Choosing a Model Before Franchising Your Business

Before franchising your existing business, clarify exactly what you can offer another entrepreneur: the right to sell your products, or a complete system they can operate at another location. These differ in terms of control, costs and responsibilities. In the Philippine franchise market, a brand owner's promises must match the model they can actually deliver.

1. Decide whether you are offering products or a complete system

Under a product distribution franchise, the partner primarily receives the right to sell the brand owner's products. There may be standards for product display and use of the brand name, but the arrangement does not necessarily include a complete business operating system.

For example, a business making bottled sauces might sell its products through authorised shops. If those shops remain free to choose their own name, layout and operating methods, a distribution agreement may be more appropriate than a full franchise offering. Not every relationship involving product supply and use of a brand is automatically a franchise.

A business format franchise includes the brand, operating methods, standards, training and ongoing support. What is offered is not just merchandise, but an integrated approach to delivering a product or service.

Ask yourself: why do customers buy from you? If they are simply looking for the product, distribution may be enough. If consistent service, customer experience and processes matter, a business format franchise deserves closer consideration.

2. Compare the control you need with your ability to enforce it

Draw up two columns: must be consistent and left to the partner's discretion. Include shop layout, equipment, opening hours, service methods, product selection and use of the brand name.

Then answer the following questions:

• Will customers still recognise what the brand promises if service methods differ?
• Must partners sell your products exclusively, or can they stock them alongside other goods?
• Can you support and monitor the entire operation, rather than simply supply products?
• Which decisions should reasonably remain with the local owner?

If you want to control almost everything but lack the staff and systems to enforce those requirements, your chosen model does not yet match your capabilities. Simply putting a long list of obligations into a contract is not enough.

Conversely, if you only need to maintain product quality and proper presentation, requiring a uniform shop design and a complete operating system may be excessive. Choose controls that serve a clear purpose, rather than adding them just to make the offering look more comprehensive.

3. Make sure the offering's name reflects the actual agreement

Set out on one page exactly what the partner will receive. Distinguish between the right to use the brand, product purchases, access to the system and the services you will provide. Specify what is not included as well.

For example, if you will not provide complete procedures for running the shop, do not promise a turnkey business. Equally, if you are offering a complete system, supplying goods and allowing the partner to put up a sign is not enough.

The Philippines has no single comprehensive law covering every aspect of franchising. There are, however, specific regulations: Executive Order No. 169, series of 2022, establishes protections for micro, small and medium-sized enterprises that become franchisees. These include minimum requirements for agreement content and registration of covered agreements with the Department of Trade and Industry (DTI).

The Civil Code also applies to contracts, while the Intellectual Property Code governs the use of brands and related rights. Republic Act No. 9178 concerns barangay micro business enterprises — a category of small, community-based businesses — and is not a ‘Franchise Act of 1995’.

Have a lawyer review the actual relationship. Calling an offering ‘distribution’ is not enough to remove obligations that may apply to the way the arrangement works in practice.

4. Choose your model before expanding your offering

A brand can use different models, but they should not be bundled into an unclear package. If you have authorised distributors as well as separate shops operating under a complete business system, their respective rights and responsibilities must be clearly defined.

Before making an offer, check that your description of the model, written agreement and actual delivery all align. Also check that prospective partners understand the difference between buying stock and operating under a complete system.

Practical takeaway: Choose the clearest model you can deliver. Growth rests on firmer foundations when both sides understand what rights and resources are being provided, what is controlled and who is responsible.