you will findquite plenty affordable Franchise systems. Your Franchise Consultant willassist you in formulating the right Franchise Fee and Royalty structure.You have to be also sensitive with your fees to be competitive with otherFranchisors in the same industry so you won’t overprice yourself or short-change your Company.

The Franchise Fee is primarily to compensate the Franchisor for the useof its trademark as well as to defray cost incurred in setting up a system tosell and market franchises. It includes also usually the initial training andthe pre-, grand- and post-opening assistance provided by Franchisor.

Franchise Fees are always collected upon signing of the Franchise Agreement. Usually the first Franchise is sold at a certain discounted rate.To pay the Initial Franchise Fee in installment is not common; however if aFranchisor accommodates a request, don’t expect a long term paymentprogram, maximum until the outlet is ready to open.




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ROYALTY FEE

The royalty Fee, as the name indicates, is the royalty payable to the

Franchisor on a regular basis for securing rights of franchising.

Royalties are usually a percentage of the gross sales (= collected moneyless VAT) and to be paid monthly within 5 days for the previous month.

It is common in retail business – if the product line is to be purchased fromFranchisor – that no royalty is charged.

The highest royalty fees are collected by education Franchisors, sincethey have to work steadily on new curriculums which are to be provided toFranchisees.

Common charged Royalties

Retail Franchises: NONE if all merchandise comes from the Franchisor

Drug Store and Bakeshop have the lowest royalties from 0 – 4% of grosssales

Food Franchises and Restaurants from 3 – 10% with most common ratesof 4 – 5 %.

Education Franchises have 6 to 40 % of gross tuition and they have toprovide in exchange a new curriculum every year.

Many service franchises work with a Continuation Fee instead of a Royaltyand charge a fixed monthly amount instead of a percentage of royalty.

RENEWAL FEE

A renewal fee is usually charged for the renewal of the contract and isusually 25 to 50 percent based on the current franchise fee.




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TRANSFER FEE

This fee is charged by the Franchisor when a transfer of ownership is

desired by the Franchisee. This transfer requires prior approval by theFranchisor. The transfer fee is paid by the new Franchisee or voluntarilyby the outgoing Franchisee. It can be as high as 50% of the originalFranchise Fee paid or is a fix amount prescribed by Franchisor in theFranchise Agreement. This Fee is for the administrative change, the legalrequirements and training needs of the incoming Franchisee.

ADVERTISEMENT FEES:

GRAND OPENING MARKETINGUpon Opening Franchisee shall spend P5K-350K for initial awareness ofoutlet, which is spent by Franchisee directly

LOCAL STORE MARKETING1%-2% of gross sales, spent by Franchisee directly to promote thebusiness in the territory of Franchisee

COOP ADVERTISEMENT

Joint advertisement in yellow pages or billboards among a group ofFranchisees

NATIONAL ADVERTISEMENT FUNDTV, Radio and Broadsheet ads. Administered by Franchisor and alloutlets, Company owned or Franchised, have to pay into the pot.




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XV .

FRAN CH I SE LEGAL REQU I REM EN TS

Franchise agreements must be comprehensive. They are not salesbrochures and there is not one standard work that fits any business. Agood agreement is stretching from 25 to 60 pages and is just as muchconcerned to set out the obligations of you the Franchisor as well as your

rights and the rights of the Franchisee as well as their obligations.

That does not mean that franchise agreements are an equal balance ofrights and obligation between equal business partners. Franchisors areresponsible for the network as a whole and that sometimes means actingagainst the interests of an individual Franchisee for the greater good of thenetwork.

Franchise agreements have gone through more than twenty years ofdevelopment to ensure that Franchisors have the appropriate rights to dotheir job within a framework of fair and reasonable treatment for

Franchisees. However, any Franchise agreement is biased in favor of theFranchisor is a fact of life.

There are only a limited number of Philippines lawyers familiar with thecomplexity of franchise agreements, and only some of those have the




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necessary skills to advise a business on the best way to structure afranchise agreement. In this area you must get fully experiencedprofessional advice, like RK Franchise Consultancy.

The following items constitute the Franchise agreement of a typicalfranchise, although this list is not comprehensive and agreements vary toa considerable extent:

1. Appointment2. Duration of the Agreement3. Fees and other payments4. Responsibilities of the Franchisors5. Responsibilities of the Franchisee6. Proprietary marks

7. Operating Procedures and Confidentiality8. Advertising and Promotions9. Royalty10. Financial Records11. Training12. Insurance13. Products and services14. Transferability of the Franchising Agreement15. Termination16. Right and duties upon termination17. Covenants not to compete

18. Renewals19. Arbitration20. Right of first refusal21. Applicable law22. Severability and construction23. Notices24. Waivers and non-waivers

Other Legal Agreements which a Franchisor may need:

• MEMORANDUM OF AGREEMENT

Pre-Contract to Franchise Agreement, if Franchise Agreement can notbe signed due to a.) location still under construction, b.) Shopping mall




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has no space available, c.) Franchisor still has to put his financestogether

• AGREEMENT WITH LANDLORD

Agreement between Landlord, Franchisor and Franchisee to securethe location for Franchisor if Franchisee defaults on Landlord orFranchisor

• SITE SELECTION AGREEMENT

Territory protection while Franchisee signed already Franchise Agreement and is still looking for the appropriate location

• GUARANTEE AND ASUMPTION OF OBLIGATIONS

For Guarantee of low capitalized Franchisee (fresh graduates, etc.)

• TRANSFER & RELEASE AGREEMENT

If Franchisee sells his rights to be executed between Franchisor,Franchisee and Purchasee of the Franchise privileges




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X V I .

FRAN CH I SE RELAT I ON S

Now that you have invested your time, energy and money in buying orestablishing a franchise, how do work within the system? How do youtake advantage of all your Franchisor has to offer? How do you deal with

other Franchisees?

In any franchise organization, it’s important to maintain opencommunications lines. A franchise is like a marriage and communication isthe key.

Communication in a franchise relationship occurs in numerous ways. Youshould remember to keep communication friendly, helpful, upbeat andhonest.

Too many times a Franchisors/Franchisee relationship will becomeadversarial, hostile and aggressive. If this happens, communications linestend to go down and everyone suffers. The Franchisee has the power tokeep communications on a positive note. There are many things that canbe done to help your Franchisor communicate with you.




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Try not to be a chronic complainer. If you have a legitimate complaint,perhaps you could offer some praise first. Something that being done rightand how happy you are. Then mention the little something that’s caused a

stress for you at your business. If you think you might have a solution-offerit or brainstorm. Offer to meet them at your store, your point of power soyou can negotiate from a stronger position. Be friendly. Try to meet whenyou’re having peak hours.

Show the Franchisor or their representative how efficient you are, howclean your place is and how you are following standards. Treat it like amilitary inspection. Then explain the problem. Tell them your suggestionsand ask what should you do?

All Franchisors are not the same. Some have a very corporate attitude

and some are very down to earth and almost folksy. No matter what typeyou belong to, communication is still the key.

With a small Franchisor, you may be able to call the president or founderdirectly. A Franchisor with fewer than thirty units needs your input at thetop level. He or she will still be working out administrative and organizationbugs in the system.

Your success is a very serious issue with them. They can’t afford verymany Franchisee failures this early in the game.

Your problems and suggestions take precedence over all other aspects oftheir business. If you fail, it will affect future sales. It is important for theFounder to know how the franchised model performs in different locations,demographics and local economic environments. If they can solve theseproblems at a unit level now, it will insure the success of the future unitsone hundred fold.

In medium sized franchises, you may not have the opportunity to be on afirst name basis with the Founder or President. However, you will certainlyget the chance to meet them. You must likely mirror the attitude of theFounder or President.

A large Franchisor will have layers of corporate management andManagers assigned to different areas. Some large Franchisors may nothave a Founder any more. The original Founder may have sold most oftheir stake in the company and no longer oversees any part of the actual




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Franchisor’ operation. Some large Franchisors may be publicly tradedcompanies that may also own other franchise systems and may duringyour franchise term either buy more Franchisors out.

If you have to expand your area and add another store, do somepreliminary demographic work and a franchising study. Ask yourFranchisor to review it and call you to talk. You’ll definitely improve yourchances of being approved. Also include a schedule of estimatedincreased income from royalties and purchases in your package to theFranchisor. Show them how you can help them.

If you are in default of your Franchise Agreement, talk with yourFranchisor. Develop a time line that you can live with to come back intocompliance. Franchisors don’t want to terminate good Franchisees.

Think of the Franchisor as your coach and the other Franchisees as yourteammates.

Remember: Team is an acronym

T E A M = Together Everyone Accomplishes More

Whenever you hear anything said about a fellow Franchisee, say positivethings.

As a matter of fact, no matter which Franchisee in mentioned, saysomething positive. On rare occasions you may hear something negative.Be sure to down play anything you hear that is negative about a fellowFranchisee.

It is important for you to join at least one service club. It helps yourbusiness become part of the town. If your neighboring Franchisees belongto certain groups, you should belong to a group, which they do not. Forinstance, if one belongs to the Rotary you should join the Lions.

It is important to attend Chamber of Commerce meetings. Since most of

the people at these meetings will already know you as a localbusinessperson, they will typically engage you in conversation and this willprevent you from meeting new people.




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In the Philippines, Franchisors should join any of the Franchise Association: the PFA, Philippine Franchise Association, the AFFI, the Association of Filipino Franchisers, Inc.; or the most flexible one, FIFA,

Filipino international Franchise Association (http://www.fifa.ph), whichallows local and international Franchisors and even Franchisees to join.This writer is a founding member of FIFA and a member of the PFA.

It is important to call up and just say hi to your fellow Franchisees. It willremind them that you are always near by. You can also talk about theworst customer of the week or the most ridiculous complaint of the year.

If a customer wants service outside your exclusive territory or it’s too faraway to shop in your store, try to refer them to another Franchisee in yoursystem. This will strengthen your company’s good will and name

recognition. It will also make someone just like you very happy. I’m sureyou’ll get referral customers in exchange.

When owning a franchise, you are in business for yourself, but not byyourself. Use this fact to your advantage. Use the resources of yourFranchisor, your vendors, and your fellow Franchisees. Make yourbusiness great. And no matter what you do don’t ever give up.Communication is the first step. You’re going to do fine.




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XVII.DTI FRANCHISING RULING

To avoid more people being scammed by fake Franchisors selling theirfranchises (particular cart Franchises), the DTI came out with a BureauOrder (10-24 Series of 2010) to assist Franchise Buyers not beingvictimized by unscrupulous franchise sellers. We actually actively supportthe Bureau Order and prepare the FDI for all our clients.

Bureau Order No. 10-24Series of 2010

Subject: Advisory on Due Dil igence to be Undertakenby a Prospective Franchisee

In order to protect the interest and welfare of a prospective franchisee, theDTI-Bureau of Trade Regulation and Consumer Protection (BTRCP) hasissued the following Advisory:

1. Scope and Coverage

This advisory is addressed to persons engaged or interested in thefranchise business.




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2. Defini tion of Terms

2.1 “Franchise Agreement” is a written contract or agreement

between two or more parties by which a Franchisor grants theFranchisee the right to engage in the business of offering,selling, or distributing goods or services under a marketingplan/system/concept, for a certain consideration. Unlessotherwise provided, said right includes the use of a trademark,service mark, trade name / business name, know-how, logo-type advertising, or other commercial symbols associated with aparticular business.

2.2 “Franchisor” is a person, individual or a Corporation, dulyregistered with the Department of Trade and Industry (DTI) or

the Security Exchange Commission (SEC).

2.3 “Franchisee” is a person, individual or a Corporation dulyregistered with the Department of Trade and Industry (DTI) orthe Security Exchange Commission (SEC)

2.4 “Franchise Disclosure Information” refers to a set of informationand documents that needs to be disclosed by the Franchisor tothe Franchisee and / or prospective Franchisee.

3. Due Diligence to be undertaken by a prospective Franchisee

Before a person decides to engage in or acquires a franchisebusiness, due diligence should be done by the prospectivefranchisee.

3.1 Secure or ask Disclosure Information for the Franchisor asfollows:

3.1.1 Business address, email address, internet home page /website, fax numbers and other contact details

3.1.2 Copy of DTI or SEC Registration

3.1.3 Parent companies and affiliates, if any, and theirrespective roles in the Franchise, and Franchisors




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declaration if any affiliate is a supplier and what they willsupply

3.1.4 Names of the Board of Directors and officers with a briefdescription of their qualifications and background,ownership of interests and references

3.1.5 The contact number and business location of existingFranchisees

3.1.6 Executed promotional / marketing materials

3.1.7 Description of the business concept, which includesbrand image, brand personality, unique selling

proposition, target market, mission and vision, amongothers

3.1.8 Basic information on training, commercial and / ortechnical assistance

3.1.9 Certificate that the Franchisor is a member in goodstanding of any Franchisor Association and that theFranchisor has not pending administrative, civil orcriminal case

3.1.10 Declaration of the Initial Fee, amount that will becollected and services covering these fees

3.1.11 Training that will be provided, number of persons, howlong and training modules

3.1.12 Number of years Company has operated and number ofyears it has franchised with corresponding numbers ofcompany owned branches and franchised outlets

3.1.13 Draft of Franchise Agreement

3.1.14 Full disclosure of the Financial requirements of thefranchise business




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3.1.15 A provision that requires the franchise applicant to seekadequate legal and financial counsel before signing theFranchise agreement

3.1.16 Mechanism for dispute resolution

3.2 Call or visit or consult any of the following:

3.2.1 Franchisor Association (FIFA 995.0734)

3.2.2 Nearest DTI Regional or Provincial Offices

3.2.3 Securities and Exchange Commission

3.2.4 DTI Direct (Telephone Number 751-3330)

3.2.5 Certified Franchise Executive

3.2.6 Franchise Consultant (RK Franchise 912.2946,912.2973)

4. Franchisor Association or Organization

To establish a databank of Franchisor association or organizationnationwide, Franchisor association or organization should submit to

DTI-Bureau of Trade Regulation and Consumer Protection(BTRCP) the following documents:

4.1 A certified true copy of its Article of Incorporation and By-Laws

4.2 A current certified true copy of Certificate of Good Standing fromthe SEC

4.3 Updated list of trustees, officers and members of theorganization including their addresses and

4.4 Other pertinent documents such as Code of Ethics andStandards.




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5. Self-Policing of Members

This Advisory aims to promote and encourage the Franchise

industry to self-police its own ranks by setting a Code of Ethics andStandards for grievance or dispute resolution mechanism toredress complaints against its members, including issues arisingfrom transactions with their franchisees, prospective or otherwise.

6. Publication

This advisory shall be published in newspapers of generalcirculation and shall be part of the DTI Information, Educational andCommunication Program.

Issued this 17th day of November 2010 in Makati City

VICTORIO MARIO A. DIMAGIBADirector

NOTE: All clients of RK Franchise Consultancy become member of FIFAFilipino International Franchise Association. RK and FIFA were the 1st

Barangay

Consultant and Association respectively to register with the DTI under theBureau Order.

New BUSINESS NAME registration fees in effect JANUARY 3, 2011

The Department of Trade and Industry (DTI) is now implementing thefollowing registration fees for business name registration (original andrenewal) depending on the territorial jurisdiction covered in the application:

PHP 200.00

City / Municipality PHP 500.00

Regional PHP 1,000.00

National PHP 2,000.00




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X V I I I .

THE FUTURE OF FRAN CH I SI N G

Franchising is an answer in a growing number of sectors adapted tocurrent ways of living, namely: retail and services, fast food, sports goods,specialized health and beauty retail, leisure, motorist services and others.It is a system that actively participates in the modernization of trade andcraft practices.

It is obvious that franchising has reaffirmed itself as the most profitablemeans to take advantage of traditional economic multipliers.

Franchising provides a solution when faced with changes under way andis an offensive means that will help handle the economic and socialparadoxes of this third millennium. We are searching for stability whilecalling for change.

We are looking for solidarity but we can grant more and moreconsideration to our individuality and won’t infringe on our personal rights.

We have an international outlook, and simultaneously we do love ournative soil even better. The Philippines is becoming familiar and wechange into Globalization but still, we feel we belong where we were bornor where we live, be it Manila, Cebu, Mindanao or anywhere else in the

Archipelago.




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We want to take part in scale economies while having the capacity todevelop and adapt our own local energy and strategy.

We call for rules, guarantees and ethics but we wish very much topreserve the necessary flexibility that makes innovation possible. We wantto preserve the whole but respect the particular.

Because the franchising network is a place of mutual enrichment andprofitability, because the Franchisor and the Franchisee, two partners thatare co-responsible for their common business have institutionalized theirdialogue.

It is the only trading model that eases the partnership between two strong

economic actors, both deeply engaged in a daily battle, havingcomplementary capacities and clear separate responsibilities; the keepinga straight long term objective in mind.

For would be Franchisors, don't be scared, go for it if you have thequalifications to Franchise. Grow big with OPM, "others people money",instead of investing your own in the growth of your Company. Think bigand grow big through Franchising.

Franchising is here to stay and to grow stronger and bigger in the thirdmillennium not only in the Philippines but worldwide. One step towards

globalization for established Philippine Franchisors may be franchising outinternationally as 25 of the more than 400 Franchisor clients of RKFranchise Consultancy do already.




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For advertisement in FranchisingPH please contact Jen at (02) 995.0734.40,000 copies are printed every two month and distributed at major events

and in Coffee shops, Restaurants, Salons, DTI Offices, IPO Office and allSM Global Pinoy Centers nationwide. Emailed to more than 40,000addressee and available online on www.franchising.ph








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FIFA FILIPINO INTERNATIONAL FRANCHISE ASSOCIATION AND RKFRANCHISE CONSULTANCY ANNOUNCES THEIR SCHEDULES FOR"ALL ABOUT FRANCHISING" SEMINARS WITH "TRADEMARK YOUR

BUSINESS" FOR 2011 AND 2012

MANILA FRANCHISE SEMINARS:FIFA-RK FRANCHISE CENTERG/F Minnesota Mansion267 Ermin Garcia StreetCubao, Quezon City

Saturday, October 01, 2011Saturday, November 05, 2011Saturday, December 10, 2011

Saturday, January 28, 2012Saturday, March 10, 2012Saturday, April 21, 2012Saturday, May 26, 2012

SPECIAL EARLY BIRD RATE: prepaid Pesos 750.00 only (regularParticipation Fee: P 1,200.00 if paid upon seminar day), for details callDhel or Bernadette at (02) 912.2946 or 912.2973

Seminar starts at 1.30 pm until 5 pm,including seminar materials, CD "All about Franchising", snacks

FREE BASEMENT PARKING

CEBU FRANCHISE SEMINARS:

RK Franchise Consultancy Cebu OfficeUnit 11 St. Patrick SquareDon Ramon Aboitiz Street(Back of Redemptorist Church across St. Therese)Saturday, October 8, 2011, 1.30 pmParticipation Fee: P 750.00 (Due to limited space only pre-paidparticipants possible)

For prepayment and details call (032) 254.0473 or 253.5010

SM CITY CEBU CONFERENCE HALL DSaturday, March 3, 2012




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March 2-4, 2012SM CITY CEBU TRADEHALL

For details call(02) 995.0734

www.cebufranchise.com







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ALL ABOUT FRANCHISING 2012 125

All About Franchising 20121

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