If you\u2019re looking to be your own boss by becoming a business owner, there is a persuasive argument for buying into a franchise rather than striking out on your own \u2013 but it\u2019s important to do your homework before signing on the dotted line.<\/p>\n
Franchising has long been a popular route to entrepreneurial success in South Africa, with over 800 franchise systems operating through 48,000 outlets in the country. In a country rife with unemployment, the sector employs close to 500,000 people and its contribution to the local economy is equivalent to 14% of GDP, according to the latest FASA survey.<\/p>\n
\u201cWhile local franchising has strength in numbers, the sector struggled during the Covid-19 pandemic and is only now beginning to stabilise,\u201d said Grant Smee, managing director of the Only Realty property franchise.<\/p>\n
\u201cFranchising has a significantly lower failure rate than that of independent businesses (as much as 5x less) but there are still significant risks involved when buying into a franchise.\u201d<\/p>\n
Smee said that the majority of franchise-specific risks can be mitigated if a potential franchisee simply does their homework and thoroughly researches both the brand and the state of the market before buying in.<\/p>\n
\u201cIt\u2019s also important to consider your personal strengths and what will be expected of you as a franchisee, as not everyone is suited to this journey,\u201d he said.<\/p>\n
Smee outlines the top 10 factors that every potential franchisee should consider before purchasing a franchise.<\/p>\n
1) Consider the market<\/strong><\/p>\n \u201cIt\u2019s a tough time to be a business owner in South Africa so make sure that there is enough demand for your potential product or service before signing on.\u201d Potential franchisees should conduct thorough research in terms of consumer trends, market demand and any risk factors.<\/p>\n \u201cLuckily, access to market information and customer insights are some of the major advantages when joining a franchise, so potential franchisees should be able to access this data,” he said.<\/p>\n 2) Consider your competitors<\/strong><\/p>\n \u201cOnce you\u2019ve determined if there\u2019s a demand for the product or service that your franchise will offer, investigate how that demand is already being met by competitors.\u201d Smee recommends having a frank discussion with a representative from the original franchise itself about what market advantages the franchisee can count on and whether they can realistically expect to outsell competitors in the area and why.<\/p>\n 3) Consider the brand\u2019s reputation<\/strong><\/p>\n \u201cReputation can make or break a business and in the case of franchising, reputation can be influenced by one bad actor and end up tainting the whole brand.\u201d<\/p>\n Smee suggests reading Google and Facebook reviews, speaking to customers, and finding out if there has been any negative media coverage around the brand in the last five years. \u201cIt\u2019s crucial that franchisees be fully aware of the public perception around the franchise, and that this information comes from an objective source \u2013 don\u2019t just trust what Head Office says.\u201d<\/p>\n Once the initial research has been conducted it\u2019s time to start thinking practically about what is required to get the franchise up and running.<\/p>\n 4) Consider other franchisees\u2019 success rates<\/strong><\/p>\n \u201cTalk to other franchisee\u2019s and ask them to be honest about their experiences \u2013 would they recommend joining the franchise to others? What have their success rates been like and what challenges have they experienced?\u201d<\/p>\n Looking at sales data and financial reports from other franchisees (and the company as a whole) can help round out this picture.<\/p>\n 5) Consider the start-up costs involved<\/strong><\/p>\n There is an upfront cost to joining a franchise, as franchisees need to pay a licensing fee for the right to use the brand\u2019s assets and resources. While this joining fee is an expected part of the process, Smee recommends asking what other initial costs will be required for budgeting purposes.<\/p>\n \u201cOn the plus side, the franchise\u2019s marketing resources and support \u2013 a major advantage of choosing the franchise model – should be included in this joining fee and will help with getting customers in the door once you\u2019re ready to open,” said Smee.<\/p>\n 6) Consider what your earning potential will be<\/strong><\/p>\n \u201cOnce the business is up and running, it may still be several months before you start to break even. Find out the average amount of time it takes most franchisees to start turning a profit so that you can be financially prepared and have the liquid capital necessary to cover running costs.<\/p>\n “Make sure that you have the savings and resources to back you up over this period and remain conservative with your spending.\u201d<\/p>\n 7) Consider the franchise\u2019s business model<\/strong><\/p>\n \u201cIs the business model of the franchise designed to facilitate your success as a franchisee? Are there tried-and-tested systems in place to ensure the profitability of the business?\u201d<\/p>\n “Analysing the business model of the franchise also involves taking into account the ongoing fees such as royalties that must be paid to the franchisor by the franchisor, as this could have a significant impact on profitability,” said Smee.<\/p>\n The final set of considerations a franchisee must take into account before joining a franchise relate to their own character and career expectations \u2013 do they align to the nature of franchising?<\/p>\n 8) Consider what will be expected of you as a franchisee<\/strong><\/p>\n Becoming a franchisee carries many of the same responsibilities as being an independent business owner \u2013 you will be responsible for staff and for the practical requirements of keeping a business running. \u201cTo be a successful franchisee you need to be a leader and this will require sacrifice and making hard decisions \u2013 before you take on this role it\u2019s important that you are aware of what will be expected of you.\u201d<\/p>\n 9) Consider what resources are available to help you succeed<\/strong><\/p>\n Business mentorship is a major benefit of the franchise model, but not all franchises have systems in place to promote ongoing mentorship and support to their franchisees. \u201cChoose a franchisor that has made mentorship a priority and that offers support and resources to their franchisees long after the initial training.\u201d<\/p>\n 10) Consider whether or not being a franchisee aligns with your passion and personal strengths<\/strong><\/p>\n Finally, Smee stresses that not everyone is cut out to own franchisee. \u201cYou have to be passionate about joining the franchise, and committed to its success even if it isn\u2019t your name on the sign. You need to embrace hard work, responsibility and the pursuit of excellence if you start this journey,\u201d he said.<\/p>\n
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