05 Jul How To Start A Franchise Business In Malaysia: A Step-By-Step Guide
How do big brands like Old Town White Coffee and Secret Recipe
have such a widespread presence in the country?
Franchising is a methodical collaborative business structure that allows stores to expand exponentially.
Establishing a franchise is ideal if business owners wish to setup their brand presence in a large area, for example, throughout a country or a continent. This is made possible by selling a business to franchisees who will be in charge of their particular branch so they do not have to be physically present in all your locations.
Franchises are becoming very common, and they are especially popular in shopping centres. To buy your own franchise, we have assembled a list that would pretty much cover all your bases to get started.
Research and Survey Checklist
When they say “location is key”, it is absolutely spot on.
- Is this place easily accessible to me?
- What business type does the location need? (Retail, F&B, commerce, etc)
- Can I visit the place or is it still under construction?
- Do the locals know the brand I’m interested in?
- Is there a demand or need for the brand?
- Who are your competitors?
- Is another branch too nearby?
- What is the population size?
Have about 10-15 possible brands in mind, and mark those that interest you the most.
2. Franchise Events
These events are a good way to get a feel of your possibilities. It is the only place where you can get all the information you want at one single spot.
- Get free brochures that educate you about franchising
- Familiarise yourself with franchising regulatory bodies
- Narrow down the business sector you want
- Pick a few businesses that interest you and get their contacts
- Network with fellow attendees by chatting and sharing information
- Beware of franchise sellers who will say anything to sell their business
- Do not make any decision on the day itself, take time to digest
Franchise events can be overwhelming, but if you stand your ground with a checklist in hand and a clear focus, it is truly a buffet of information that you would otherwise have to search all over to get.
3. Web Search
By now, you would more or less have an idea of what type of business sector and brand you want. It may have changed from Step 1 to Step 2. That’s great, it shows progress.
The most important aspects to look into when comparing franchise offers are:
- Initial entry fee
- Royalty fee
- The percentage annual sales cut
- Contribution to shared services (eg: administration, advertising)
- Software subscription
- Equipment maintenance
- Construction expenses
- Start-up inventory
- Annual reports, financial statements, future expectations
- Market challenges using the Industry Key Performance Indicators (KPI’s).
That should narrow your list down quite a lot. Ideally, you would now have 4-5 suitable franchise offers remaining.
4. Visit the franchises
Once you have a thorough understanding of the information about the franchise, it’s time to see it in practice. A store visit can be arranged with the franchisor.
- What does a typical day look like?
- How do they manage the staff?
- What is the average service waiting time?
- What is the time and duration of peak hours?
- How are the slow hours utilised?
- Is the local manager happy with their franchise arrangement?
- Are you able to get honest answers from the staff about their work satisfaction?
You might’ve been a patron at the branch, but you’ll realise it’s very different if you go there with the intention to scout a potential business.
5. Talk to experienced franchisees
This could be a friend, a family member, a franchisor of another branch, or someone you met from a franchise event.
- Would they recommend franchising?
- Do they have experience in the location you seek?
- What was their biggest issue?
- Any huge adjustments when compared to their pre-franchise business experience?
- Are there any problems with the business model?
- Why did they quit?
- Is there something they would have done differently?
Most people enjoy sharing their stories and talking about their own experiences so absorb as much as you can.
6. Consult with the Malaysian Franchise Association (MFA)
If you still feel unsure or need more support, the MFA offers a franchise-friendly economic environment. Some of the benefits of consulting with them are:
- Franchising events
- Support and information services
- Training courses
The MFA was created by the Malaysian government specifically to aid franchisees as they identified high franchise rates as a strong economic driver.
Drawing Up Your Business Plan
At this stage, you would’ve made a decision on which franchise to join. Now it’s time write a business plan, which is a written blueprint of your business’s future. A strong business plan will persuade prospect investors to supply you with capital.
You can imagine how tedious and difficult this task will be. There are many uncertainties, but you have to make lots of decisions and write them in words. Just estimating the future performance of your business is a feat in itself, but it’s better to air on the conservative side of your profit estimates.
Franchisors are a great help with this as they will most likely already have a business model and data from other franchisees that you can refer to as a starting point. Here’s a list of areas that are essential in any business plan:
- General company description
- Operational: overview of products and services offered / personnel / hours / suppliers
- Marketing: branding strategy / customer engagement / marketing mix analysis
- Legal: Analysis of legal environment/tax implications / proposed business form
- Financial: capital needs / break-even point / revenue estimates / pro forma financial statements
- Liability measures / Insurance structure
At the end of this step, you may find that a particular franchise business is not be suitable for you after all. This is completely fine; it is better you realise now than later when you have made financial investments.
Filing your franchise agreement
So, you’ve done all the research and preparation you can do, and you made your decision to go forward with this. In order to officiate your partnership with the franchisor, you’ll need to file your franchise.
A franchise agreement will be registered with the Franchise Registry and needs to contain the following things:
- The name and description of the product and business under the franchise.
- The territorial rights granted to the franchisee; 20 Laws of Malaysia ACT 590.
- The franchise fee, promotion fee, royalty or any related type of payment which may be imposed on the franchisee, if any.
- The obligations of the franchisor.
- The obligations of the franchisee.
- The franchisee’s rights to use the mark or any other intellectual property, pending the registration or after the registration of the franchise.
- The conditions under which the franchisee may assign the rights under the franchise.
- A statement on the cooling off period as provided in subsection
- A description pertaining to the mark or any other intellectual property owned or related to the franchisor which is used in the franchise
- If the agreement is related to a master franchisee, the franchisor’s identity and the rights obtained by the master franchisee from the franchisor
- The type and particulars of assistance provided by the franchisor
- The duration of the franchise and the terms of renewal
- The effect of termination or expiration of the franchise agreement
Starting a franchise is a little simpler than starting a business from scratch, but still requires a lot of work.