Have you ever thought about franchising your business?
If you want to expand, but lack the money, people or time, it may be time to think about franchising.
You should know that franchising is one of the most dynamic growth vehicles available to you. For example, in the United States alone, franchising is estimated to represent 40 per cent of all retail sales, which equates to hundreds of billions of dollars.
But before that, you need to ask yourself a few questions.
Is My Business ‘Franchisable’?
Any type of business can be franchised, provided it meets some basic characteristics:
- Is it credible?
- Is it unique?
- Is it teachable?
- Does it provide an adequate return?
If your answer is yes to all the above questions then franchising your business would be a viable option for you to expand.
There are 3 main elements to note about franchising in Singapore:
- The franchisor: the company selling the rights for the franchise
- The franchisee: the entrepreneurs buying the rights for the franchise
- The franchise agreement: a contract signed by the franchisor and the franchisee.
For the franchisors in Singapore, they have these following obligations and rights:
- The obligation to provide the franchisee all the know-how related to the business.
- The obligation of ensuring the franchisee and his or her staff have access to training
- The right to be compensated for granting the franchisee to use the rights over the business.
In return, franchisees in Singapore have the following obligations:
- To respect the content of the franchise agreement
- To use the technology put at his or her disposal just as required by the franchisor
- To come up with the location for the franchise
- To pay the royalties or other compensation as prescribed in the agreement
The holder of a franchise license in Singapore also has the right to use the trademark of the franchise and is entitled to profits from this use.
Franchise opportunities in Singapore?
Frankly speaking, Singapore is a haven for companies to franchise their business. Firstly, it is strategically located in the centre of Southeast Asia, one of the fastest-growing regions in the world. The people of Singapore also have the benefit of enjoying advanced infrastructure, first-rate services, and a world-class business climate. Despite its small population of 5 million, Singapore is home to a variety of franchising concepts and has more than 30,000 franchises currently operating. Additionally, Singapore frequently ranks highly on the World Bank’s Ease of Doing Business charts.
In 2017, The Gross Domestic Product (GDP) of Singapore was $323.91 billion US dollars and Foreign Direct Investment in Singapore totalled up to $1,568.0 Billion. The GDP value of Singapore represents 0.52 % of the world economy. Singapore’s real GDP growth in 2018 grew by 3.2%. The Singaporean economy has been growing rapidly and as a result, the country now has one of the highest GDP per capita in the world.
Singapore also has a strong workforce due to its stable environment. The 2011 World Bank Report reflects that Singapore ranks in the 99th percentile in terms of government effectiveness, and 90th percentile in terms of political stability and absence of violence. The World Bank index released in October 2018 also ranked Singapore as the first out of 157 countries in terms of developing human capital.
Singapore was also the first country in Asia to sign a Free Trade Agreement with the U.S.A (the U.S.-Singapore FTA) which came into force on January 1st, 2004. The agreement makes Singapore one of the strongest intellectual property rights regimes outside of the United States.
With Price, Quality and Service being the main selling factors in Singapore, Franchisors will be able to use the competitiveness of Singapore’s markets to their advantage. Franchising in Singapore is a mature and popular investment for many people.
In Singapore, there is no need for a company to register as a franchise. Like many other countries, there are no disclosure requirements and no laws that are franchise-specific in Singapore. This means that there are limited regulations that will burden franchisors. Moreover, the paperwork required to be done in order to start a franchise can be quickly obtained and approved in a matter of days. The primary legal aspect is the contract agreement between the franchisor and the franchisee. As long as there are no disputes between them, there are no regulations.
However, do note that Singapore does require something akin to a “proof of concept,” which basically means that hopeful franchisors need to have experience running a business themselves before being able to offer franchises so that franchisees will have some form of assurance.
Barriers to Entry
If you are a foreign brand, there are minimal barriers to entry. According to the World Bank, the start-up procedures required to register a business will take 3 days. It is also easy to fulfil the requirement that 30% of a foreign company’s directors need to be Singaporean. They do not necessarily need to have voting rights, so the company only needs to get a sufficient number of directors on board.
It is advantageous to have foreign origins to a franchise system. They would have already adhered to the “proof of concept” prerequisite as Singapore automatically recognises any business experience outside its borders. Furthermore, prospective franchisees and local consumers are open to new systems and have high confidence in foreign concepts.
However, all these opportunities may make you question if this is too good to be true. Of course, with any new business venture or opportunity, there are definitely risks and challenges involved. Let’s delve into a few of them to better understand and mitigate these potential downsides!
Costs of running a business
Land and space are limited and expensive in Singapore. Commercial leases can be as short as one year which makes the real estate market especially precarious for SMEs, as it brings a lot of uncertainty to these businesses. Besides costly real estate, operating costs are also expensive as most of the necessary commodities needed to run a business will need to be imported.
Finding financing for your franchise business
Financing can either be a nightmare in Singapore or no problem at all. In terms of capital requirements, corporate franchisees are able to handle them much better than individual franchisees. For hopeful franchising candidates, there are certain finance options they can consider in order to jump-start their aspirations. Singapore’s government has introduced “Spring Singapore”, a program used to provide SME loans, which includes equipment and factory loans, bridging loans, venture capital loans, working capital loans and microloans.
However, financing for some franchisors and franchisees remains a problem despite these programs. First of all, many lenders regard the business as its own individual entity and evaluate only the individual borrower. In summary, they neglect the support structure that will back up the borrower through the franchise structure. More recently, aspiring franchise candidates have benefited from crowdfunding. There are user-friendly mobile apps like FS Bolt that helps SME owners to apply for crowdfunding loans. Aspiring franchisees can consider this option of microlenders who often offer straightforward application processes which can be accomplished using an easy smartphone app and can jump-start their franchising dreams with a loan of up to SGD 100k in Singapore.
In a nutshell, franchising does have its benefits in order to take your business to the next level and Singapore holds many great opportunities to franchise brands. One of the main challenges is to find interested franchisees. You’ll also need to find funding to run a business in a costly environment like Singapore. FS Bolt can provide you with a solution there. Download our app now and you can get lightning quick approval on a loan of up to $100,000 SGD within 24 hours!