Understanding the business format of franchising

understanding the business

Franchising is a universally accepted and successful business format that has revolutionized the way small business is run and has contributed extensively to entrepreneurship, skills transfer and job creation. The two most universally accepted forms of franchising are:

  • Business format franchising

    This is defined as a distribution network operating under a shared trademark or trade name with franchisees paying the franchisor for the right to do business under that name for a specified period of time. In exchange, the franchisee is able to use the franchisor’s entire business system or format, including the name, goodwill, product and services, operating manuals and standards, marketing procedures, systems and support facilities. The franchisor, in turn, is obliged to give initial and ongoing services and support.

  • Product and trade name franchising

    Characterised as a sales relationship between a supplier and a dealer, product and trade name franchises can be found most commonly in car dealerships, petrol service stations and cold drink bottles. The dealer is granted the right to sell its products in exchange for fees and royalties and has an obligation to sell only the franchisor’s products.

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Don’t approach the Franchise Association of South Africa after you have lost your money

Losing Money

One thing the Franchise Association of South Africa fails to understand is why some franchisees approach the Association to complain against a franchisor after they’ve lost all their money?

The Association was established in 1979 to promote ethical franchising and to arm potential franchisees with all the relevant information and issues for careful consideration BEFORE they invest in a franchise – yet it seems the advice is not being heeded by some.

It seems some franchisees blindly buy a franchised outlet without ensuring that the company is an accredited member of the Association. Unfortunately, frequently things go wrong and the franchisee’s investment turns sour for various reasons. Then when they are in financial difficulties they start doing research – which they should have done before buying the franchise, find the Association’s website and then lodge complaints thinking the Association will be able to help them recover their investment.

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Five key services every SME can afford to outsource


In recognition of this MiWay Business Insurance introduced MiBusinessAssist to help their clients free themselves from admin and focus on growing their business.

Here are five of those services that MiWay Business Insurance clients can access today:

1. Financial advice

Few small businesses can afford to keep a financial advisor on their payroll to help with the more complex aspects of staying profitable. With MiBusinessAssist, clients have access to highly skilled financial advisors who are able to provide guidance on a host of business-critical financial matters.

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Get ready for load shedding again – and its crippling effects

It is with dismay that the Franchise Association of South Africa has learnt of the big risk of the return of load shedding predicted for late August or September which will once again have a devastating effect on small businesses.

Just two days ago one of the most well known business-to-business brands in South Africa stated that the brand lost no less than R8m in sales pertaining to just one sector of their business due to load shedding in March this year. Says Vera Valasis, Executive Director of FASA “renewed load shedding could be the proverbial ‘last straw that breaks the camel’s back’. Further loss of economic activity due to renewed load shedding is unaffordable and may push many small franchises to the brink of bankruptcy. The increase in labour costs, electricity, supply of goods, rentals, petrol and many other costs have more than doubled in the last ten years. However sales growth simply fell far short of having doubled over the same period which puts incredible pressure on profitability.”

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Fairness in franchising


As the business environment gets more difficult due to socio-economic and political influences in South Africa, the question of fairness in franchising has become a hot topic – both locally and internationally. FASA regularly fields complaints from franchisees on the fairness of their contracts in relation to everything from false promises, non-disclosure by the franchisors of failed franchisees, selling of outlets in close proximity of fellow franchisees to excessive supplier costs and marketing contributions and the refund of deposits.

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Benefits of being in franchising


We asked Vera Valasis, FASA’s Executive Director to give some tips to aspiring franchisors/franchisees – and this is what she advises…

Potential franchisors

  • Not every single business concept or idea is franchisable.
  • Don’t franchise your business unless you have a good financial track record of the performance of the business in a number of different locations and markets i.e. locations in a high street, a shopping mall, in a city and rural applications.
  • Test the business with a few franchisees in the early stages that are willing to be ‘test sites’ in order to hone and fine-tune every aspect of the business model.
  • Don’t franchise your business unless you have the financial independence to support franchised outlets adequately especially in terms of marketing.Preview (opens in a new window)

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Do you have what it takes to be successful in business?


As the focus from government, big business and Expo’s like FASA’s recent KZN Franchise Expo is on empowering entrepreneurs, stimulating small business and creating jobs, we look at what does it take to be successful.

Making a success of a business requires total commitment and dedication to realising your own potential and ensuring success. To do that you need to:

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The next steps to owning your own business

For those that attended the IFE Franchise & Entrepreneurs Expo in Durban this past weekend, being able to talk on a one-to-one basis with franchise personnel from the range of franchise businesses on offer was invaluable as a big part of the success of franchising is in the win-win business partnership between the franchisor and its franchisees. FASA, whose mandate in presenting franchise expos is to educate the public on this business format, cannot emphasise enough the importance of understanding exactly what franchising is and how it operates.

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13 Lessons learnt in franchising in the current economic environment


As leading franchise consultants, we have identified 13 lessons learnt from the franchise industry and current economic environment we find ourselves in.

1.Franchisees: Struggling in current economic environment

In the current economy franchisors are experiencing an increase in franchisees who are struggling to make a profit. The marginal franchisees have actually gone into a loss-making situation.  Franchisors need to assess whether their business model and support structure is adequate to ensure that franchisees have the best chance of making a success of their business. Franchisors should implement an “intensive care program” for struggling and loss-making franchisees. Franchisors should never allow royalty holidays or breaks as a quick fix solution, rather offer additional support in these tough times

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