Tips when Buying a Franchise in South Africa

Buying a business could be one of the most important decisions you make in your life.  Don’t hurry it.  Remember that it is YOUR money and YOUR life which you are committing to and you must be as satisfied as you can with every aspect before you enter into a binding agreement.  To maximize your chances of success, take heed of the following…

• don’t rush into buying the first franchise which appeals to you;
• check it out fully before committing yourself;
• wait until you have obtained satisfactory answers to all your questions;
• be one hundred percent certain that franchising is right for you and that you are right for franchising;
• avoid paying deposits without first understanding fully and agreeing in writing how this will be used and how, if necessary, the amount will be refunded if you do not enter into an agreement;
• make use of the 14-day cooling off period as prescribed by the Consumer Protection Act;
• don’t make any payment until you are completely happy with the agreement;
• make sure a lawyer familiar with franchising looks and advises you on the contract.

Be Wary of The Franchisor Who

• promises huge profits with thin investments
• says “act now to get in on the ground floor”
• fails to give statistics on sales and profits
• promises “easy sales”
• fails to identify directors or principals
• tries to “trade you up” to a higher fee
• says “act now, it will cost more later”
• promises profits for sub-franchising
• has a name similar to a well-known business
• promises large income from “work from home”
• demands large “front end” license fee
• has very short term contract
• provides no data on track record or financial strength
• cannot give plans for future development
• has vague territories
• is ignorant of competition
• has incomprehensible contract
• is vague about support and training
• has weak advertising
• is vague about financial obligations for the franchisee
• has poor head office premises
• tries to meet in a hotel
• is evasive about access to existing franchisees.

When you take up a franchise you are entering into a long term business relationship and it is very important that you spend time looking into the background and performance of your prospective partner.  A good franchisor will want you to be happy and confident that you are making the right decision and will welcome your enquiries as evidence of your good sense.

History and Experience of The Franchisor

The best strategy for picking a successful franchise is knowledge.  Conduct a diligent and thorough investigation of the franchise company. Just as the franchisor will be assessing you, you should be assessing the overall franchise and its performance.  A franchisor should have no hesitation in providing the necessary information to a qualified franchise prospect and should respect the fact that you are investigating in much the same manner as you are being investigated.  Information on the performance of existing franchisee should be readily available and the franchisor should be willing to let you have a full list of franchisees to whom you can talk or visit. In the case of a new franchisor you should look carefully at the performance of the pilot operation.  In all cases you must ascertain whether or not there is a market for the products or services in your chosen area and what the franchise market is likely to be.

Determine how long the franchise company has been in business, how many locations it has, whether any have failed and why.  Learn about its owners and directors and assess the public profile of the operation. The franchisor should provide you with an information package on their offer together with a Disclosure Document which should give you all the information about the company, its directors and shareholders. Check up on the credit references given, ask whether any legal actions are pending against the franchisor or his principles, either by franchisees or by other companies and find out from FASA whether any complaints have been received.

Franchise Support

Once you have established the soundness of the franchisor and the business you should then look at the strengths and weaknesses of the franchise operation. Critical to your likely success or failure is the level of support available from the franchisor, both at the start and subsequently. Support provided by franchisors comes in many forms, but is usually divided into 2 principle areas – initial support in setting up the new business and ongoing support in operating it for maximum profitability.  Support from the franchisor can include accountancy or computer packages and advice, national and local advertising, regular communication, new products, service, market information and ongoing training.  A number of good franchisors run annual national franchisee conferences and should also have a franchisee representative council. There should be a comprehensive operations manual which gives you guidance on all aspects of running the franchise operation. Support doesn’t stop once the franchise is open – rather it should be just the beginning of a continuous programme of communication and improvement that should last for the duration of the franchise contract and should always be a two-way street.

Training Programmes

The franchisor should provide both initial and ongoing training to a new franchisee.  This helps you to prepare for all facets of the business and is particularly beneficial for entrepreneurs who do not have the experience or knowledge of the particular industry they wish to enter. This usually involves the training of the franchisee, management and staff and can include both classroom and on-site segments. Training should be closely related to the detailed confidential operations manual which should be the franchisee’s “bible” once they are out in the field. 

Product/Service

You need to be satisfied that the product or service offered by the franchisor has a widespread consumer appeal.  Selling a new concept to the general public can be expensive and risky.  Ideally, consumer demand for the product or service should have already been established, because it then becomes a matter of gaining market share rather than gaining market acceptability. Make sure the product or service cannot be easily duplicated and that it is competitively priced and question the franchisor as to his competitor strategy.

Supply/Purchasing Power

Examine the purchasing and supply side of the franchise business you’re interested in. If there is centralized purchasing, you should benefit from bulk-buying which should translate into reduced costs for you. In some franchise systems stock needs to be purchased direct from the franchisor, or alternatively bought through recommended suppliers.

Product and System Development

The key to a successful franchise is its ability to keep up with innovative developments and always be ahead of the game. The franchisor has a responsibility to keep up to date with market trends and adjust the business accordingly. Products and services need to be constantly evaluated for their relevance in the marketplace and improved or replaced where appropriate. Computer based systems within the franchise need to also be continually updated and integrated to maximize the franchisee’s control of the business and to minimize paperwork.

Marketing Initiatives

The marketing of the franchise brand is one of the primary areas that a franchisor has to deliver on and which you as a franchisee buys into. Most franchises have a national marketing fund to which franchisees contribute and which is used to effectively to market the brand and bring in sales. In addition to national advertising strategies, which should include the full spectrum of media, including social media, franchisees are required to do their own local marketing.

Talk To Franchisees

The best way to obtain information about the performance of the franchise is to talk to the franchisees.  You will get a realistic assessment from a franchisee of the return that can reasonably be expected on your investment, the hours of work you need to put in; the amount of service and advice provided by the franchisor; the general atmosphere and image of the franchise and the everyday experiences of the franchisee.  Don’t necessarily accept only the franchisee references provided by the franchisor – talk to all and sundry and visit them to assess what kind of person makes up the franchisee pool. Question them on whether their business expectations were met by the franchisor; whether there were any unexpected costs when setting up; how effective are the franchisor’s marketing campaigns; any aspect of the business they dislike and those that they like and ultimately would they invest again in this franchise. Size up the franchise owner and notice his business experience and maturity, his leadership qualities, his people’s skills, sales or technical skills and above all see whether he has a passion and loves what he is doing.

Given the challenges faced by small businesses, franchising offers an excellent means for an enterprise to become successful and grow; this is because of the support and assistance that is provided by the franchise holders in the way of skills transfer, marketing, branding and operational assistance.  The opportunities therefore exist for franchising to be an excellent vehicle to promote black economic empowerment.

FASA’S INTERNATIONAL FRANCHISE EXPO 2023 TAKES PLACE FROM ON SATURDAY 30^TH SEPTEMBER AND SUNDAY 1^ST OCTOBER AT GALLAGHER ESTATE, MIDRAND