Potential Franchisor FAQ
The process of franchising a business is a time consuming project as there are many legal requirements and financial, structural and strategic considerations so ideally it should be handled by professional franchise consultants. Click here for contact details of franchise consultant members
The Franchise Association of South Africa sells a publication called How to franchise your business which deals with every aspect of the entire process of franchising a business – the publication is available as an ebook
Ideally a concept or business idea cannot be franchised as it is imperative to test the product or service in the market place to measure consumer demand and response to the product or service. There are a myriad of requirements to be considered and addressed in the process of franchising a business for example financial investment requirements and return on investment information, set-up costs, location or site requirements, equipment requirements and specifications, franchisee profile, prices and services, procedures and operational requirements and the list goes on. If a business owner has an existing successful business with a financial track record and is considering expanding by way of the franchise model it is far more conducive to establishing a successful franchise company than an idea in someone’s mind.
There are many legal requirements for franchisors in South Arica but it depends on which industry the franchise operates in for example:-
- Register the company with the Companies and Intellectual Property Commission – CIPC
- Department of Labour – register in accordance with the Compensation for Occupational Injuries and Diseases Act
- Register with SARS for VAT, PAYE and UIF as well as SDL
Comply with the
- Consumer Protection Act’s Regulations with specific reference to the requirements for franchise agreements and disclosure documents.
- Trademark law
- Copyright Act
- Anti-Smoking laws
- Labour Law (Industrial Relations Act)
- Liquor Act
- Property Law
- Petroleum Products Act
- Second-hand Goods Act
- National Credit Act
This list is not exhaustive and it is recommended that a potential franchisor consult with an experienced franchise attorney – Click here for contact details of franchise attorney members
The investment requirements to franchise a business is quite steep – there is a long list of legal requirements for franchisors in South Africa – depending on the sector that the business operates in. For example, the trademarks of the business and often if applicable, patents have to be registered in the relevant different classes, the franchise agreement and disclosure documents should be drafted by an experienced franchise attorney, the operations or procedural and training manual should be developed by a professional franchise consultant who should also develop the structure of the franchise together with the owner/s.
The franchisor should also have financial resources to advertise and the market the franchise and invest in the ongoing development for the brand especially in the early stages.
It is recommended that a potential franchisor consults with the various specialists mentioned here to determine an investment budget before they embark on franchising their business.
Existing Franchisor FAQ
Finding the right location for a business is one of the most crucial decisions and it is a good idea to consult with various business specialists before a lease is signed. In many cases the establishment costs of a franchised outlet require a large investment and taking various steps to mitigate the risk and safeguard both the reputation of the brand and the franchisee’s investment is highly recommended.
Franchisors should cultivate a strong working relationship with landlords to build trust and transparent business dealings. It is recommended that franchisors should meet regularly with decision makers at all of the large retail property groups and their letting agents. Having frequent discussions and inviting landlords to pertinent events taking place at brands can only foster trust and goodwill which is crucial to a good relationship with landlords.
There are many opportunities for franchise companies to advertise in order to secure franchisees:-
- Apply to the Franchise Association of South Africa for accredited membership status as the Association offers free marketing opportunities to members by way of its weekly newsflash that goes out to thousands of recipients, it gives a free full colour quarter page advert in its annual franchise manual which is distributed at expo’s, seminars and to stakeholders, it lists accredited franchise companies on its website and offers free speaking or presentation opportunities to franchisors at its seminars and expo’s.
- List opportunities available on franchise websites and the websites of franchise publications
- Exhibit at franchise expo’s and participate in events – go to the following website to monitor exhibition opportunities
- Have exploratory seminars or events at the franchise company’s offices on a week day evening or a weekend morning to take potential franchisees through the opportunities your franchise has to offer.
Franchisors should meet with decision makers at funders to explain the franchise concept to them and to answer any questions funders may have about the franchise. Should they get an application for funding from your franchise in future, hopefully the funders know about your brand and can contact you about questions they may have.
These contacts should be maintained and regular meetings should be scheduled with the head of franchising at each of the main banks in South Africa as well as development funders like Business Partners, Masisizane Fund, the National Empowerment Fund and sefa.
Criteria for funding applications, vary from banks to development funders but generally funders rate the following factors:-
- Who is the potential franchisee – does he/she have business acumen, are they suited to the franchise, are they healthy individuals, do they have the required surety for the loan, do they have an adequate deposit, can they afford the business and sustain it until it delivers a profit, how well is the business plan developed including the projected financial information
- Issues regarding the franchisor – has the franchisor been accredited by the Franchise Association of South Africa, how many outlets did the franchise company close or relocate, what were the reasons for the closures or relocations, does the franchisor offer a special support program for distressed franchised outlets, does the franchisor employ suitably qualified support personnel, what is the financial track record of the franchise, in which business category does it operate, how long has the franchise been in operation, projected return on investment, investment requirements, list of assets/equipment required and how it would be deployed in the business.
The above information is merely a guide and not an exhaustive list of criteria funders would apply in the funding application. Criteria would vary from funder to funder and bank to bank.
If your question has not been addressed under this section please send us your question in the message box below.