The importance of doing your homework before buying a franchise

The importance of doing your homework before buying a franchise

An exposé on eNCA’s Check Point last week put the spotlight on the plight of franchisees who bought into a franchise that was not accredited by the Franchise Association of South Africa. Irregularities in the franchise contract, lack of support and unhappiness amongst franchisees were highlighted – giving franchising a bad rap.

Often, when FASA deals with enquiries and complaints from unsuspecting franchisees who apparently have been done in by a franchisor that appears to be a fly-by-night, one wonders why or how did it happen that they decided to buy a franchise from a franchise company that is not an accredited member for the Association. Despite the many warnings from the Franchise Association and others in the industry, it is a sad fact that many franchisees blindly buy into franchises without doing a thorough due diligence and fail to have considered the following:-

  • Whether the franchise company is an accredited member of the association.
  • Whether the founder or owner of the company really does have extensive expertise, knowledge and experience and a deep understanding of the product or service.
  • Whether there are existing franchised outlets and if these franchisees are happy with the return on their investment.
  • Whether the franchisor has an experienced support team in place with specific reference to expert site selection, training, marketing, product development and a thorough knowledge of the business model and how it is to be applied at store level.
  • Whether the decisionmaker/s at the franchise company make themselves readily available to interact with franchisees.
  • Whether the decisionmaker/s have the long term success of the brand at heart i.e. building management service fee income on sales (royalty) as opposed to chasing upfront or joining fees from new outlets being sold.
  • Whether the franchise company appears to ‘move with the times’ and do they keep abreast with the implementation of technological advancements.

The information gleaned from complainants usually boils down to hasty decisions made by the franchisee who often gets emotionally involved with the idea of being a business owner instead of considering the harsh realities of running a business. Sometimes it is a question of ‘easy come easy go’ and more worryingly the notion of ‘franchising being a fail-safe business model’.

So what are the most common complaints that the Association has received? Most often it comes down to the fact that the franchisee is not making money or is not realizing the levels of return on investment promised the franchise company.

These manifest through:-

  • Bad or unsuitable site selections.
  • Agreed rentals that are unaffordable in respect of the relevant business model of the franchisor.
  • Lack of support from the franchisor when things start going wrong i.e. follow-up training, local marketing assistance and guidance, deferred or delayed management services fees and recommendations as to how the finances of the business could be restructured to help the franchisee through challenging times.
  • Undisclosed information crucial to the decision making process of the franchisee i.e. finding out later that an outlet went out of business previously in the same location.

While the Franchise Association does not guarantee that accredited franchise companies are fail-safe and 100% successful – nor does anyone for that matter – it does have confidence in the ethics of its members to the extent that it offers free mediation services should there be a complaint against a member company. Things go wrong as they sometimes do but the Franchise Association maintains a supportive and guiding role in finding common ground through the process of mediation should differences arise.

 

Something that is difficult to understand is why potential franchisees still take the added risk of buying a franchise from a company that is not an accredited member and then cries foul when things go wrong. The Franchise Association of South Africa, over the past forty years of its existence, has staged exhibitions and seminars, written books and articles and continues on its never-ending quest to educate potential franchisees on the importance of doing due diligence and ensuring that they buy from ethical franchises that are members of FASA.

See FASA’s self-assessment checklist online for disclosure documents and franchise agreements so that the public (non-member franchisors) can check if their agreement and disclosure document are compliant and to show prospective franchisees how an ethical franchise operation should be operating.   Visit the website for more information on franchising and to view the membership list of franchisors who have all committed to ethical franchising.

Follow us

FASA Franchise Association South Africa

To protect, lobby, promote and develop ethical franchising across all sectors in South Africa with specific focus on transformation.
FASA Franchise Association South Africa
Follow us

Latest posts by FASA Franchise Association South Africa (see all)

Join our newsletterReceive weekly news, updates and events taking place in the franchise industry