If you are considering venturing into entrepreneurship and want to operate a business under an established brand, franchising is a compelling path to explore. Franchising has become a dynamic force in the Malaysian business landscape, allowing aspiring entrepreneurs to access well-established brands, tried-and-true business models, and ongoing support.
Whether you are eyeing the food industry, retail, or any other sector, this guide will equip you with the knowledge and insights to make informed decisions, from selecting the right franchise to navigating this business's legal and financial aspects. Let's dive into the rewarding world of franchising in Malaysia and empower you to take the first steps towards becoming a successful franchise business owner.
- 1. What Are the 4 Types of Franchise Businesses in Malaysia?
- 2. How Much Does It Cost to Buy a Franchise in Malaysia?
- 3. How to Choose a Suitable Franchise Business?
- 4. How to Register a Franchise in Malaysia?
- 5. What Is the Lifespan of a Franchise in Malaysia?
- 6. Can a Franchise Business Fail?
- 7. What Happens When a Franchisor Terminate a Franchise Relationship?
- 8. What Happens if Franchisee Dies?
1. What Are the 4 Types of Franchise Businesses in Malaysia?
Franchise businesses can be categorised into various types based on the nature of the products or services they offer. Data from LinkedIn mention the four primary types of franchise businesses are:
1. Product Distribution Franchise
The franchisee uses their own space to sell the franchisor's products under the franchisor's brand name. The franchisee pays the franchisor for this privilege and receives products to sell. The franchisor offers support in marketing and training, and the advantage is that the franchisee gets to use the franchisor's brand. However, the franchisee does not have complete control over the business operation, as they run their business under the franchisor's brand.
Example: Coca-Cola Bottling Company. In this type of franchise, the franchisee distributes and sells the franchisor's products, such as Coca-Cola beverages.
2. Business Format Franchise
In this form of franchise business, the franchisee is granted an exclusive license to utilise the franchisor's brand, reputation, products, and services to establish a distribution network. The franchisor provides support for marketing, initial setup, and training to assist the franchisee.
Example: McDonald's. Franchisees use the franchisor's business model and brand to run their own McDonald's fast-food restaurants.
3. Management Franchise
This franchise model emphasises service-based and management activities. The franchisee operates the business under the franchisor's name. It is often seen in B2B service franchises, which cover areas like home care, facilities management, financial consulting, and more. The franchisor provides training, marketing support, and essential infrastructure to the franchisee.
Example: Marriott International. Marriott allows franchisees to manage and operate hotels under its brand, following Marriott's standards and procedures.
4. Manufacturing Franchise
A manufacturing franchise is when the franchisor's business is all about making consumer and industrial products. The franchisee is licensed to operate production units under the franchisor's brand and can also distribute these products. This franchise type is focused on producing goods for consumption, including food and consumer products.
Example: Ford Motor Company. Ford authorises franchisees to manufacture its vehicles using its manufacturing processes and guidelines.
2. How Much Does It Cost to Buy a Franchise in Malaysia?
According to Quadrant Biz Solutions, the cost of purchasing a franchise in Malaysia can vary significantly, with fees typically ranging from as low as RM15,000 to as high as RM3,500,000. Popular franchises such as McDonald’s, KFC, 7-Eleven, Tealive and Anytime Fitness require substantial upfront investments, while there are many other options with more affordable entry costs, making franchising accessible to a broader range of entrepreneurs.
Food and beverages franchise businesses in Malaysia:
| Franchises | Capital Required | Franchise Fee | Royalties |
|---|---|---|---|
| Boost Juice | RM250,000 - RM350,000 | RM65,000 | 6% |
| McDonald’s | RM1,500,000 - RM3,500,000 | RM215,100.00 | 5% |
| Marrybrown | RM800,000 - RM1,000,000 | RM120,000 | 4% of gross sales |
| Tealive | From RM250,000+ | RM75,000 | 3% |
| Secret Recipe | From RM600,000 | RM150,000 | 5% of net sales |
| Subway | RM607,946 - RM1,057,131 | RM44,900 | 8% |
| Nelson’s | RM15,000 - RM60,000 | RM5,000 - RM12,000 | N/A |
| OLDTOWN White Coffee | From RM700,000 - RM1,000,000 | RM80,000 | 5% |
Retail franchise businesses in Malaysia:
| Franchises | Capital Required | Franchise Fee | Royalties |
|---|---|---|---|
| Bonia | RM145,000 | RM20,000 | N/A |
| 7-Eleven | RM250,000 | RM100,000 | 10% |
| Focus Point | RM400,000 | RM60,000 | 5% |
| Vincci | RM400,000 | RM38,000 | 4% |
| Ms. Read | RM250,000 | RM60,000 | 7% |
Services franchise businesses in Malaysia:
| Franchises | Capital Required | Franchise Fee | Royalties |
|---|---|---|---|
| Anytime Fitness | RM1,200,000 | RM286,800.00 | RM6,400 |
| Mailbox ETC | From RM80,000 | RM50,000 | 2% of monthly gross sales |
| Kumon | From RM70,000 | From RM10,000 | N/A |
| Laundry Bar | RM167,000 - RM281,000 | N/A | N/A |
| Smart Reader Kids | N/A | RM40,000 - RM50,000 | N/A |
| Q-dees | RM100,000 | RM50,000 | 5% |
3. How to Choose a Suitable Franchise Business?
Choosing a suitable franchise business involves several important steps and considerations. Here is a guide to help you make an informed decision:
1. Alignment with Your Goals
Selecting a franchise that aligns with your personal and professional goals ensures that you are passionate and committed to the business. This motivation is essential for success and long-term satisfaction.
2. Financial Investment
Investing in a franchise requires a significant financial commitment. Choosing the right franchise safeguards your financial stability and minimizes the risk of financial stress.
3. Support and Training
A reputable franchisor with a history of supporting its franchisees increases your chances of success. Adequate training, ongoing assistance, and a strong support network are crucial for your business's profitability.
4. Market Potential
Assessing the market demand for the franchise's products or services in your chosen location ensures that there is a customer base for your business. This understanding helps you tap into a profitable market.
5. Risk Mitigation
Careful selection of a franchise can help mitigate risks associated with entrepreneurship. Established franchises often have a proven business model that reduces the risk of failure.
6. Personal Satisfaction
When you choose a franchise that you are genuinely passionate about, you are more likely to find personal fulfilment in your work. This satisfaction can lead to a more rewarding and enjoyable career.
7. Profitability and Growth
Your choice of franchise directly impacts the potential for profitability and growth. A well-selected franchise has the potential to offer consistent and sustainable revenue.
Check out these lists of franchises to help narrow your options:
4. How to Register a Franchise in Malaysia?
After deciding which franchise business you want to start, the next crucial step involves ensuring your franchise is legally compliant and recognised as a legitimate entity. Based on Paul Hype Page Malaysia, the process involves two distinct stages:
Stage 1: Registration with the Registrar of Franchise (ROF)
The specific registration procedure varies depending on whether you plan to operate a franchise from a local or foreign franchisor:
1. For a franchise from a local franchisor
You must submit the registration to the ROF within 14 days from the date of signing the franchise agreement.
2. For a franchise from a foreign franchisor
You must submit the registration to the ROF before commencing your franchise business operations.
To register a franchise with the ROF, the franchisor must prepare and submit specific documents. These documents include:
- Franchise agreement
- Operation manual
- Training manual
- Certificate of incorporation
- Forms 24 and 49
- Form of annual return
- The last 3 years of audited balance sheets and profit and loss accounts
- A 5-year financial projection for the franchise
- A registered trademark filed with MyIPO (certified true copy)
- Franchisor's organisational chart with names and positions of key stakeholders
- Franchisor's company brochures
- Photographs of outlets, which can be prototypes
- Bankruptcy search results for directors
- A business proposal outlining competitive advantages, vision, strategy, and other relevant details
Note: The process of registering a franchise with the ROF typically spans a timeframe of 2 to 6 months.
Stage 2: Registration with Suruhanjaya Syarikat Malaysia (SSM)
Every business entity in Malaysia, including franchises, must undergo registration with the SSM. This step is essential for the legitimate operation of your franchise business and for formally establishing your presence as shareholder within the company.
5. What Is the Lifespan of a Franchise in Malaysia?
Abbas & Ngan stated that franchise registrations in Malaysia had indefinite validity, remaining in effect unless the Registrar of Franchise (ROF) decided to suspend, terminate, or cancel the registration. However, the current regulation stipulates that franchise registrations are now limited to a 5-year period. Franchisors have the option to request a renewal from the ROF within 30 days of the registration's expiration. It is worth noting that this renewal requirement also applies to existing registrations.
6. Can a Franchise Business Fail?
Yes, a franchise business can fail, just like any other business. The success of a franchise depends on various factors, including the franchisor's support, the franchisee's management and commitment, market conditions, competition, and more. While franchising offers a proven business model and support from the franchisor, there is no guarantee of success, and franchisees must still navigate challenges and adapt to local market dynamics.
Preventing a franchise business from failing involves careful planning, effective management, and ongoing dedication. Here are some strategies to help ensure the success of your franchise:
1. Thorough Research
Conduct extensive research before investing in a franchise. Choose a reputable franchisor, thoroughly review the franchise agreement, and understand the franchise model, market, and competition.
2. Financial Planning
Ensure you have adequate capital to cover not only the initial franchise fee but also ongoing operating expenses. Be prepared for unforeseen financial challenges.
3. Effective Training and Compliance
Strictly adhere to the franchise agreement and operational guidelines set by the franchisor. Compliance is crucial for maintaining the brand's reputation. Choose a suitable location with high visibility and access to your target customer base. Consult with the franchisor on site selection.
4. Adaptability
Be flexible, open to adapting to market changes, and committed to ongoing learning and improvement, as these qualities are essential for navigating the dynamic business landscape and ensuring long-term franchise success.
5. Customer Focus
Prioritise customer satisfaction, as happy customers are more likely to return and recommend your franchise, which can lead to positive word-of-mouth marketing and increased brand loyalty, ultimately driving business growth.
7. What Happens When a Franchisor Terminate a Franchise Relationship?
Under the Franchise Act 1998 (FA), a franchisor can only terminate a franchise relationship in specific situations. Section 31 of the FA dictates that a franchisor cannot terminate a franchise agreement prematurely except for valid reasons before the agreed expiration date.
Based on Lexology, 'valid reasons' for franchise termination encompasses several scenarios:
- When the franchisee fails to comply with the franchise agreement terms and does not rectify the breach within a specified notice period (minimum of 14 days).
- 'Valid reason' also includes immediate termination, without notice, if the franchisee:
- Transfers franchise rights to benefit creditors or similar asset disposition.
- Voluntarily abandons the franchised business.
- Is convicted of a criminal offence significantly harming the franchisor's brand or intellectual property goodwill.
- Repeatedly violates the franchise agreement terms.
Section 32 of the FA may restrict a franchisor's ability to terminate by requiring compensation for non-renewal or extension without a franchisee's consent.
This applies when:
- The franchisee is barred from continuing a similar business under another brand within the same area.
- The franchisee has not received written notice of non-renewal at least six months before the franchise agreement's expiration.
Despite these provisions, a franchise term can end prematurely if both parties agree or if a court deems specific conditions warrant early termination. The franchisor can also take over and operate the business post-termination or expiration.
8. What Happens if Franchisee Dies?
What happens when a franchisee dies can vary based on several factors, including the terms of the franchise agreement, local laws, and the policies of the specific franchisor.
Here are some common scenarios that may occur:
1. Designated Successor
If the franchise agreement includes provisions for a designated successor in the event of the franchisee's death, that person may have the opportunity to continue the business. The agreement should specify the process for such a transition.
2. Estate and Inheritance
If there is no designated successor, the franchise may become part of the franchisee's estate. The management or transfer of the franchise will depend on the deceased franchisee's estate planning, will, and local inheritance laws.
3. Franchisor's Policies
The franchisor may have its own policies for handling such situations. They may work with the franchisee's estate or legal representatives to determine the best course of action, which may involve selling the franchise to a suitable buyer.
4. Termination
In some cases, the franchise agreement may specify that it terminates upon the franchisee's death. In such instances, the franchise business would cease to exist, and any outstanding contractual obligations may need to be resolved.
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Disclosure: This list was compiled by the team at My Weekend Plan after extensive research and shared opinions to suggest helpful recommendations for the public. The sequence of brands is in no particular order so if you have any other great suggestions too, please email us support@myweekendplan.asia. For more information, kindly refer to our copyright, privacy & disclosure policy.
