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How To Choose The Right Franchise

The lure of steady and stable returns have always made franchises a popular choice among the investing public. However, this appetite has also led to some unscrupulous people to take undue advantage through scams and half baked business systems.

According to Philippine Food Asia Corporation President and CEO Richard Sanz, not all franchises are created equal. He counsels investors to do their due diligence and not be blinded by attractive terms and other come-ons companies use to attract franchisees.

“Before signing anything, check the legitimacy of the franchise you are considering. Go to the Department of Trade and Industry and see if the franchise is indeed registered. This way, you know that you are not dealing with a fly-by-night operation. Do not accept excuses about the business being registered elsewhere. The absence of a DTI registration should immediately signal you to back off,” he said.

Next, he advises people to check if the franchise is affiliated with any of the existing legitimate franchise groups in the Philippines such as the Association of Filipino Franchisers, Inc. (AFFI ), which Sanz’ Bibingkinitan chain of food stalls is an active member. Members of the AFFI have been vetted and have gone through a tedious membership process that is meant to protect investors.

“As much as possible, go for franchisees with a good track record. If you see a certain store sprouting all over the place, do not think that it is the next big thing. Be wary of those franchises that are expanding very quickly. If you see the same service or product being sold at almost every street corner, then that should be a red flag for you,” he cautions.

Don’t Be Afraid To Ask Questions

Sanz advises potential franchisees to vet franchises by following this simple checklist:

1. Ask the franchisor to explain how you will make money from the business. Ask what kind of support and assistance they will extend to you. A responsible franchisor will guide you patiently as you set up your business, and will assist you in finding a good location, finding the right people, and preparing for opening day. It will look out for all your needs and make sure you are prepared for everything beyond the launch. Its support extends to your day-to-day operations, and includes marketing, training and service training.

2. Be open with the franchisor. Ask what you have to pay for, and how often you have to make payments for this. Is there a royalty fee on top of the franchise fee? Some franchisors will insist that you buy items from them at a given volume and frequency. Ask what will happen if you cannot make the purchase requirement. A responsible franchisor wants you to succeed in business and will not regard you as a competitor.

3. Ask for a sample cash flow projection. If a franchisor guarantees a time frame within which you will recover your investments, be wary. Responsible franchisors will not make such promises. They can make reasonable projections, but they will not promise you anything, other than their strong support.

4. Ask other franchisees about their experience with the company. Ask about their concerns with the business. Visit the outlets of other franchisees and see how their business is going. Pay attention to every detail. Are the products being sold of good quality? Are there enough stocks? When you ask for something, is the product available?

Check out the store or the cart itself. Is it well-maintained? Is the place clean? Are the servers and the service personnel knowledgeable? A good franchisor will be concerned about these things and will make sure that all franchisees adhere to standards and processes.

“If you have any reservations about the franchise, then hold off until all your questions have been well answered. Do not be rushed or pressured into signing anything that you are doubtful of. A responsible franchisor understands your needs for time, and will accord you the respect and the choices that you are entitled to, whether or not you invest in his business,” Sanz said.

Want to learn more about franchising? The Association of Filipino Franchisers Inc. is holding the 7th Filipino Franchise Show on Sept. 4-6, 2009, at the World Trade Center, Metro Manila, Philippines. Call (02) 633-8547, 440-9208/3118, 437-4063 loc 100-107.

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