Changing a career path is a momentous step and deciding to invest in a franchise business needs to be taken seriously. Jumping into self-employment with the first franchise that takes your fancy is not a wise move. Spending time investigating the franchise sector, what’s on offer and how the various companies are structured is crucial to making the right decision.
Review the Sectors
Unless you know exactly what type of business you want to get involved in you need to become familiar with the many sectors that make up the franchise industry in South Africa. Don’t dismiss any sector before investigating fully – you might be surprised at the hidden opportunities.
Compare Franchises within a Sector
Study the offerings of different companies within a sector. Make notes on their similarities and their differences and ask questions on why they may differ in various aspects – be they financial or operational. You should pick up discrepancies or shortfalls that may alert you to any inadequacies.
Check out their FASA status
One of the first questions you need to ask is “Are you a member of the Franchise Association of South Africa? and if not, why not?” Remember that the process required to become a member of FASA is quite onerous and franchise companies that make the effort to comply with FASA’s stringent code of ethics are more transparent operators with sound business principles.
Check out their Credentials
Don’t take anything at face value. Investigate the company’s history, find out who owns it and scrutinize their Disclosure Document. Question anything that strikes you as being out of the ordinary and ask for referrals from their business associates and suppliers.’
Understand what makes up a Franchise Package
Knowing what you would be in for is important at the outset and familiarizing yourself with what makes up a turn-key operation will give you a head-start when you start evaluating each opportunity. Understand what makes up the up-front fee, the set-up costs, the management fees and look for any unforeseen expenses.
Crunching the Numbers
Even before embarking on your own Business Plan, get an accountant you trust you look at the projected income figures of the franchises you are interested in to make sure they are realistic. Look for all the other costs that will affect the bottom line like advertising contributions, training fees and the unencumbered cash that is required to tied you over until you become profitable.
Review Financing Options
Even if you are in a position to self-fund your business venture, consult with all the banks that have franchise divisions and get their insight into which franchises they have audited, finance and support. Then ask their opinion on the best way to raise the funds to finance your business. Their close involvement with the franchise sector will be invaluable in guiding you to making the right choices.
Understand the Legalities
The core of franchising lies in the rights and obligations of both parties and understanding the legalities of what you are getting involved with is perhaps the most crucial element to choosing the franchise route. Once you’ve made your choice you need to consult with a lawyer who has experience in franchising to make sure that the franchise contract is fair to both parties.
Take a Long-term View
This goes for yourself and the franchise you are planning to invest in. When assessing a franchise, look at their history and their long-term prognosis and match that with your own plans of investing in a solid franchise that will see you in business for a few years to come.
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