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Franchising 101: the franchisee

Article provided by Absa

When you hear the word ‘franchising’, the first thing that pops into your head is probably that McDonald’s or KFC sign that you drive past every day. It is however, very important to remember that this type of brand association is just the tip of the multi-dimensional, money-making iceberg.

If you’ve ever considered opening a franchise, but never felt informed and confident enough to put pen to paper, fear not – you’ve gotten hold of the right reading material. We spoke to Henk Botha, a franchising specialist for Quick Service Restaurants and Restaurants, and asked him to share some of the key tips that he has collected over the past 14 years.

Botha says that if someone asked him to sum up the tricky concept of franchising into one sentence, it would be, “It’s a proven concept providing great opportunities at low risk, but requiring dedication for success.”

What’s the best time to become a franchisee?

With the unpredictable and, in some ways, uncertain financial times we find ourselves in, the first thing you’re probably questioning is the timing of this kind of investment.

According to Botha, there will always be positives and negatives surrounding this decision.

“If you want to go into business, the franchise option is always the better one. Do your research and find out exactly what it is that you want to do – there are a lot of different franchising options out there.”

Botha warns that if you’re not someone who’s disciplined enough to work within certain restrictions, becoming a franchisee is not the best option for you. “True entrepreneurs find the rules and perimeters that go along with franchising very frustrating.”

Here are a few other pros and cons:

Pros

  • You’re buying into a known brand, which means you know what to expect and it is low risk.
  • You gain immediate name recognition (goodwill), tried and tested products, standard building design and décor, detailed techniques in running and promoting the business, ongoing help in promoting and upgrading of the products.
  • You form part of a group, so you’ll always have support from the other franchisees in the brand through best practice sharing.
  • It’s easier to get finance for a franchise, because of the lower risk.
  • The failure rate is very low: a recent survey showed new franchise failure rate is as low as 10%.

 Cons

  • Though you run your own business, you’re inclined to operate within certain guidelines, depending on your personality, this could be positive or negative.
  • There are certain upfront fees that you have to pay. Depending on the franchise you choose to buy into, this could be expensive in some cases.
  • Because your business forms part of a big brand, if one of the franchisees doesn’t stick to regulations and make mistakes, the whole brand suffers.

Botha added to this by explaining that the financial climate within franchising is also ever-changing. “At the moment restaurants are doing very well, but we see these things change about every two years. If you’re prepared to work hard and run the franchise as if it’s your own business, any time is the right time for you to become a franchisee.”

How do I choose which brand is right for me?

So you’re convinced that you want to become a franchisee? Great. Now you can decide which brand is the right one for you. According to Botha this decision ultimately comes down to where your passion lies. There are however a few other questions you can ask yourself to help narrow down the vast amount of options:

  • What am I knowledgeable about?
  • Which brand will fit into my lifestyle?
  • Which options does my capital allow?
  • What kind of returns am I looking for?

Once you’ve looked at these aspects, you’ll at least be able to narrow it down to a specific sector. The next step is to obtain the disclosure documents of a few franchises within that sector. It would be beneficial to talk to a few current franchisees about topics, such as cash returns, what works, what doesn’t work and how happy they are.

Like everything in life, there are good and bad outcomes to any situation. Though franchises are highly successful most of the time, Botha strongly advises a hands-on approach where staff and money is managed properly, as well as good client service.

Want to learn more about franchising from the franchiser’s perspective? Look no further: Franchising 101: the franchisor.

Absa is a proud Partner of the NSBC.