FRANCHISING – IS THIS FOR ME OR NOT?

May 28, 2015 Hansie Britz

 

 

Franchising                                         Franchising 1                                           Business 11                                                            

Franchising is represented in most of the economy and the scope of opportunities is vast. It is not vital that a potential franchisee be experienced in all the technical aspects of a particular franchise system. Although a potential franchisee should posses some basic managerial expertise and industry knowledge, he is entitled to rely on the franchisors  expertise and ability to train him and all of his staff.

Some questions you should ask yourself before even thinking of starting a franchise should be:-

  • Does franchising have what it takes to satisfy your ambition?

  • Do you, and your family, have a fair understanding of what franchise ownership will demand and offer?

  • Will owing a franchise, and the growth opportunities within the network, be aligned with your financial and career expectations?  

Some other important questions to ask (your own research will always remain your most important tool in assessing a franchise opportunity)according to Simone Cooper – Head of Franchising – Standard Bank:-

Do you have strong people skills?

Successful franchisees always have excellent interpersonal skills and can effectively interact with their employees, customers and the franchisor. These skills are integral to building a sustainable business.

Do you have a stable support system?

Managing a franchise is a full-time job. You will have to sacrifice a great deal of your personal time with family and friends to ensure that your business is run efficiently.

Will you enjoy the franchise?

Many people view a franchise as a quick way to make money without actually considering whether the type of business they are entering into suits their personality and aligns with their passions. You need to have a natural affinity with the applicable franchise brand that you select so that you are able to enjoy what you do.

Can you afford the franchise?

Although the franchisor will be able to guide you in terms of start-up and running costs, these will vary due to building rental leases and other acquisitions you will require to run your business effectively. Ensure that you have sufficient start – up and working capital to sustain  you for your first year in business, as you typically will only see a return on your investment after the first year.

Are you able to work within the boundaries of a set system?

A good franchise company has invested years of trial and error to find the best model for operating a sustainable business. The franchisor also has spend some time investigating various systems and processes to find what works best. They are not looking for prospective franchisees who want to come in and re-invent the wheel.The key to a successful franchise is the consistency in the product or service that customers find from one franchise store or restaurant to the next. Buying into a franchise and displaying the logo tells customers that you prescribe to a certain brand’s set values and standards.

 Are you willing to take full responsibility and manage your own business?

One of the misconceptions about franchising is that buying into one and running it is easy. This is simply not true. Although the franchise system will offer start-up training and full support, as the owner you must be willing to run and manage the business properly. Most successful franchises have owners who are hands-on. You will probably work harder, longer hours, doing everything from managing staff to dealing with customers and even mopping floors.

Are you willing to pay royalty/management service fees to the franchisor?

Buying into a franchise system, means that you are buying into a proven concept with an established brand. The franchisor has spent years developing and building the brand. In order for you to trade under their umbrella, you will have to agree to pay a certain amount in royalty fees to the franchisor. This is an ongoing arrangement for as long as you are using the franchisor’s brand.

When investigating a franchise, don’t forget to speak with Franchisees already in the system to get the real picture. Make sure to check out the following important issues:-

  • Initial Training Programs.

You need to determine how well the initial training programs prepare the franchisees for opening and running their new business.

  • Opening Support.

Find out how easy the Franchisor made the process of getting the first unit open  and operating. Was there assistance in the site selection, lease negotiation, construction and design assistance etc.

  • Marketing Programs.

Most Franchisors collect marketing rand’s from every franchisee to put into a pool spent to promote the brand. You need to determine whether the franchisees are happy and supportive of the way this process is handled.

  • Purchasing Power.

Does the Franchisor use the collective buying power of the total system to get discounts on supplies and inventory beyond what an independent operator could achieve?

  • Relationships.

Determine how the franchisees feel about their relationship with the franchise company in general. Is the franchisor supportive, caring, focused on their success, responsive, effective, organized and trustworthy?

To start any  franchise operation  successfully or to obtain funding from an Investor it is vital to develop a “Professional” Franchise Business Plan that you can present to any lender. We can help you with this and also want to warn you against the services of some “cheap” so called business plan writers. Also see our FAQ’S section for more information on this issue.

Purchase an Existing Franchise.

With the downturn in the economy a number of existing franchises are for sale. One’s initial reaction is if a business is for sale it must have problems. While this may be true in many cases, there are some good opportunities to purchase a viable existing business at good value. If you are contemplating purchasing an existing business/franchise you need to carefully consider the following:-

Why is the business for sale?

Just confirm that the business is for sale for a valid reason. Some valid reasons are that the owner wants to retire or immigrate or the owner has an illness that stops him being able to run the business. Often a new franchisee purchases the business with new enthusiasm and the hard work results in increased sales and profit.

Is the site still optimal?

Geographic areas change, and often a site changes. Town centres have become ghost towns as the shopping node moves out of town. Shopping centres also change the flow when they make additions and changes to the centre. Assuming the site and position in the centre are still correct you must study the lease. How long has the  lease got left, is there a renewal clause and what will the rent be increased by?

Position of the Franchisor

You won’t be able to purchase a franchise unless the franchisor approved you as a new franchisee. We suggest that you visit the franchisor and discuss the purchase with him. Reputable franchisors will want you to be successful so will make sure you don’t over-pay or buy a bad franchise. However, be careful of bad franchisors who will encourage the sale to get rid of problem franchises. Check the position regarding a revamp that can cost in excess of R1 million.

Financials

Make sure the business has a good set of audited financials and that all debtors are up to date. Also check that the VAT payments are up to date. Get an experienced accountant to review the financials with you or get a financial analysis be done by a professional consultant.

7 TIPS FOR PROSPECTIVE FRANCHISEES

Bernard Schoeman of the “Tax Shop” has the following advice for prospective franchisees:-

Look for Commitment.

This should be evident from the franchisor and other franchisees. All parties in the relationship should be fully committed to its success.

 Back up and support.

This is crucial. Most people who buy into a franchise do so because of the support on offer.

Ongoing training.

Ongoing training is necessary. Your franchisor should offer regular training to ensure that franchisees remain ahead of the competition technically and in terms of service delivery.

Financial standing of the Franchisor.  should be sound. A sound franchise system should be backed by a franchisor with the financial ability to weather difficult times.

Continuity of the franchise provides peace of mind. The franchise should be able to continue operating in the event that the franchisor is changed or discontinued.

Technical knowledge of the franchisor and franchisee should be adequate. No franchise system can thrive if its people are under-qualified.

Franchise culture should not be foreign. For a franchise to be successful, franchisees should be comfortable within the framework of the franchise and its culture.

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