How to Start a Franchise Business for Franchisees and Franchisors

In these financially challenging times, many Filipinos try different means of earning, securing, or growing their income to achieve financial security. While some bolder souls test out their own business ideas, other first-time entrepreneurs opt to take the franchising route—and for good reason. 

Because it offers an opportunity to start your own business without building it from scratch, it’s a less risky and more rewarding option for would-be entrepreneurs. Moreover, the Philippines is seen as the launch pad in Asia for the global franchise market, with a revenue growth rate of 10% to 13% over the next five years.^[1]

If you’re interested in exploring this profitable industry and hoping to find business success, check out this guide on how to start a franchise business in the Philippines.

Pros and Cons of Franchising

Every business endeavor has two sides: the positive and the negative. You should consider both before making any commitments. Below are some pros and cons of franchising”

👍 Franchising Pros

• Lower business risk: When you franchise a business, you replicate something already proven and established, thus minimizing potential risk.
• Brand recognition: You can skip a few steps in marketing as a franchise business because you inherit a familiar name and an existing customer base.
• Proven operating model: No more trial and error to see what works. All you need to do is adopt your franchise business’s existing systems, procedures, and best practices.
• Faster return on investment: Everything you need for your franchise business to succeed is already in place, so you can expect a quicker rate of return on your capital.
• Franchisor support: Franchisors often help their new franchisees by providing marketing paraphernalia, conducting crew training sessions, and assisting with site selection.

👎 Franchising Cons

• Processing fees and royalties: Everything comes with a price. Depending on the business you’re franchising, sometimes that price is hefty. Check out these money-saving tips for entrepreneurs to build your cash reserve and lighten your load down the line.
• Limited control and creativity: A franchise business isn't entirely yours, so you can’t innovate or make other changes without the express permission of the franchisor. You must also follow every mandate relating to the brand and business operations.
• Shared accountability: An issue with one of its branches can affect the overall brand image of a business. This means you can get into hot water without doing anything. Likewise, it means dragging other unsuspecting franchisees with you when you go down.

Types of Franchises

There are three widely recognized types of franchises:

• Product franchising: This franchise business is akin to a supplier-dealer agreement. You use the franchisor’s trademarks and sell their products for a fee.
• Manufacturing franchising: If you opt for this franchise business, the franchisor will grant you the right to manufacture their products as long as you adhere to the manufacturing guidelines and operating procedures they provide.
• Business format franchising: Aside from distributing products, you can access the franchisor’s business methodology. This type of franchise comes with many inclusions like personnel training, quality assurance and control, and marketing methods. In other words, it’s a complete primer for managing the business.

Related: 32 Food Franchise Businesses You Can Start Under ₱1 Million

How Much Does It Cost to Start a Franchise Business?

No magic number nails down the cost of franchising. It depends on many factors, primarily the specific brand you’re looking at. But all things considered, franchising is often cheaper than launching a new full-scale business.

Still, depending on your franchise of choice, we’re talking about a total capital investment of thousands of pesos to over a million. To an average Filipino, that’s nothing to scoff at. 

It’s only natural if you need additional money sources to kickstart your business. Visit Moneymax to compare different personal loan options and choose which suits you best.

How to Start a Franchise Business in the Philippines as a Franchisee

The process typically involves the following steps:

Step 1: Do Your Research 

Even if you won’t be starting it from scratch, franchising a business is still a significant undertaking. This is why it’s essential to research everything you can about how to franchise a small business. 

Look for franchise options that offer the best return on your investment. Consider a business that doesn’t already exist in your target location. Aside from the average franchise revenue, evaluate the costs such as starting capital, rent, maintenance, royalty and marketing fees, and other miscellaneous expenses. 

Step 2: Reach Out to Your Target Franchisors

Contact various companies that offer a franchise in your preferred industry. Inquire about the requirements for a franchise business in the Philippines, as well as costs and other essential details about running a franchise business. Some ways to contact franchise providers:

• Direct channels: Talk directly to franchisors through their website or social media channels.
• Local associations: Get a list of franchisors from local groups like the Philippine Franchise Association (PFA) and Association of Filipino Franchisers, Inc. (AFFI), which have member directories you can look up.
• Franchise expos: Attend exhibitions where companies offer franchising opportunities and hold seminars on various business topics.

Step 3: Prepare and Submit Franchise Requirements

After touching base with potential franchisors, you’ll need to submit the requirements for franchising a business in the Philippines:

📋 Franchise Application Requirements

• Completed franchise application form: Download and print this form from the franchisor’s website. Make sure to fill it out completely.
• Letter of Intent (LOI): This letter formally states your reasons for applying for a franchise business, including your contact information and the address of your proposed site. Some franchisors provide a template for LOI on their website.
• Map of the proposed site: It can be a simple sketch or a Google Maps screenshot and photos of your desired business location.
• Resume or curriculum vitae: Make your resume as detailed as possible, highlighting your entrepreneurial experience, if any.
• Valid IDs: Most franchisors ask applicants to submit a photocopy of at least two government-issued IDs.

📋 Other Requirements

Some companies ask for additional franchising requirements in the Philippines. Prepare these documents just in case:

• Proof of billing under your name
• Latest bank statements
• Business registration papers
• Taxpayer’s Identification Number (TIN)
• Written agreement with the lessor of your chosen business site

Step 4: Meet the Franchisor

The franchisor will review your franchise application documents to assess your qualification as a franchisee—particularly your available capital, professional experience, academic background, business connections, and other relevant details.

At the same time, your proposed site will undergo inspection and evaluation to determine its suitability as a franchise business location.

If you pass the initial screening, the franchisor will invite you to a meeting and interview at the company’s office. Follow-up meetings may also be scheduled.

❓ What Happens During Meetings with a Franchisor?

As prospective business partners, you and the franchisor should know if you’re a good fit. During a meeting, the company representative may discuss with you the following:

• Franchise business specifics: These cover the company overview and other details about the franchise program.
• Franchisee qualifications: You may be asked how you plan to manage the franchise. Will you run the daily operations, or will someone do it for you?
• Target location: Do you own the site? Or are you planning on renting or buying it? The franchisor might be able to help you find the perfect location.
• Next steps: The representative will let you know the following steps if you decide to push through with the franchise. You may also be required to attend training.

Step 5: Review the Franchise Agreement Carefully

You'll receive a draft of the franchise agreement after your meetings with the franchisor. This legal document specifies the terms and conditions of the franchise setup and the rights and responsibilities of either party.

Go over the document meticulously before signing. You may even show it to a lawyer to get legal advice and ensure you fully understand it. Pay close attention to these details when reviewing a franchise agreement:

• Length of effectivity of the agreement
• Renewal period, terms, and fee
• Total franchise investment costs, including the franchise fee, royalty fee, etc.
• Franchise package inclusions
• Franchise territory (the exclusive territory granted to a franchisee)^[2]
• Franchisor-approved suppliers of products and supplies for the franchise business
• Grounds for termination of the agreement

If you agree with the contract terms, you can proceed with signing the document. If not, keep exploring franchise business opportunities with other companies.

How to Start a Franchise Business in the Philippines as a Franchisor

Let’s say you’re on the other end of the spectrum. You’re not a first-time entrepreneur but a seasoned businessperson who has unlocked the key to business success. You’re currently looking to expand your business and open it to franchisees. 

What do you need to know about how to franchise your business and widen your reach? Check out the steps below:

Step 1: Know the Qualifications to Sell a Franchise

If you consistently receive inquiries about your business’ franchising opportunities, there could be a market to franchise it. Unlike in other countries, no laws regulate commercial franchising in the Philippines.^[3] No specific parameters are required before a business can sell a franchise. 

Likewise, there are no specific regulatory authorities that enforce franchise requirements. The Philippines has a liberal and unregulated business environment,^[4] which paved the way for the franchising industry to thrive in the country.

As long as you assess your business and feel confident that it’s ready for expansion, you can open it for franchising. You get to decide whether you’re qualified based on your readiness.

Step 2: Prepare the Requirements to Sell a Franchise

As there are no requirements to start a franchise and no obligations imposed by the local law on franchisors, due diligence is expected to be done mostly by franchisees. 

As a franchisor, be prepared if a potential franchisee asks for any of the following, among others:

• Basic business details (i.e., address, email, website, contact information)
• Business concept details (i.e., brand image and personality, unique selling proposition, target market, mission and vision, etc.)
• Copy of registration with the Department of Trade and Industry (DTI) or Securities and Exchange Commission (SEC)
• Certificate proving that the franchisor is a member in good standing of any local franchisor association
• Contact number and business location of existing franchisees
• Information on promotional or marketing materials, training, and commercial assistance
• Full disclosure of the financial requirements of the franchise business

Step 3: Prepare the Franchise Agreement

Due to a lack of legislation, you don’t need to present any of the above to a franchisee. Non-compliance won’t be confronted with any legal action. However, you need a franchise agreement to serve as the law between both parties.

The franchise agreement must align with the general law, morals, good customs, and public policy or order to be considered valid. This document typically includes the respective duties, obligations, and prohibitions of both parties and any other term deemed necessary by the franchisor or franchisee.

Step 4: Promote Your Franchise Business

Every franchisor wants to gain more leads and close more deals. Consider your customers as potential franchisees and attract new customers by establishing a more visible presence online. To achieve this, focus on developing your business website, updating your social media pages, and earning more positive customer reviews online. 

With thousands of franchises in the food, retail, and service sectors, you must stay competitive and show that your franchise is better than the rest. 

Step 5: Provide Continuous Support to Your Franchisees

Aside from creating marketing campaigns for your franchise business, provide the support your franchisees need, such as site operations assistance, employee training, customer service, and financing. It’s critical to maintain the standards of your products and services and help ensure the success of your franchise business. 

Related reading: 

• What's Brewing: How to Start a Coffee Shop Business in the Philippines
• Turning Your Art Into a Business: Read This Before You Set Up Shop
• Exploring Beauty as an Entrepreneur: How to Start a Salon Business
• Diversifying Your Income? Here’s How to Start a Laundry Business

Final Thoughts

Becoming a franchisee or franchisor is no different from looking for a job or even dating. Feel free to ask questions at any point. It can help you decide whether or not to pursue a business partnership with a particular company or individual.

Whether you want to know how to start a franchise business as a franchisee or a franchisor, the process involves conducting background checks and assessing each other’s compatibility. Once you’ve signed the contract, you need to make sure you can fully commit.

Sources:

• ^[1] PH seen as 'launch pad' in Asia for global franchise brands (Philippine News Agency, 2023)
• ^[2] Understanding Key Aspects of the Franchise Territory (Forbes)
• ^[3] Regulation of Franchise Agreements in the Philippines (Negre and Rosales, Thomson Reuters Practical Law)
• ^[4] An Unregulated Franchising Environment (Nicolas & De Vega Law Offices)