Investing in a franchise is a life-changing event and must not be taken lightly. Proper and thorough research needs to be done before that final step of buying into what could be the greatest investment you’ll ever make – or, if you don’t do the right due diligence – a costly mistake. Make sure that, in your investigations to purchase a franchise, you cover all the elements crucial to a owning a successful franchise business.
1. Online Self-Test
Franchising isn’t for everybody as it involves a particular mind-set and attitude and with so many different franchise companies on the market how do you choose the right franchise to invest into? The Franchise Self-Test, set out in the previous chapter and courtesy of Franchising Plus and www.whichfranchise.co.za has been designed to help you identify a starting point from which to commence your own research. The test’s 10 questions will help identify whether franchising is the right way into self-employment for you and will find the best type of franchise match for you
Having decided that franchising is the way to go, you now have to set about choosing the right kind of franchise. Search ‘franchising’ on the web and visit websites such as www.fasa.co.za and www.whichfranchise.co.za and you will find a myriad of articles and listings of franchises. The Franchise Association of South Africa (FASA) and many of the top banks and funding institutions run regular seminars and workshops on franchising. Attend as many as you can and learn as much as you can about the industry, how it is performing and which franchises are playing a leading role in the franchising space. Keep an eye out for seminars and workshops run by FASA and register on the FASA website to receive their bi-monthly newsletters. You can also attend FASA’s monthly Networking Events cover a wide range of subjects pertinent to franchising. To book visit https://www.events.fasa.co.za/product/fasa-virtual-networking/. Visit www.fasa.co.za for more information on upcoming events and survey results.
3. Set Your Budget
It is a big step from deciding to start a franchise to actually opening your doors for business. The establishment of a franchise always calls for a substantial investment and very few individuals are able to fund their franchise investment entirely from their own resources. For many, one of the biggest hurdles is approaching the bank for finance.
The good news is that, as a franchisee of a reputable franchisor, you often enjoy a head start. Banks have learnt that it can be safer to lend to franchisees of well-structured ethical franchise systems than to a stand-alone business entrepreneur. The track record of the franchisor is most important as is a well-thought out funding application and business plan. The ideal way to fund a business is through a mix of equity (own capital) and borrowed capital (loans).
4. Choose a Franchise Industry
Franchising’s popularity is linked largely on the proliferation of fast food brands that we see on every corner but there are in South Africa around fourteen different business sectors that franchise – from Automotive Products & Services to Building, Home & Office Services; from Education & Training to Beauty & Body Culture; from Business to Business to Retail. It is imperative that you spend time assessing and researching all types of franchises – you may well find that your talents lie in the DIY field and a franchise in Building Services would suit you better or you would be happier in a franchise that runs office hours.
5. Choose A Franchise
Choosing a franchise that is popular and thriving is key to making your decision. When comparing concepts, check the market demand for the product or service offered and track its success by how fast the concept is growing, how strongly it is marketed and how popular it is. Also crucial is to look at is whether the concept will be successful in your chosen local market and more importantly, who the competitors are and whether they will pose a challenge to you. Shortlist industries that really interest you, be realistic about your capabilities (Can I see myself doing this, day-in an day-out, with enthusiasm, for the next five, seven or even ten years?) and establish investment levels.
6. Apply to Find Out More Information From The Franchisor
Investigate as many different franchises as possible, compare their support systems, training, administration and back-up. Once you have honed in on a specific franchise offer, insist on receiving a disclosure document, a requirement of the Consumer Protection Act. This will give you everything you need to know about the franchise, who owns it, the company’s track record and financial projections and details of the business opportunity.
7. Meet with The Franchisor and Franchisees
Visit the franchisor to confirm your choice and ask him to explain the disclosure documents to you and ask as many questions as possible, however trivial they may seem. Listen to their comments and clarify any queries you may have with the franchisor. Armed with the list of the franchisor’s list of franchisees which is a requirement of the Disclosure Document that is part of the Consumer Protection Act, you should visit existing franchisees to learn from their experiences and to find out their opinions on the services provided by the franchisor. Good franchisors will always allow you free access to any franchisees in their network and, in most cases, existing franchisees will be happy to talk things over with you.
8. Get A Copy of The Legal Documents
While franchising is seen as a safer way to get into business using the know-how of someone who has done the time and made the mistakes, it does come with some conditions in the form of several binding legal contracts and agreements. This is to be expected when one considers that the franchisor is, in effect, sharing his intellectual property and business success secrets with his franchisee partners. Understanding why and what you are signing and accepting the contract terms of the franchise agreement is an important step. Get a professional advisor or lawyer that is familiar with franchising to go over the documents to see if there are any irregularities.
9. Take 10 Days To Review The Information
Section 7(2) of the Consumer Protection Act No 68 of 2009 states that ‘a franchisee may cancel a franchise agreement without cost or penalty within 10 business days after signing such agreement, by giving written notice to the franchisor.” This safeguard within the law is good for both sides and is there to govern the business relationship between the franchisor and the franchisee including the relationship between them with respect to the goods or services to be supplied to the franchisee by the franchisor, or by its associate.
10. Apply for funding
Financing a business, especially a franchise business goes beyond just having some capital to start – you need to factor in everything from start-up capital to ongoing financing; from hidden costs to expansion plans down the line. Banks, in recent years and due to the recession, are cautious and very thorough in their lending criteria. Fortunately, most of the major banks have dedicated franchise desks and they are familiar with many of the leading franchise brands so prospective franchisees are often considered more favourably than a conventional start-up business.
11. Sign The Franchise Agreement
Once you and your franchise are comfortable with the terms in the franchise agreement you will arrange to sign the franchise agreement and make payment as required in the agreement. Once the contracts have been signed the expectations from the franchisee and the responsibilities from the franchisor kick in and it becomes a partnership of shared goals.
12. Sign Lease Agreement and Pay Rental Deposit
Ensuring that you have the right location is vital to any franchisee’s success. The franchisor must work closely with you in selecting the best possible site to position your business, ideally using scientific tools based on Geographic Information Systems (GIS). This should also include guidance with lease negotiations.
13. Hire Staff and Attend Training For Yourself And Your Staff
In order for franchisees to be successful at running their business, they need well-structured and informative training courses. The majority of franchisors have put a training programme in place for new franchisees. It is the franchisee’s duty to then train their staff with their knowledge if the franchisor does not provide this.
14. Open Your Franchise Business
Owning your own business will come with enormous challenges, but it also comes with enormous rewards. Nothing can beat the sense of achievement and the independence of writing your own life-script. In order to achieve optimum results you need to trust your franchisor and embrace the business structures that they’ve put in place to maximize your operation and work with them to achieve mutual success.