10 questions for every would-be franchisor
Mar 14, 2013
Franchising is booming in Asia – and Vietnam is no exception.
In Vietnam, there are already more than 100 franchise systems registered, including foreign and Vietnamese brands.
Internationally recognised brands such as KFC, Pizza Hut, Lotteria, Jollibee, Pho 24, Highlands Coffee, Baskin Robbins and many others have had a good start. New brands to the market – like Burger King, Starbucks, Domino’s Pizza, Carl’s Jr. and others are starting to expand in major cities.
With many of the world’s largest franchise systems already in Vietnam – or planning to be here during the next few years, in the case of McDonald’s and Dunkin Donuts – investors looking for strong investment opportunities should seriously consider the franchising model before it is too late.
Franchising is a method of distributing products or services. At least organisations or people are involved in a franchise system: (1) the franchisor, who lends its trademark and business system; and (2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor’s name and system. In essence, franchising is the practice of using another company’s successful business model.
Franchisors and franchisees have a mutually beneficial relationship that is unique in the world of business. Franchising means being in business for yourself but not by yourself. Whether it’s operations, marketing, accounting and financing, procurement, training, personnel management, or inventory control, franchisors are there to provide “hands on” assistance. Franchising offers strong economic opportunities for entrepreneurs looking for investments into “proven” and perhaps less risky businesses.
Below are some common questions that every investor should ask before purchasing a franchise.
- The type of experience required in the franchised business.
- A complete understanding of the business.
- The hours and personal commitment necessary to run the business.
- Who the franchisor is, what its track record has been, and the business experience of its officers and directors.
- How other franchisees are doing.
- How much it’s going to cost to get into the franchise and what is the financial return.
- How much you’re going to pay for the continuing right to operate the business.
- If there are any products or services you must buy from the franchisor – and how and by whom they are supplied.
- The terms and conditions under which the franchise relationship can be terminated or renewed, and how many franchisees have left the system during the past few years.
- The financial condition of the franchisor and its system.
While the above is not a complete list, you can get answers to many of these questions from direct discussions with the franchisor and from the Financial Disclosure Document (FDD) that all franchisors must provide to franchisees by Vietnamese law.
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