Republic of the Philippines
BALIAN COMMUNITY COLLEGE
4018 Brgy. Isla, Pangil, Laguna
BACHELOR OF SCIENCE IN ENTREPRENEURSHIP
Course Franchising
SEM/A.Y 1st
Module 1
Content Introduction to franchising
What is franchising
What is franchise
The franchisor, franchisee and the franchising contract
Why entrepreneur may buy a franchise
Benefits of franchising
LECTURE Introduction to Franchising
C. Franchising
A start-up entrepreneur, may decide to go into business by simply buying a
license to locally operate let's say Jollibee or Pizza Hut. This practice is
known as franchising. The past years have shown phenomenal increase in
franchising all over the world. In the U.S. alone, the sales in the franchising
industry in 1991 were S758 billion as compared to the $334 billion in 1980.
Here in the Philippines, there are projected sales of 82 billion pesos for year
2000 and 100 billion pesos for year 2001. There have been Signiticant
numbers of Filipinos wanting to own or operate a franchise This indicates
the growing acceptability of franchising business among Filipinos.
Colonel Harlan Sanders himself founded Kentucky Fried Chicken and made
it a global business through franchising. In his words, "franchising is the
quickest and most successful way to become an entrepreneur."3 Another
franchising expert, Andrew Kostechka, who works in the US Department of
Commerce, thinks that 'franchising is considered a way of life."
As a backgrounder, the term franchise came from the Old French franchir,
which means freedom, privilege or immunity from burden. During the
feudal ages in Europe, the local landlords would grant rights to the
subordinates to hold or attend markets or fairs. The landlords then were the
first franchisor and the subordinates the first franchisee.
If buying an existing business doesn't sound right for you but starting from
scratch sounds a bit intimidating, you could be suited for franchise
ownership. Just what is a franchise--and how do you know if you're cut out
to be a franchisee? Essentially, a franchisee pays an initial fee and ongoing
royalties to a franchisor; in return, the franchisee gains the use of a
trademark, ongoing support from the franchisor, and the right to use the
franchisor's system of doing business and sell its products or services.
In addition to a well-known brand name, buying a franchise offers many
other advantages that aren't available to the entrepreneur starting a
business from scratch. Perhaps the most significant is that you get a proven
system of operation and training in how to use it. New franchisees can avoid
a lot of the mistakes startup entrepreneurs typically make because the
franchisor has already perfected daily operations through trial and error.
Reputable franchisors conduct market research before selling a new outlet,
so you'll feel greater confidence that there's a demand for the product or
service. The franchisor also provides you a clear picture of the competition
and how to differentiate yourself from them.
Finally, franchisees enjoy the benefit of strength in numbers. You'll gain
from economics of scale in buying materials, supplies and services, such as
advertising, as well as in negotiating for locations and lease terms. By
comparison, independent operators have to negotiate on their own, usually
getting less favorable terms. Some suppliers won't deal with new businesses
or will reject your business because your account isn't big enough.
Franchising Concepts
There are common concepts that pertain to the discussion O the topic on
franchising. These are the following:
Franchise - it is an agreement whereby an independent person is given
exclusive rights to sell a specified good or service.
Franchising-is a marketing system based on a legal agreement wherein one
party (franchisee or franchiser) is given the right to handle business as an
independent owner but is required to abide by the terms and conditions
specified by the other party (franchisor). For the franchisor, therefore,
franchising means selling the franchise, while for the franchisee or
franchiser, franchising is understood to mean buying a franchise.
Franchisor - refers to an entity that owns the franchise name and distinctive
elements (such as patent, trademark, signs and symbols) which grant others
the right to sell its product.
Franchisee or the franchise buyer - it is the entity that buys to operate the
business using the name, product, trademark, service mark, product and
business format of the franchisor under the terms and conditions of the
franchise contract.
Franchising contract- it refers to the legal document involving two parties
(franchisor and franchisee) specifying the obligations, primarily ot the
franchisee and the conditions under which the later will conduct business.
Choosing a Franchise
Why an Entrepreneur may buy a Franchise.
There are many reasons why an entrepreneur may decide to go into
business by acquiring a franchise. These are:
1. Earning depends on the effort
2. Opportunities for unlinmited income
3. Personal Satisfaction
4. Tax Benefits
5. Freedom to pursue the job you want
6. Assurance of continuous employment
7. Eliminates the difficulties in starting-up
8. Ease in operationalizing the business plan
9. Benefits of having an established system
10. Benefits from quality research and development
11. Quicker start-up
12. Probability of Success is High
Earning depends on the effort
A lot of people feel restrained by working in a company They are not
contented with the salary they receive. The amount of compensation they
receive does not reflect in, the income they get. When you operate your own
franchise, the success depends on how hardworking you are. It is very
different in working in a company wherein even if so much effort is exerted,
the income cannot exceed the salary cap. Owning a franchise opens an
opportunity to have unlimited income
Opportunities for unlimited income
A common similarity among wealthy people is that they own business.
Owning a franchise gives one the chance to carn relatively large sums
especially if the franchise is a real crowd-drawer. Succeed in runnin8 a
business and gain financial strength.
Personal Satisfaction
Success may be measured in two ways: by the amount of money and
property one acquires and by the amount of personal satisfaction gained in
doing certain matters There are a lot of wealthy individuals that will declare
that although having money bring benefits, personal fulfillment brought
about by achieving dreams, making a management turnaround, employing
people, etc. are more self-gratifying.
Tax Benefits
Owning a business venture may spell a lot of perks for the entrepreneur. The
entrepreneur can spend substantial amount for cars, travel, etc. and reflect it
as company expenditure.
Freedom to pursue the job you want
Owning a franchise allows a person to choose whatever type of work he/she
wants to do in the operations. Having a franchise merits that the
entrepreneur will never be laid ofi, fired or transferred. This allows certain
degree of flexibility unlike in working for a company wherein you are
confined to a nigid description of your job.
Assurance of continuous employment
Unlike working for a company where there is uncertainty of tenure, the
entrepreneur has say on the continuity of the venture. The entrepreneur's
capability to manage is a big factor in the business process. Good
management allows quality time with the family, friends or for recreation.
Eliminates the difficulties in starting-up
The franchisor's experience puts the franchise in middle of the race. In
starting a business, the entrepreneur starts from scratch. Franchising
eliminates those start-up years that are very crucial stages LG of the
venture.
Ease in operationalizing the business plan
Starting a franchise eliminates the nitty-gritty of a business start-up. The
entrepreneur does not have to worry too much about the business plan
because it has been done. All the entrepreneur needs to do is to actualize
what the franchisor has provided.
Benelits of having an operationalized system
This is an advantage for the entrepreneur as a lot of time may be saved for
just thinking of effective systems for the business. Franchise organization,
with all its experiences and resources, provides a big plus factor in business
success in the form of its busines methods.
Benefits from high quality research and development
Franchise organizations, especially those enjoy a degree of success, has a
responsibility to develop itself to maintain that status. Thus, Thus, research
and development is a part of their operations. Franchisees obtain the
benefits of this research. This is what the royalties, advertising, and other
annual fees bring to the business. This is very different in starting own
business because the entrepreneur may be tied to making profit and
neglects the research and development aspect.
Quicker start-up
The preparations prior to start-up are less time-consuming for a franchise as
compared to starting a business. The initial preparations for franchising
have already been made by the franchisor.
Probability of success is high
There are surveys that will reflect the over-all success of franchising not
only in the Philippines but in other countries as well. The Philippine
Franchising Association cites that 95% of franchises have made profit.
Projection of sales in franchising is as equally promising.
Benefits of Franchising
According to Megginson, both the franchiser and the franchisee can benefit
from franchising. For the franchiser, this guarantees faster expansion and
greater market penetration for his business. In effect, this can result to
lower operating costs. For the franchisee, getting a franchise gives him
better brand recognition and less-costly share in local and national
promotion of the product. Furthermore, the franchisee can avail of
management training at less cost. In some cases, the franchisee can also
enjoy financial assistance from the franchiser.
REFERENCE 1. https://www.entrepreneur.com/encyclopedia/franchising
2. Entrepreneurship for modern Business by Jorge A. Camposano
CPA, MBA, Ph. D
