People believe that investing in a franchise is the safer option, and they are right. Franchisees operate under an established brand using a tried and tested business system. They also have access to extensive initial and ongoing support and a host of other benefits that are ordinarily available only to branches of large companies. Not all franchises, however, are the same and not everyone will be happy as a franchisee. This article outlines the recommended evaluation process.
This important first step is far too often overlooked. Any business makes significant demands on its owners and a franchise is no exception. Ask yourself the following questions:
- Do I have the entrepreneurial gene?
A franchise is a blueprint for the establishment and ongoing operation of a business. For good measure the franchisor will provide initial and ongoing support, but the responsibility for making the venture successful remains with you.
- Can I accept the constraints a franchise imposes?
As a franchisee you own the business, but you cannot do as you please. The franchise agreement will impose limitations regarding corporate image, product range and the way you operate the business. This is necessary because replication of a proven formula is the backbone of franchising success. Individuals who like to do things their own way will not be happy as franchisees.
- Do I have sufficient capital?
Franchised networks have an image to uphold. This means that the initial investment may be higher than if an entrepreneur started out independently and took short cuts. (On the upside, looking the part instils trust in consumers and generally reduces the time it takes to reach the all-important breakeven point.)
What franchise network should I choose?
The first step in selecting a franchise opportunity is to decide on the business sector. People often say that they don’t care as long as the business is profitable, but experience suggests that this approach doesn’t work too well. Operating a business involves long hours of hard work. Unless you enjoy what you are doing, success will almost certainly elude you.
Enjoying your work is important, but it wouldn’t make sense to start a business unless proven and sustainable demand for its offering existed. Select a sector you are interested in and investigate its potential in the medium to long term. Next, establish whether at least one but preferably several reputable brands offer franchises in this sector and whether you can support the required investment.
Making contact with several franchisors is the next logical step. At the outset you may have to sell yourself to the franchisors, but don’t let this stop you from keeping your eyes and ears open. And don’t worry about causing offence. It’s your money you are investing so you are entitled to ask the difficult questions; serious franchisors welcome that. For their part, they will also be looking at you, and this is how it should be.
You should also speak to a reasonable cross section of the network’s existing franchisees. Ask the franchisees to what extent the franchisor has delivered on promises made, and, if given a second chance, whether they would invest in the same franchise again.
As soon as you make a provisional commitment to one brand, you will receive a disclosure document and a copy of the franchise agreement. Study both these documents carefully, ask the franchisor to explain anything that isn’t clear to you and consult with recognised professional advisers in the fields of franchising and accountancy. This attracts fees but, given that you are about to invest your life’s savings and take on debt, it will be money well spent.
Where should my business be located?
Unless the franchisor has identified a site, you will need to start looking for premises. But even if the franchisor offers you a site, you should still do an indepth investigation. It is in order to enlist the franchisor’s help in drawing up a site selection checklist, but don’t accept a location on someone else’s recommendation alone. Check out the site with respect to size and affordability, access to utilities and security, proximity to your target market, visibility and availability of parking. The location of competitors is another important consideration.
One more tip: If at all possible, locate your business within the community where you are known – it helps with networking.
Closing the deal
I recommend that you follow these steps:
1. Compile the business plan.
Obtain input from the franchisor, but don’t delegate responsibility. This is your business plan, only you can bring it alive. Keep your projections realistic and make sure that your own unencumbered contribution is adequate. Remember that the business must be able to service the loan and you should make provision for the odd hiccup in cashflow.
2. Approach your bank for funding.
The next step is to visit your bank, preferably accompanied by a franchisor representative who can answer possible technical questions.
It is worth noting that Nedbank maintains a dedicated division for franchise funding. Its relationship officers are familiar with the franchise sector and can add real value to your funding request, but realism must prevail. No amount of funding expertise can eliminate the need for a reasonable own contribution plus adequate sureties to safeguard the loan.
3. Jump right in.
Rather than living on your rapidly dwindling savings, it is best to move ahead with speed. Start building your outlet and commence with the initial training as soon as possible.
4. The Grand Opening and beyond.
To ensure that your staff is trained and everything functions as it should, it is best to operate the business low-key for a short period. From the day of the Grand Opening onwards you will work hard, probably harder than you have ever worked before in your life, and focus on success. This can be a stressful period, remember to involve your family every step of the way.
5. Time to enjoy the fruits of your labour.
Provided that you have assessed the opportunity realistically, have followed the brand’s blueprint to the letter and have been working hard, you should be able to reap the rewards within a few short years. At that point you’ll have the satisfaction of looking back and saying to yourself, ‘I am my own boss, life is good, and joining the ranks of franchisees was the best decision I have ever made in my life’.