The Philippines’ open economy is fertile ground for international franchises. From iconic coffee shops to popular convenience stores, the country is teeming with offshore businesses looking to expand in the region.
This widespread presence of foreign brands contributed to the nation’s growing economy in two ways: First, according to the Philippine Franchise Association, about 2 million Filipinos were employed in the franchising industry in 2023, raising the population’s employment rate. Second, it spurred homegrown brands to keep up. Today, giant companies like Jollibee are alongside other globally famous fast-food restaurants.
If you are reading this, you might be one of the business owners who aspire to expand via the franchising industry. Of course, the trade has its set of unique challenges, including finding the right franchisees to partner and grow with. The good news is that franchisors like you can rely on due diligence services in the Philippines to help you vet business partners. Read this guide by Q2 HR Solutions to learn more about the support you can get.
Due diligence services for franchising in the Philippines apply to the franchisor and the franchisee. This step is essential to ensure the franchise owner only associates with reputable business partners and to protect franchisees from dubious enterprises.
Service providers facilitating due diligence to vet franchisees may perform background checks and discuss the business they want to invest in. Meanwhile, due diligence aimed at franchisors ensures that aspiring franchisees work with legitimate, financially stable partners.
Franchising in the Philippines has long been a self-regulating industry, with associations like the Philippine Franchise Association (PFA) and the Association of Filipino Franchisers, Inc. (AFFI) leading and uniting local entrepreneurs and protecting their business rights.
Still, several government agencies regulate parts of the application and operation of businesses in the industry. The departments responsible for franchisers include:
Franchisors and franchisees must also secure business licenses from the local government unit in their trade location for smooth operations.
As a franchise owner, partnering with franchisees means you share the financial burden with other entrepreneurs. However, you do not just trust anyone to be a perfect business partner. Skipping on properly vetting prospective franchisees because you are in a hurry to close a deal or you overly trust the person is not a good move, as you may experience the following issues down the line:
Without observing due diligence, you might be surprised to learn that your prospective franchisee is in the middle of a legal dispute. Worse, their case might be connected to business-related issues, such as breach of contract or intellectual property misuse. Partnering with a franchisee with an ongoing civil case may hamper operations and negatively affect your brand reputation.
A franchisee applying for rights to your business model may not fully disclose their financial status and capability in their desire to acquire approval. This situation can put your franchise at risk as your chosen business partner might be unable to cover essential costs and deal with unexpected expenses. In fairness to franchise owners, checking a prospect’s financial situation is not simple. The complexity of doing so thus necessitates you, the franchisor, to hire due diligence services in the Philippines to do the background checks for you.
Many prospects may appeal to you with their charm and communication skills, but charisma can only get your franchise so far. If you rely solely on verbal recommendations or do not check beyond the potential franchisee’s promises, you might end up dealing with an inexperienced business partner. This oversight and its repercussions may affect how customers and future franchisees perceive your brand. If you aim for excellence, you must ensure your business partners can keep up.
Franchise agreements are lengthy, detailed, and complex. If specialists do not check these documents, their stipulations will likely have much room for misinterpretation and loopholes. Moreover, going through the agreement with only your prospective business partner, without a legal expert viewpoint, may cause issues and misunderstandings in the future.
Due diligence specialists thoroughly learn about your brand and business model to find a perfect match. If you pick your franchisee without the help of experts and their data-backed process, you might miss signs that point to a misalignment of values and priorities. Franchisees not aligned with your goals and vision may affect your brand’s success.
Choosing deserving franchisees for your business can be more efficient if you hire a due diligence firm in the Philippines. A reliable third party can help you find the best prospects in the following ways:
A due diligence company in the Philippines will perform a thorough background check on your prospective franchisees. This process includes identity verification as well as criminal record, credit, and civil litigation checks. A trustworthy service provider will perform this step diligently, ethically, and legally to ensure prospects’ privacy rights are not violated.
Financial due diligence is part of the services third-party agencies provide to franchisors in the Philippines. This step covers checking your prospect’s financial health, creditworthiness, and capability to cover operational and unforeseen expenses. Your hired third party will also review the franchisee’s balance sheet and income statements to confirm their financial status.
In addition to helping you with background checks and financial due diligence, franchise screening firms in the Philippines evaluate your prospect’s business expertise and capabilities. The third-party agency conducts interviews to learn more about the aspiring franchisee’s background, personality, and understanding of your business model and provides you with recommendations.
Part of the due diligence process is ensuring that your prospects thoroughly understand your business, including your brand identity, priorities, and plans for the future. An agency can help you communicate this information so that your franchisees will know what they are getting into. Not skipping this step will also help filter out mismatched and misaligned franchise candidates.
If you are just starting out with franchising, partnering with a due diligence service provider can help you expand faster and more efficiently through their broad network of franchisees. Working with a trustworthy agency can also enhance prospects’ perception of your brand — they are more likely to take an interest in a franchise that is connected with reputable due diligence firms.
As a franchisor, you have the right to run your business in the Philippines and work with franchisees, provided that you secure the necessary certificates and licenses. To ensure legal operations, you must register with several agencies, including DTI, SEC, and BIR. Securing a permit with your local government unit is also essential.
You are also allowed to not proceed with a franchise agreement with a prospective business partner if your due diligence agency spots issues that might jeopardize your franchise in the future.
Securing your trademark property with the corresponding agency is part of your obligations as a franchisor. That means registering your brand assets with the Intellectual Property Office of the Philippines (IPOPHL) and renewing your registration as needed. Filing an application secures your right to the trademark and limits its use to franchisees you approve.
You can also protect your intellectual property by including confidentiality clauses in your franchise agreement with business partners. These additional details will protect the proprietary information and trade secrets you will share with your franchisees.
A franchisor can terminate a franchise agreement provided that it is within the bounds of the contract. Grounds for termination, such as breach of contract or non-compliance with disclosure requirements, should be included in the agreement to ensure fairness and avoid legal disputes between you and your franchisee. Given the technicality of such contracts, it is best to consult the contents of your document before both parties sign it.
Running a franchise can be rewarding, but it also poses many challenges that you need to face to succeed, including choosing the right franchisee. Fortunately, franchisors like you can rely on due diligence services in the Philippines to help you identify the best business partners and mitigate business risks. With the right agency filtering prospects, you can prevent mishaps like franchisees not declaring legal disputes or bankruptcy and disagreements caused by a difference in priorities and values.
Ready to kickstart your franchise business? Contact our dedicated experts, and let us help you select the franchising partners you deserve!
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