Do you dream of being your own boss? Are you an existing business wanting to expand and grow? Are you an aspiring franchisee – Let’s find out? 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. Franchising is not for everyone! Are you suited to franchising? Most franchisees have an element of entrepreneurship inherent in them, most franchisees are former employees, from corporate backgrounds, or are the victims of mergers or downsizing, or are on the verge of retirement. Where do you fit in and if you don’t, where do you start? 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 many endure, and decades later, would not want to have it any other way. Franchising in South Africa – Authors Eric Parker and Kurt Illetschko A carefully chosen franchise offers you a blueprint to business success but there are no guarantees Am I cut out for entrepreneurship? To be successful in a business of your own requires an entrepreneurial spirit. 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 pressurise 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. Book: Franchising in South Africa – Authors Eric Parker and Kurt Illetschko Do You Have What it Takes? The first 20 people to complete the Aspiring Franchisee Assessment Questionnaire will be given FREE access to FASA’s Virtual Networking Events every month for 6 months. Take The Aspiring Franchisee Test About FASA As the oldest internationally recognized Franchise Association on the continent, FASA has been responsible for the roll-out of ethical franchising in South Africa. The Franchise Association of South Africa sets down standards for ethical franchising in South Africa particularly with reference to franchise companies, by way of its Code of Ethics in conjunction with the requirements of the Regulations of the Consumer Protection Act. FASA’s aims are to ensure that its Members practice the highest standard of ethics and fair business practices in franchising and to develop and expand the business environment for franchising in South Africa.