How to Start a Franchise Business in the Philippines

November 27, 2024

Franchising is a popular business model in the Philippines, offering aspiring entrepreneurs a way to start a business with an established brand and proven systems. Learn the basics you need to know about franchising, from its fundamental concepts to the steps and requirements for starting your own franchise business in the Philippines.

What is a Franchise Business?

A franchise is an arrangement in which a franchisor grants the franchisee the right to operate a business using the franchisor’s trademark, brand, and system. The franchisee typically pays a fee and royalties in exchange for the opportunity to replicate the franchisor’s business model.

Franchisor: The owner of the original business and brand who grants the rights to the franchisee.
Franchisee: The individual or business entity purchasing the rights to operate under the franchisor’s brand.

In the Philippines, the government recognizes the importance of franchising in boosting the economy. The Philippine Franchise Act of 1995 established legal standards to protect franchisors and franchisees. More recently, Executive Order 169 of 2022 further bolstered the sector by setting guidelines to ensure fairness in franchise agreements and prevent industry exploitation.

Pros and Cons of Franchising a Business

Pros:

Established Brand: Franchisees benefit from the credibility and reputation of the franchisor’s brand.
Proven Business Model: Franchisees receive a roadmap for success, reducing the risks associated with starting a business from scratch.
Support and Training: Franchisors typically provide ongoing training, operational support, and marketing assistance.
Easier Financing: Financial institutions are often more willing to fund franchise businesses due to their lower risk.

Cons:

High Initial Investment: Franchise fees, royalties, and operational costs can be expensive.
Limited Flexibility: Franchisees must adhere to the franchisor’s rules and systems, leaving little room for innovation.
Ongoing Fees: Monthly royalty payments can reduce profit margins.
Dependence on the Franchisor: The franchisee’s success is tied to the franchisor’s reputation and performance.

Types of Franchises in the Philippines

Product Distribution Franchise: The franchisee distributes the franchisor’s products but operates independently (e.g., gasoline stations and bottled beverages).
Business Format Franchise: The franchisee replicates the entire business model, including branding, operations, and marketing (e.g., fast food chains).
Management Franchise: The franchisee manages the franchisor’s operations in a specific area, often in exchange for a management fee.

Franchise Costs in the Philippines

Franchise costs vary widely depending on the brand, industry, and business scale. Below are typical ranges in Philippine Pesos (PHP):

Micro Franchises: ₱50,000 to ₱500,000
Small Franchises: ₱500,000 to ₱2,000,000
Medium Franchises: ₱2,000,000 to ₱5,000,000
Enterprise Franchises: ₱5,000,000 and above

Consider additional costs like equipment, marketing, and operational expenses when budgeting for a franchise.

Steps to Start a Franchise Business in the Philippines

Step 1: Do Your Research

Identify industries and brands that align with your interests and budget. Discover opportunities through online resources, franchise expos, and local franchise associations.

Step 2: Contact Franchisors

Contact franchisors directly or through associations such as the Philippine Franchise Association (PFA). Ask for their franchise information, requirements, and process.

Step 3: Prepare Franchise Application Requirements

Common documents include:

Completed franchise application form
Letter of intent
Proposed business location with a site map
Resume or CV
Valid IDs
Any additional requirements specific to the franchisor

Step 4: Meet with the Franchisor

Discuss your plans, ask questions about the business model, and clarify operational details. This meeting also helps assess compatibility between both parties.

Step 5: Review the Franchise Agreement

Scrutinize the terms and conditions. Consult with a lawyer or business consultant to ensure fairness and avoid potential conflicts. Request revisions if necessary.

Business Registration for Franchises

After finalizing the franchise agreement, register your business. Follow these basic steps below, and for a comprehensive guide, read “How to Register a Business in the Philippines“:

Choose a Business Structure:
- Sole Proprietorship: Simple and low-cost but with unlimited liability.
- Partnership: Shared management and responsibility among partners.
- One Person Corporation (OPC): Offers limited liability for single owners.
- Domestic Corporation: Ideal for larger ventures with multiple shareholders.
Register with Relevant Agencies:
- DTI: For sole proprietorships.
- SEC: For partnerships and corporations.
- BIR: Secure a Tax Identification Number (TIN) and register for VAT or non-VAT status.
- Local Government Unit (LGU): Obtain a mayor’s permit, fire safety inspection certificate, and sanitation permits (if required.)
- Barangay Clearance: Required for local operations.
Secure a Business Address: Some franchises need to purchase a location. Franchisors may have location requirements to maintain brand standards.

Promote Your Franchise Business

Once operational, marketing your franchise is critical to attracting customers. Promotion tips include:

Social Media Marketing: Leverage Facebook, Instagram, and TikTok.
Local Partnerships: Collaborate with nearby businesses for cross-promotions.
In-Store Events: Host grand openings or promotional sales.
Online Listings: Register on food delivery platforms or directory sites if applicable.

Is Assistance Available?

Starting a franchise business involves navigating complex requirements and legalities. Triple i Consulting specializes in helping entrepreneurs and multinational companies establish businesses in the Philippines. From securing permits to business registration, our experts are here to guide you every step of the way.