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Researching a Franchise

Do your Homework Before Buying a Franchise

Franchised businesses have a higher success rate, however more homework is necessary to ensure that the business being bought is a profitable, going concern with a great future.

Entrepreneur

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Taking over an existing franchised business as a going concern requires research, homework and decisions based on sound advice. Many people entering franchised businesses are doing so for the first time, and are often using hard-won savings or accrued pension funds to realise their dreams of independence.

Getting the Right Advice and Support

Banks are well placed to offer advice on finance and also offer potential purchasers peace of mind by having extensive knowledge of which franchisors give franchisees the highest levels of support.

The extensive knowledge of franchising is backed by the ability to help a prospective business purchaser take a 360-degree view of their financial status and offer them specialist support from other financial areas. This gives clients the advantages of a streamlined, integrated financial base and easy control over all their needs.

What is not generally known is that many franchisors require operators to refurbish their outlets every five years. When making an offer on a business, it is vitally important to ascertain when a revamp is next due. Failure to do so could find you paying for a business without knowing that major costs are waiting around the corner.

Things to Consider When Buying

Purchase and sale agreements are vital. They must comply with specific legislative criteria such as the Insolvency Act. It is also required, for instance, that advertisements are carried in newspapers of all languages for 30 days prior to a sale to ensure that creditors who may have done work for the original owner do not end up knocking on your door later to demand payment.

The major research begins with the banking aspects and the actual value of the business assets. A business may have many fittings such as shelves, freezers and catering equipment. The stated value may be several million rand. What may not be realised by the purchaser, however, is the fact that over time these assets depreciate.

Their value drops and, because of wear and tear, and if the purchase of the business is made late in the lifecycle of the assets, they may be worth very little.

Getting an approved valuation from an expert should therefore be the very first step in the purchase process. It is essential that a valuation is made on site. Desktop valuations where only information on hand is used without leaving the office should be avoided. Attention should be paid to all equipment ensuring that it is all in good working order and there are no faults that could be expensive to rectify later.

Ownership of assets should also be clearly ascertained. In some cases specific equipment may be owned by the franchisor, rather than the franchisee. They should not therefore be included in the overall value of the business. It should always be borne in mind that a correct list of assets is invaluable when applying for bank finance, as it provides the bank with security against a loan.

A goodwill payment should also not be included as a business asset. A medium-term loan or a business-term loan should rather be considered.

Stock in hand is also not considered as an asset. This is because some franchisors hold non-negotiable general bonds over the stock. The stock is owned by the franchisor until payment has been made by the franchisee.

A Great Future

Buying a going concern is also not simply a case of signing an instalment agreement sale.

Essentially, when financing an existing going concern, Standard Bank uses a ‘sale and lease-back’ mechanism to complete the transaction. The timing of this transaction has got to be just right as ownership has to pass from the old franchisee to the new franchisee and documentation must be signed as ownership passes across.

When making a move into a franchised business the question of buying a new or existing outlet is obviously top-of-mind. Buying an established business that has a solid customer base and a financial history may be regarded as first prize. It is more likely to be so if the deal is approached with caution.

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Researching a Franchise

5 Strategies For Franchise Leadership Development

Follow these steps to develop the most effective leadership skills for your franchise business.

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In my most recent article, I identified the five primary departments that make up every business: Leadership, finance, operations, marketing and technology.

The most important of these is leadership. The experience, business acumen and commitment of company leaders have a greater impact on the outcome of the business than the other factors.

Apply these strategies to create a leadership development plan for your franchise business – or for any other kind of company, too.

1Develop a clear vision and plan

Many companies suffer due to the lack of a plan. This leaves the team to struggle for direction and spend time putting out fires instead of taking constructive action. This is like taking a journey without a map.

The first step is to write down the company leadership vision. Be specific and include job descriptions and action items.

Related: How Body20 Moves Their Franchisees In The Direction Of Success

2Choose your model

I always say that it is critical to identify your operating system and adapt the business model accordingly. Your operating system is what makes you tick? For instance, if you have experience and work better in the field than behind a desk, you may be more effective as a hands-on trainer than as an in-office resource. In this example, you may choose to have others run the office duties.

3Examine your current team

One of the more painful consulting duties I have had over the years has been the duty to reposition or remove team members. This can be especially difficult if the individual is a friend or family member. Make sure each member of your team is the most qualified for the position.

Don’t be afraid to make necessary changes for the good of the overall company. Be selective as you add people to your organisation to make sure they are a good fit and have what it takes to help your company thrive.

Related: Savvy Sales Skills To Grow Your Franchise Footprint

4Get outside help

I frequently hear from my clients that they don’t know what they don’t know – they don’t know where to start or what they need to learn. Leadership is one area that has many resources for ongoing education and development. Recently, I attended the Multi-Unit Franchise Conference in Las Vegas.

One of the most successful multi-unit franchisees stated that the most important strategy he has implemented was signing up for a leadership training and development program.

5Use technology tools

Engagement and implementation are the most important factors of any business system. Technology tools can enable you to make sure that the leadership key performance indicators (KPIs) are executed and are being tracked. You will want to make sure that the technology tools also help you implement the important leadership development tasks and behaviors on all levels of your organisation.

Becoming a great leader may seem to be a daunting undertaking. Remember that every great leader started out the same way you did, and you are still writing your success story.

Related: Why Digital Isn’t Enough To Attract (And Keep) Every Customer

One of my favorite examples of leadership that I wrote about in Franchise Bible, 8th Edition contrasted the difference between inspiration and motivation. I was the CEO of my second franchise organisation, and I was talking to one of our franchise owners on the phone about my leadership style and strategy. I told him that I identified that I needed to be a motivator. He quickly corrected me by saying “we don’t need a motivator, we want you to inspire us.”

It is critical to be an inspirational leader for your business to thrive. Each member of the community needs to look up to you and your team. They need to turn to you when things get tough.

This article was originally posted here on Entrepreneur.com.

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Researching a Franchise

3 Books Every Franchise Buyer Needs To Read

With technology disrupting the world of franchise, use the tools from these three books to stay innovative with your business.

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There are many new authors in the franchise and small business category that have written some very helpful books for our industry. Recently, I have been asked to recommend books to help franchisors and franchise owners.

Take a look at the following books:

1Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne

Blue Ocean Strategy by W. Chan Kim and Renée Mauborgne

I have been coaching some very innovative new companies lately that are bringing new technology, business models and marketing tools to the franchise world. Some of these businesses are creating a whole new market. When I identify companies like these, I always suggest that they read Blue Ocean Strategy to further develop their skills and vision. This book is a paradigm shift for many business owners that focus on moving in the direction of untapped new markets, or “blue oceans,” instead of going head-to-head with the competition in “bloody red ocean” existing markets.

Related: Should You Purchase An Existing Franchise?

2Brick and Mortar Franchise Success by Carolyn Miller

brick-and-mortar-franchise-success-by-carolyn-miller

This book is a must-read for anyone that is opening brick and mortar locations. In her book Brick and Mortar Franchise Success, Carolyn Miller identifies the industry tips and gold nuggets to save money and time before, during and after the build-out and construction phases of a new business.

Many of my clients have benefited in a very tangible way from this book. Franchisors will find many strategies that can immediately be implemented to better train and support franchise owners as they prepare to launch. Franchise owners can use this book as a guide as they move through site selection, assemble their construction team and initiate their pre-opening steps.

3Millennial Millionaire by Bryan M. Kuderna

millennial-millionaire-by-bryan-m-kuderna

I recently wrote an article about the millennial generation and what is important to consider as a franchisor if you seek to recruit these individuals. This led me to meet the author of Millennial Millionaire, Bryan Kuderna. Kuderna is a Certified Financial Planner with a goal to educate young professionals in the area of financial literacy. This book will help you understand the priorities, beliefs and lifestyle of this generation as well as reveal some solid financial strategies.

During my research for Franchise Bible, 8th Edition, I found that the franchise industry has changed in many ways over the years. Technology has had the biggest impact by modifying buying behaviors. Not too many years ago, franchise buyers would find an opportunity in Entrepreneur magazine or by attending a franchise expo in-person.

Related: Owning A Franchise – Good Idea Or Bad Idea?

They would then go through the franchisor’s respective step-by-step process to qualify, purchase and launch their franchises. But today, buyers can find a plethora of information online about nearly any franchise they want to learn about. This has leveled the playing field for new innovative companies to compete favorably with the “big boys” in the marketplace. Now, the more creative and tech-savvy companies have the advantage instead of the ones with largest budgets.

Franchise operations have also shifted quite a bit due to technology. Franchisors now have more information at their fingertips than any other time in history. This enables them to offer better training such as video operations manuals, ongoing educational webinars and a variety of dynamic tech tools to gather critical stats.

These changes have made it more important for franchise leaders to learn as much as possible to gain a competitive edge and stay relevant in an ever-changing business world. The books that I reviewed in this article are a great starting point. But, remember that innovation is the key to growing in the modern marketplace. Now is a great time to get your team together to create leadership and marketing strategies using these tools.

This article was originally posted here on Entrepreneur.com.

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Researching a Franchise

Start A Service Franchise: Cash In On These 3 Successful Models

If you thought all the money was in fast food, think again. Consider switching your focus to a service franchising as a profitable business investment.

Diana Albertyn

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sorbet-store

There are important considerations to make when choosing to buy into your first franchise. Sure, everyone’s going for the restaurants, grocery stores, and other product-based concepts, but is that really where the money is?

“The franchising services sector has shown healthy growth despite challenging economic times,” says Sybrand Bezuidenhout, business development manager franchise: services, Barclays Africa Group.

“All indications are that it will continue to grow and positively contribute to the economy – especially if franchisees focus on providing quality products and top-class customer service.”

Related: 4 Types Of Business Models

Take advantage of ‘the lipstick effect’ – where consumers are more likely to spend on little luxuries such as lipstick (or renovating instead of buying new homes, or keeping their cars for 10 years instead of five) as opposed to making big purchases in dire economic times – by investing in the following service franchises, to experience good returns, even when product franchises aren’t:

1Harness the power of pampering

woman-getting-manicure

When money’s tight, consumers tend to cut down on so-called ‘luxuries’, but they don’t deny themselves the odd indulgence. People still strive to spoil and pamper themselves, the difference is the price tag.

“The change is seen in what their hard-earned money is spent on,” says Bezuidenhout. “For instance, rather than going to a spa, a woman will choose to get her nails done. That way, she still feels she is treating herself, but at a fraction of the cost.”

Sorbet, a branded chain of health and beauty salons, nail bars and dry bars, is on almost every corner for a reason – people are using its services, even when disposable income is low. It not the cheapest treat, but also not the costliest.

2Build a future-proof franchise

A recession isn’t the ideal time to start renovating or building your dream homes, but a wise franchisee knows that it’s not when you start a construction services business, but where. ‘Location, location, location’, so goes the real estate adage.

Related: 3 Types Of Ecommerce Business Models

Have you noticed a suburb where newly built complexes and houses are springing up lately? This could be your new premises. “Building franchises specifically, perform much better in these because home owners are more likely to undertake work on their homes,” says Bezuidenhout.

Silverline Group provides construction services including architectural support, detailed shop drawing design, structural engineering, quantity surveying, distribution, and construction.

3Older cars, more servicing

older-cars

As the fleet of cars on South Africa’s roads get older, auto services franchise groups are soaring in popularity. You can join them if you effectively market your competitively priced services as a viable alternative to dealerships.

Related: How Women Entrepreneurs Can Change the SA Business Landscape

“Even if the economy shows unexpected recovery and growth, the auto services franchise industry will still thrive as higher disposable income will see a new wave of entry level consumers who will replace those customers who upgrade their vehicles to new ones under maintenance plan,” explains Bezuidenhout.

Car Service City, specialists in affordable service and repairs, is fast becoming one of South Africa’s leading car servicing groups, according to FASA. Its rapid growth is owed to exploiting a gap in the market and running with it.

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