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Published on February 18, 2008

Many Thai franchisees lack knowledge about running franchise businesses, and this often results in failure, says Somjit Likitsathaporn, managing director of Franchise Focus, the publisher of Franchise Focus magazine.

Somjit recently completed a pocket manual to advise people who plan to take up a franchise.

She points out in the manual that most people do not properly study the business they want enter and therefore have no idea about the prospects for growth or failure.

"So, the first thing those who want to be franchisees have to do is survey the prospects of the master franchise business and ask everything they need to know before starting their own business," she says.

The survey includes studying the franchiser's existing outlets to see where they are located, how they are run and whether they are successful.

Somjit says that if the franchiser is a good business and not just trying to lure franchisees, it will gladly give them all the information, including pros and cons, that prospective franchisees need to know before deciding to do business with them.

"The most important thing prospective franchisees must do is to survey as many outlets as possible to get information to decide whether the franchise business is worth investing in. I would suggest that if half of the shops are not successful, you have to reconsider investing in that business," she says.

Somjit offers examples of questions that franchisees should ask franchisers, including:

How much investment is needed?

What is the target group for the product or service?

What are the qualities of the product or service?

How many customers can be expected each day?

What are the problems involved in running the business?

Are the existing franchises profitable?

How can they pay benefits to franchisers?

How often do parent companies train franchisees? Which topics do they train and how they train?

How about the marketing plans of parent companies?

What are the best locations for generating profits?

How many shops close down? Why, and where are they located?

 

After studying the business prospects, the second thing a potential franchisee should do is decide whether they truly want to invest in that business. Somjit says there is a common misunderstanding that franchisees only pay the franchise fees and set up the outlet, and the franchiser then runs businesses while they reap the profit from their investment.

"This misunderstanding leads franchisees to become victims of fake franchises. The principle of franchising is that companies that succeed in their enterprise franchise the operation to others. So franchisees have to invest money and operate the business themselves," she says.

Third, Somjit advises prospective franchisees to study the franchisers closely.

Among the things to look for are whether they a policy of encouraging franchisees to succeed, their management skills, how well established the franchise is, their business negotiating power and marketing support.

A good franchise management system is very important as well, she says.

Fourth, franchisees must check franchisers' financial status. An easy way is to look them up on the website of the Business Development Department, which provides information about shareholders, registered capital, financial status and balance sheets.

Fifth, Somjit warns that prospective franchisees should not believe franchisers' claims regarding their break-even point, because it is not easy to predict when a business will become profitable.

The Nation