What should I consider before purchasing a franchise
Franchising is a method of distributing products or services. At least organizations or people are involved in a franchise system: (1) the franchisor, who lends his trademark and a 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.
In Vietnam, there are over 100 franchise systems registered, including foreign and Vietnamese brands. Internationally recognized brands such as KFC, Pizza Hut, Lotteria, Jollibee, Pho 24, Highlands Coffee, and many others have had a good start. New brands like Burger King, Starbucks, Domino’s Pizza, Carl’s Jr. and others are starting to expand in major cities. With many of the largest franchise systems already here or planning to be here in the next few years, investors looking for strong investment opportunities should seriously consider the franchising model before it is too late.
Below are some common questions that every investor should ask before purchasing a franchise.
a. the type of experience required in the franchised business;
b. a complete understanding of the business;
c. the hours and personal commitment necessary to run the business;
d. who the franchisor is, what its track record has been, and the business experience of its officers and directors;
e. how other franchisees are doing;
f. how much it’s going to cost to get into the franchise and what is the financial return;
g. how much you’re going to pay for the continuing right to operate the business;
h. if there are any products or services you must buy from the franchisor and how and by whom they are supplied;
i. 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;
j. 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. Vietnam does have specific franchise laws that franchisors and franchisees must abide by, and these laws are meant to protect the investor.
We recommend that you engage a competent franchise professional to advise on the feasibility of the franchise for the Vietnamese market as each market is different. In addition, franchise agreements are complex and number potentially hundreds of pages and knowing what is negotiable will be critical to successfully acquiring the franchise and keeping legal costs to a minimum. This is where a competent franchise professional guiding the investor is needed, and a franchise attorney is there to ensure that contract changes are made effectively in the franchise agreements. We at Vietnam Franchises have negotiated numerous franchise agreements over the past 30 years in Southeast Asia.
About Vietnam Franchises Ltd
With offices in Ho Chi Minh City, Vietnam and Singapore, Vietnam Franchises is one of the leading, most trusted, and “Go-To” franchise and management consultancy for Vietnam and South-East Asia, a market consisting of nearly 600 million people. With offices at the center of South-East Asia, we are positioned to assist our clients enter the fastest-growing emerging region in the world. For more information, please contact [email protected].