While owning a franchise is a less risky approach than starting something from scratch, there’s no guarantee that it will work. “If you’re thinking about starting a franchise there are a few things you should know before you start the process,” says Morne Cronje, Head of FNB Franchise.
You’re not alone
You’ll be running your own business, but you have a network of franchisees and franchisors who you can go to for help and support. They are there to help and guide you, so make use of your network because that’s what they’re there for.
Do it for the right reasons
You’re going to be investing your time and your life into this business, so don’t do it for anyone else, but yourself. Some people go into franchising so that it’s something they can pass on to their kids, who might not even be interested in franchising. Becoming a franchise owner is not a decision to take lightly. If you don’t do your homework and have a proper business strategy, your business will not succeed.
Choose a franchise that matches you
Owning a franchise is a perfect opportunity to find something that matches your dreams and goals. It can explore the dreams you hope to accomplish through franchise ownership. Determine your skills and preferences so that the companies you investigate match well with you.
Success isn’t guaranteed
Don’t expect results overnight. You might have bought into a successful franchise, but you still have to put the work in to make your franchise a success. , You will face ups and downs when opening any new business, so be prepared for any and all challenges that come your way.
What costs are involved in buying into a franchise?
If you’re looking at a new store, then the franchisor determines set up costs. In addition to that, the bank normally asks for a 50% owner’s contribution, which is the responsibility of the franchisee. This equals the investment amount.
If you’re looking at taking on an existing store, then the selling price is determined by the value of the business and the franchisor needs to approve the sale of the business as well as approve the franchisee. Normally the investment amount depends on the serviceability of the business. In other words, the bank will ask the question – what loan can the business service / afford.
There are other costs that one should consider. They are:
- The owners contribution
- Working capital
- Stock and rental guarantee.
“At FNB we look at the total set up costs plus the owner’s contribution, working capital, stock and rental guarantee, and provide a funding solution that addresses the total need. If the franchisee wants to do a feasibility study or make use of a business broker, then that would be at the franchisee’s cost,” says Cronje.
Legally, there needs to be a franchise agreement and disclosure document that are both compliant to the Consumer Protection Act (CPA). It is best to get assistance from an attorney specialising in franchising to draft these documents.
“The days of buying into the right brand and expecting automatic success are long gone; franchising is an active investment and should be owner-operated with the franchisee committed to achieving profitability by growing the business personally,” concludes Cronje.