MANILA, Philippines?Building a business from scratch is a daunting prospect. According to studies, only one of every four start-up enterprises is likely to survive.
While there?s no greater financial and psychological satisfaction than building your own empire, there is now an easier route to success for those entrepreneurs who wish to bypass the trial-and-error phase.
Through franchising, a start-up entrepreneur can replicate an improved business concept of another. Here, the chance of a newbie succeeding is over 90 percent.
With this in mind, BPI Family Bank recently rolled out the country?s first credit facility for entrepreneurs who would prefer to start up ?tried and tested? businesses.
The country?s largest thrift bank is offering potential franchisees a two-year loan facility worth at least P500,000.
In rolling out the pioneering credit facility, the lender has teamed up with the country?s largest franchise associations, Philippine Franchise Association (PFA) and Association of Filipino Franchisers Inc. (Affi).
BPI Family Bank president Jose Teodoro Limcaoco says franchising is a ?solid? route for entrepreneurs.
?At the rate of our economy?s growth and performance, we see that Filipinos could generate more income for their families by adding more income streams. Franchising is the best option for them,? Limcaoco says.
Cedoy Roces, vice president and head of BPI Family?s commercial loans division, says that under the bank?s franchising loan facility, a borrower may pay only interest in the first six months of the loan.
Principal payments won?t start until the seventh month, Roces adds, explaining that the loan is designed to free up enough cash for a franchise business to grow.
Would-be franchisees may check out BPI Family?s ?KaNegosyo? at www.bpiloans.com.
Roces says there?s a six-point quiz that the applicant may answer online to determine eligibility for the ?Ka-Negosyo? facility. Real estate, deposits or other assets may be used as collateral for the loan.
?Most bank loans want you to finance solid assets. We?re willing to finance even the working capital because we know the business model. When you go buy a franchise, the franchisor will give you a list (of requirements)?franchise fee, inventory, rent, working capital ... We?re willing to finance 70 percent of that,? Limcaoco says.
Lending to franchise businesses will also boost BPI Family?s lending portfolio for small businesses, where margins are higher compared with top-tier corporate portfolio, while taking on lower risk.
?Each franchisor has a tried-and-tested business model. All you need to do is to buy and follow that model and you?re 90 percent guaranteed to be successful. This is the future of the country. People need to be entrepreneurs,? Limcaoco says.
Why a two year-loan?
Based on the business model of successful franchises, a two-year loan is sufficient for a business to repay what it borrowed, Limcaoco says.
PFA chairman emeritus Samie Lim points out that when the economy is good, franchising is also good. But he adds that when economy is bad, franchising is even better.
This is because people who retire or are laid off from their jobs tend to return to their hometowns and seek opportunities in franchising, Lim says.
The success ratio of 90 percent in franchising, Lim explains, is based on a study conducted by Dan & Bradstreet, which looked at businesses in the 1980s to 1990s.
That study showed that 97 percent of businesses that survived after 10 years were franchises, while only 25 percent of the mom-and-pop type businesses were still around after a decade.
?Franchising is but a cooperative of many people doing their own thing, but it has the ability to professionalize management,? Lim says.
The potential investor must also do his homework in selecting franchises. He has to find out if the business is really successful to avoid being exploited, Lim adds.
PFA has developed for its members the Fair Franchising Standards?a code of ethics ensuring that members commit themselves to respect and to apply a fair set of provisions that will protect both franchisors and franchisees.
For its part, Affi also aims to professionalize, standardize and optimize the potential of Filipino businesses in general, and the local franchise industry in particular. Both organizations offer a rich online resource on franchising.
Contrary to popular notion, Lim says a franchisor doesn?t make money on the franchise fee. Theoretically, he says, the fee is like a deposit that will be used to train the franchisee to be successful, and to extend marketing or operational support.
?The franchise makes money only if you?re successful through the royalty. That?s why they charge you a percentage of the success fee [because] they sold you a formula to make it successful. And you have to ensure that this formula is followed meticulously for you to succeed,? Lim says.
A lot of businesses that we see in shopping malls these days can be acquired for P500,000 to P1.5 million, Affi president Paulo Tibig says.
These include franchises of Peanut World, Aqua Best, Lots?A Pizza, Reyes Haircutters, Potato Corner and Generika (pharmacy).
Tibig claims that within two years, most franchisees are capable of paying back loans obtained as working capital.
Also, PFA?s Lim says a franchisee needs to devote not just money, he also has to be focused and dedicated.
Lim reveals that a start-up company needs to put up 30 percent equity, apart from the loan it secured from BPI Family.
Lim says that the franchisee must have the connections in wherever he?s setting up the business. The entrepreneur has to know those running the local fire station, Bureau of Internal Revenue and the local government unit.
People used to think about franchising as simply getting the likes of fast-food giants Jollibee or MacDonald?s.
?That was 20 years ago,? Lim says.
Over the years, franchising of retail and services has likewise expanded.
The service sector, Lim notes, is suitable to the local culture.
?This is where Filipinos can excel, whether it?s a spa or beauty salon, anything that requires skilled and personal services. And also restaurants. I believe the next boom is in tourism.?
In its website, PFA details the qualities that make for a good franchisee:
Avid learner. Someone eager to learn will be receptive to the training and knowledge a franchisor will impart.
Effective communicator. A franchisee with good communication skills will be effective in conveying thoughts and ideas to people in the course of work.
Ample experience. General business skills, such as marketing, sales or administrative expertise, will come in handy for a franchisee.
Financial capability. This quality is essential in making a franchise fruitful. Moreover, the required money must be complemented with proper financial planning to run the business until it breaks even.
Awareness of brand. A prospective franchisee?s knowledge about a product or service indicates whether he is really serious in getting a franchise.
Open to new ideas. A good franchisee must be open to new ideas in order to make it easy for a franchisor to introduce changes in the system that can be beneficial for both.
Ready to follow. A franchisee must be ready to follow prescribed set of rules and regulations contained in the franchise agreement. This is important in maintaining the proven business system developed by the franchisor.
Original thinkers. Though it is necessary for a franchisee to be a good follower, he should also be able to think for himself. However, it must be made clear that franchisors are to be consulted first at every stage of introducing a new change in the system.
Step by step
PFA also outlined the step-by-step approach to franchising: Ask yourself why you want to own a franchise; and look for opportunities that greatly interest you.
Entrepreneurs are also asked to research on the following:
--Have a complete understanding of the business;
--Check on the business experience and track record of the franchisor;
--Determine the type of experience required in the business?the hours and personal commitment necessary to run the franchise;
--How much money is to be invested; and,
--The terms and conditions of a franchise agreement.
Get information on the franchise by visiting stores and interviewing franchisors and existing franchisees.
Look into the product or service and determine what makes it stand out among other businesses. Ask about the territory rights. Make sure you get a good site selection.
Check on the depth and quality of a franchisee?s labor pool, making sure that it provides strong and qualified workforce. Determine the kind of training and support a franchisor will provide. Ensure that all levels of support are included, clarifying that support will continue after the grand opening.
According to PFA, while the up-front cost of an investment may seem expensive, in the long run, it will prove beneficial. A more significant expense may be the royalty and marketing fees, it said.
Also, a franchisee must know his exit strategy, if and when he decides to give up the franchise.
Determine if there are resale options if it doesn?t work for you.
In the past, lack of capital has hampered growth of franchising in the Philippines. But with BPI Family pioneering this kind of facility, Lim predicts an ?explosion? of franchising in the years ahead.