Choosing Your First Franchise Partner in the Philippines

Your first franchisee is more than an investor. They are the first partner who will run the business you have built without you managing it day to day. Before accepting applications, put a fair, documented selection process in place. In franchising, finding the right partner matters more than rapidly expanding your branch network.

1. Define the right partner for your business

Start with the practical needs of the business, not the number of enquiries you receive. If the shop requires close supervision of stock and staff, an applicant with money but no clear management plan is not enough.

Set out the criteria applicants must meet:

• Sufficient, verifiable funding: They have funds to open the business and cover running costs while sales are still stabilising.
• Time to manage the business: It is clear whether they will oversee operations themselves or appoint a manager.
• Ability to follow the system: They are willing to use established procedures and accept performance reviews.
• Local knowledge: They understand the customers, competitors and challenges of the proposed location.
• Good interpersonal skills: They can handle complaints, lead staff and communicate honestly.

Distinguish between qualities applicants must already have and skills they can learn. Using equipment can be taught; withholding information or repeatedly disregarding agreements is harder to address. Apply the same criteria even if the applicant is a relative or friend.

2. Assess capability, not just promises

Use a staged process: an initial questionnaire, an interview, a document review and a meeting to discuss expectations. Do not request sensitive documents at the outset if the applicant clearly does not meet the basic requirements.

During the interview, ask about specific situations. For example: “If you are short-staffed on a busy day, how would you maintain service standards?” Or: “If sales are weak for several months, where would the money for rent and wages come from?” A detailed explanation is more useful than a simple assurance that they will follow the system.

Ask applicants to explain their sources of funding, debt obligations and funds set aside for operating costs. Have suitable supporting evidence reviewed by someone qualified to understand financial documents. You do not need to collect every detail of an applicant’s private life to establish their financial capacity to invest.

Republic Act No. 10173, the Philippine Data Privacy Act, governs the processing of personal information. Explain why you are collecting the data, who will have access to it and how long it will be retained. Limit collection and access, use secure storage and establish appropriate deletion procedures. Do not ask for passwords or direct access to an applicant’s bank account.

3. Make the offer fair and transparent

The Philippines has no single comprehensive franchise law. However, this does not mean that recruiting a franchise partner is unregulated. The Civil Code is important for contracts, while the Intellectual Property Code governs the use of trade marks and other intellectual property rights.

Executive Order No. 169, series of 2022, also provides specific protections for agreements involving micro, small and medium-sized enterprises. These include a written, notarised agreement and prescribed minimum provisions covering rights, responsibilities, termination and dispute resolution. It also directs the Department of Trade and Industry (DTI) to establish a register of franchise agreements. Ask a lawyer to review its scope and confirm the current registration procedure with the DTI.

There is no general obligation to provide a standard pre-contract disclosure document for every franchise. However, this is not permission to withhold important information or promise guaranteed earnings. Under the Civil Code, fraud that affects a party’s consent may provide grounds for annulling a contract.

Before asking for a signature, provide a draft agreement and a realistic description of the support you will offer. Clearly distinguish actual results from existing branches from projections for the new location. Give applicants sufficient opportunity to ask questions and consult their own advisers.

4. Base your decision on a written assessment

Create a simple record for each applicant covering the criteria, evidence, outstanding questions and decision. The outcome may be acceptance, deferral pending further information, or rejection. Record your reasons so that a good conversation alone does not determine your choice.

If a separate manager will run the business, include them in the assessment. Also make clear that accepting the applicant and approving the location are separate decisions. A strong partner may still propose an unsuitable site.

Practical reminder: Before accepting your first partner, finalise your selection criteria, interview process and approval procedure. Careful selection lays the foundation for stronger relationships within the franchise community.