Taking the guesswork out of buying a franchise is easy if you know how

Ethel Nyembe
To many entrepreneurs a franchise offers a secure opportunity for getting into business on their own.  The headaches associated with identifying a site, shop-fitting, training and even marketing are usually considered and met by the franchisor.  To a budding business person, it is obvious that a franchise is the way to go.

According to Ethel Nyembe, Head of Small Enterprises and Franchising at Standard Bank, the world of franchising like that of ‘ordinary’ business is constantly growing and changing.  As a result, potential franchisees have a wider choice of activities to invest in than ever before.

It is true that most franchise operations for major brands succeed, with about 80% being successful, but consumer tastes can change so the continued prosperity of a franchise is never guaranteed.  This might seem confusing, but there are tested ways of finding a business opportunity that suits you.

“It pays to start taking the passion for business and desire to be self-employed as a starting point when selecting a franchise. Think about what you are passionate about and a franchise that will satisfy this need. It you are confident that it will keep you interested and involved, you are well on the way to making a decision,” Ms Nyembe notes.

Getting to the point where you are ready to make a business commitment can be helped along the way by following several practical steps. These, says Ms Nyembe, are:

Selecting a business that reflects your character

If you are a sociable person, a business in which you have minimal contact with people will not suffice.  Similarly, a business that is in line with your interests, experiences and the activities you enjoy is likely to keep you happily involved.

When it comes to lifestyle you should be asking yourself several hard questions:
  • Am I willing to move to achieve my business ambitions?
  • Do I or my family have the funds to support us while I build a business from scratch?
  • Am I prepared to put in the long hours needed to succeed?
  • Will I like what I am doing enough to make sacrifices worthwhile?
  • Will I be happy making a commitment that could take up years of my life?

Minimising the possibilities of regrets by researching all the sectors you find attractive 

If you know what your major interests are, look at what sectors of franchising offer you the best ‘fit’. You could find something attracting your attention that you have not previously considered.

Consider the franchise brands available and what each offers

When you have found the sector that most appeals to you, consider the franchise brands available. Examine them critically and decide for yourself:
  • Which are the strongest in the sector
  • How well established  the brands are and if they have national or regional representation
  • Whether they have good reputations and happy franchisees.

Consider putting in some groundwork so that you are fully informed
  • Speaking to franchisees and finding out if they receive the support they expect from the franchisor and if the stock they require is readily available
  • Spending time at a franchise to evaluate what the demand for products and services is

Understand fully what the expectations are from both a franchisor and franchisee perspective

The more questions you ask, the less likely it is that you will have regrets later. Before putting your signature on contracts, make sure that:
  • You have checked just how solvent and solid the franchisor is and whether they are facing any legal action.
  • The franchise of your choosing is affiliated to a recognised trade body.
  • Carefully examine the Franchise Disclosure document and ensure that it covers the above salient points.
  • Go through the Franchise Agreement document carefully and make sure that all queries you may have are satisfactorily answered. Ideally, get an independent expert to examine the Franchise Disclosure document and Franchise Agreement for you.
  • You know what your financial obligations are, how much available cash you may need and what could impact on your finances. In particular look at clauses that may compel you to undertake expensive store refurbishments at set periods or require you to have capital over and above your initial fee to buy stock.

Get the funding together

Once you have the support of a franchisor, it is easier to apply for bank funding. Many banks are familiar with the strict franchisee selection process undertaken by major franchisors and the personal financial requirements that have to be satisfied. The franchisor will often support your application by supplying funding requirements in detail.

“The bank will then do its own assessment. At Standard Bank we believe that meeting financial criteria are not the only steps required for a loan. We also pay attention to the person applying for assistance. After all, he or she is the key to the success of the enterprise,” Ms Nyembe concludes.