AM I SUITED TO FRANCHISING?

Franchising is not for everyone or the faint-hearted and there are the negatives – from whether you are suited to franchising to the controls that the franchisor imposes on your business.  Although most franchisees have an element of entrepreneurship inherent in them, most are former employees, from corporate backgrounds, or are the victims of mergers or downsizing, or are on the verge of retirement.
On a personal level you should ask yourself the following questions…

  • Are you generally a healthy person?
  • Are you a confident, outgoing type of person that is not afraid of tackling challenges and problems head-on?
  • Are you a people-orientated person, able to interact with people on all levels?
  • Are you the type of person that can handle stressful situations, are comfortable with taking risks and are prepared for a total change in your lifestyle
  • Are you in a position to support yourself through the initial stages of setting up a business?
  • Do you have enough qualifications or experience to handle things like managing finances, doing sales and marketing?
  • Are you customer service orientated?
  • Are you the type of person who takes direction willingly or are you known as a “buck-the-system” type of person?
  • Do you like and enjoy people in general?
  • Can you lead and manage people?
  • Do you have the support of your family?
  • What do you like to do?
  • What are your interests and what type of occupation would be most compatible with those interests?
  • Do you think you will enjoy operating your business of choice?

According to Eric Parker and Kurt Illetschko, authors of the book Franchising in South Africa:  The Real Story, investing in a franchise is a long-term commitment that, once made, is extremely difficult (and expensive to reverse). Franchise experts like to compare entering in a franchise arrangement with a marriage.  The honeymoon is the easy part but it does not last very long.  Once the novelty has worn off, making the best of the relationship can be a grind but many endure, and decades later, would not want to have it any other way.  These two franchise experts suggest you ask yourself the following questions….

Am I cut out for entrepreneurship?
To be successful in a business of your own requires an entrepreneurial spirit. Although joining a franchise eases you into your new role, it does not do away with this requirement altogether. A carefully chosen franchise offers you a blueprint to business success but there are no guarantees. A franchisor that offers a franchise complete with success guarantee is either a fraud or a fool. A prospective franchisee who relies on such a guarantee is simply a fool.

Will I be happy as a franchisee?
In a franchise, you own the infrastructure of the business but you cannot do as you please. To protect the brand, the franchisor is obliged to insist that you operate in accordance with the network’s rules. Some people find this too restrictive.

Do I have the necessary passion?
People often say that their sole reason for wanting to start a business is to make lots of money. They pretend not to care about the sector but in reality, this does not work too well. Starting a business is hard work, and it takes some time before you see any rewards. Unless you enjoy what you do, the business will soon become a burden and success is likely to elude you.

Is a franchise available in this sector?
It has been said that almost any business can be franchised. While this is probably true, it is only of academic interest to you. What you need to find is a franchisor who is well established in the field of your choice and able to deliver on the promise of franchising. Otherwise, why bother paying franchise fees>

Is the franchisor responsive?
Although a large number of franchise systems exist, the better known brands continue to operate in a sellers’ market. Many networks, especially those in food and retail, battle to locate good sites and this tends to slow down their expansion plans. Never mind the reasons, unless the franchisor shows interest in your approach, move on. If the franchisor neglects you during the courting stage, what will happen once you are part of the network?

Is the franchisor’s approach professional?
Acceptable premises, membership of FASA, professionally produced franchise materials and the availability of a formal disclosure document indicate that the franchise operates to sound professional standards. A good franchisor will insist on checking you out but knows that this should be a two-way street. The franchisor will welcome your questions, in fact, most love to talk about their achievements and the standing of their brand. Should you come across a franchisor whose representative is reluctant to provide essential information or, worse still, attempts to pressurize you into making a rush decision, terminate negotiations immediately. Responsible franchisors do not act in this way.

Are we compatible?
When you visit the franchisor and get to know the network’s team, do you feel like an outsider, or do you fit right in? Unless there is an instant spark, it is unlikely to work.

Can I afford the franchise?
The financial implications of becoming a franchisee are manifold. You need to pay an upfront fee, fund the establishment of your business and provide working capital. On an ongoing basis, you also need to provide working capital, pay periodic franchise fees and make provision for living expenses. Keep in mind that it can take several months or even longer before the cash flow of the business is sufficiently strong to cover expenses. Many finance schemes are available but this is not necessarily a good thing. Most franchisors will insist that you fund between 30 –50% of the complete investment from your own resources, with good reason. Loans need to be repaid on time and with interest. If borrowings are excessive, the resulting repayments would place strain on your new business’s cash flow. This could force the business into a cash flow crisis and cause it to fail.

Can the franchise afford me?
This is another important consideration. As this is your own business, you can determine your salary – on paper. In practice, the business may not be able to support the lifestyle you and your family have become accustomed to, especially if you held a senior position in a large corporation. Of course, a few years down the line, the situation should change but you need to survive the here and now.
(Extract from FNB’s Franchising in South Africa: The Real Story by Eric Parker & Kurt Illetschko)