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Advice From a Master Franchisor

Top tips from a savvy franchisor who has first hand experience in rolling out an international franchise concept in South Africa.

Monique Verduyn

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PostNet entered the South African market in1994, when Ian Lourens and Chris Wheeler opened the first franchise store at Benmore Gardens in Sandton. The company has grown quickly in this time to over 200 franchise stores nationwide, targeting mainly small to medium businesses.

Entrepreneur spoke to Ian Lourens, CEO of Onelogix, to learn how to turn an international franchise investment opportunity into a winning business.

The Postnet Concept

PostNet originated in the US in 1993 and is headquartered in Denver, Colorado.It was founded by Steven Greenbaum and Brian Spindel, who had over 20 years’ experience in franchised business services and the postal industry. It’s a one-stop business centre that offers digital services, print and copy services,packing and shipping services, and other business services and products tailored to meet the needs of small business owners and busy consumers.

The PostNet International Franchise Corporation has become the fastest growing, largest privately-held company in the postal, business services and copy and print shop industries. Greenbaum and Spindle attribute PostNet’s success to the hard work and efforts of its franchisees and the company’s own culture and values which, they say, can be felt throughout the entire organisation.

The worldwide demand for PostNet’s products and services has propelled dynamic growth in the global marketplace. Today, PostNet business centres can be found on almost every continent, including Europe, Africa, Asia, South America and North America.

PostNet SA is a subsidiary of logistics group Onelogix, which is listed on the Alt-X. The franchise is an accredited member of the Franchise Association of Southern Africa (FASA). It was awarded the title of Franchisor of the Year in 2001, and has won several PostNet International awards, including one for the most successful international development within the PostNet group.

Local vs International Franchises

The only real benefit of an international brand over a local brand, according to Lourens, is that the brand has been tried and tested in various different markets around the world. “The South African market exhibits the characteristics of both an advanced and a developing economy,” he says. “If you can learn appropriately from other operators’ experience, then the franchise opportunity may be quite compelling.”

It’s vital to ensure that the master franchisor is properly capitalised as the ability to perform financially is paramount.

In addition to financial resources, the franchise system must also be sufficiently well structured. “This is a tangible indication that the franchisor is willing and able to assist, to provide guidance on how to test, launch, grow and sustain the particular product,”Lourens adds. “It means that the master franchisor has the ability and propensity to provide support through the entire life cycle of the business.”

If you are considering an international franchise opportunity, it’s a good idea to investigate what support you will get and whether this support is contractually entrenched. “It is of no to use have only promises of assistance; you need a far stronger commitment than this,because when promises need to be translated into action, you are almost always disappointed,” says Lourens.

Check-Points For Success

So you’ve checked the finances and the infrastructure. But before you make any decisions about whether an international franchise has the potential to succeed in the local market, Lourens suggests that you ask the following questions:

  1. Does the master franchisor have a strong and credible pipeline of product development? This is critical because it addresses the long term sustainability of the brand.
  2. Has the master franchisor clearly articulated that you may be able to develop products – as well as advertising, promotions and general communications – that are suited to the local market? If this is allowed, what are the conditions?
  3. If the master franchisor committed to providing strong advertising ideas?
  4. Is the master franchisor sufficiently well resourced with qualified people
    to assist in setting up strong operational procedures?
  5. Are the operational procedures sufficiently well documented – and user-friendly – to be easily translated in the South African market?
  6. What IT support is provided, and are the systems compatible with those available locally?
  7. Obtain a list of all suppliers used by the brand. See whether they have a presence in South Africa and whether compelling international deals are on offer. Find out if there real advantages in terms of international buying power. Speak to the local suppliers and confirm their understanding of the deals on offer.
  8. Does the cost-benefit ratio (the total financial return for each rand invested) of the franchise rights provide real value? Is it possible to attain an acceptable return on investment? This is the most important question of all.

Do The Research

Transparency is the watchword when it comes to exploring any franchise opportunity and it must apply to all aspects of the business. “This is particularly pertinent when it comes to willingness to reveal the full financial position of the company,” Lourens notes. “If themaster franchisor refuses or is reluctant, don’t go near the company.”

Check the financial standing and sustainability of the master franchise carefully. Full access to the financial statements will enable you to determine the viability of the business. Consider issues such as debt, cash flow, assets (type and age), sources of revenue and profitability. If you are not sufficiently skilled in performing this task yourself, call in a specialist. It may cost you, but this will be money well spent.

Lourens says it’s important to interview people other than the franchise sales person. “This may include the CEO and CFO, but it should definitely include the franchise support, advertising and new product staff,” he adds. “Conduct extensive conversations with existing franchisees in the master franchisor’s country. Have even more extensive conversations with existing and past country franchise holders. Check particularly on the credibility of the brand and the support offered. It also helps to speak to ordinary franchisees in countries outside of the host country.”

Lourens says he found that all of these conversations provided some of the most useful insight into the viability of the brand when he was looking into PostNet.

Local Viability

Your research should naturally include an assessment of how receptive the South African market will be to the products or services your franchise will offer. “Help from the master franchisor is very useful, but the responsibility for establishing the viability of the product in your country must remain yours,” advises Lourens. “Again, you may need to call in expert analysts. You cannot expend too much effort on this process.”

A Fair Price

Determining whether the upfront fee you will be required to hand over is reasonable, is critical – it’s one of the most important components of your investigation.

As part of your feasibility study you will determine expected profitability. This comprehensive analysis will obviously incorporate the fee structure of the brand.

“You should have a very good idea as to your expected or required rate of return on investment,” says Lourens. “This analysis will determine the acceptability or otherwise of the proposed fee structure, including the upfront fee and the ongoing monthly royalty fee payable.”

You may also choose to investigate the viability of undertaking the venture without the assistance of the international franchise. “Look at doing the whole thing on your own,” says Lourens. “Compare the returns on offer if you develop your own brand with those you can expect from the international brand. This can be a particularly instructive exercise and should form the basis of your investment decision.”

For more information contact Postnet on +27 860 767 8638 or visit www.postnet.co.za

Monique Verduyn is a freelance writer. She has more than 12 years’ experience in writing for the corporate, SME, IT and entertainment sectors, and has interviewed many of South Africa’s most prominent business leaders and thinkers. Find her on Google+.

Franchise Your Business

4 Factors To Consider Before Converting Your Independent Business Into A Franchise

Are you an experienced independent business owner who is struggling to keep your business going? Perhaps you should consider joining a franchise network to rebrand your business and attract more customers.

Diana Albertyn

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Until about a year or so ago, your local pizzeria business remained the anchor of your community – but lately sales have dropped as your once loyal customers flock to the latest pizza franchises to hit South African shores. At first it may have seemed like a fad, but very few customers have returned and you’re dreading the inevitable.

Instead of closing shop, you could convert your business into a franchise to compete. “But why would you want to trade in your independence to belong to a franchise? What do you get in return? And how can you decide if the leap from independent to franchisee is right for you?” asks CEO of FranChoice Inc. Jeff Elgin.

Related: 3 Employment Best Practices To Apply In Your Franchise

Here are four reasons conversion may be just what your business needs to boost sales and show marked growth:

1. Acquire brand influence

Being associated with a recognised brand could yield significant marketing advantages. Aligning your business with a name that has national top of mind awareness gives you the benefit of the franchisor driving brand recognition and customer growth on your behalf.

“Brand recognition can boost traffic right away,” says Laurie Pollock, a senior franchise consultant at FranChoice. “Effective marketing techniques are of significant impact as this is often an area where small business owners struggle.” Your monthly marketing fee could fund a national marketing campaign that dwarfs your current flyers on specials board currently posted on the shop window.

2. Receive support from the franchisor

Right now, as an independent business owner, you are responsible for every detail of your business operations. From finding an efficient bookkeeping system, to cost analysis and sourcing quality suppliers for any new options your customers might be interested in.

If you join a franchise system, the resources to help you figure these things out will be available to you from your franchisor. “Franchisors keep abreast of the changes on behalf of their franchisees, so owners can focus on their customers,” says Pollock.

Related: Why Your Franchise Brand Should Be Culturally Relevant

3. Benefit from increased purchasing power

As a franchisee, you should expect significant savings on inventory thanks to the franchisor’s bargaining power. Besides the benefit of being associated with a large system, franchisors are industry experts. This helps you – as experienced as you are as an independent business owner – capitalise on a combination of best practices and the latest technology, in addition to group buying power.

4. Adopt a proven (winning) concept

When you started your business all those years ago, it only had a 10% chance of being successful. Sustain your triumph thus far, by buying into a system tested and proven by other business owners in the franchise chain. The franchise’s current franchisees who have produced the highest possible level of success from the business are good testimonials while making your decision, but remember that:

“Before converting and becoming part of a franchise system, you may need to shift your thinking from ‘I’ve always done it this way’ to ‘I’m ready to learn a new way; I’m ready to do it your way,’” advises Pollock.

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Freedom As A Franchise Owner With Less Risk

Franchising could therefore provide freedom to new business owners as a business opportunity, with the following reduced risks.

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Over the past two decades South Africa saw an influx of international firms selling franchises, as well as an increase in local ones. The franchise sector provides ideal opportunities for small to medium enterprises and is an effective vehicle for growth. Its importance to the economy is significant, contributing an estimated 13,3% to the country’s gross domestic product. There are more than 800 franchised systems operating countrywide, with over 40 528 franchised businesses employing more than 343 000 people.

Franchises, such as Mugg & Bean and Nandos, are among many South African firms operating around the world. Today, at least 90% of franchises in the country are local firms.

The franchise industry is a money-spinner and those prepared to work hard can benefit. There are many success stories of how people left the corporate world to seek freedom in running their own franchises.

A consideration for gaining freedom could be a standalone business. However, one has to be mindful that businesses are experiencing challenges due to the tough economic conditions in the country and the world. It is also becoming more expensive to do business as a result of increased lending rates, electricity costs, staffing and rental.

Related: Should You Purchase An Existing Franchise?

happy-franchise-owner

Franchising could therefore provide freedom to new business owners as a business opportunity, with the following reduced risks:

  • Due to the brand’s support structures, it is possible for business owners to open a store without the risk of failure experienced with independent business owners.
  • Franchisees have the advantage of a turnkey operation without having to blindly set up a store and secure suppliers, which makes franchising a sleek and fast way to set up a business.
  • With a good support structure and management team, franchisees are able to customise their working hours according to peak and crucial trading times.
  • With the backing of a recognised and responsible brand, franchisees’ expansion plans are escalated and the probability of becoming a multi-unit business owner improves.
  • As business owners, franchisees are ultimately still responsible for and in control of their bottomline. The more efficiently and effectively a store is managed, the more profitable the business will be.
  • Franchisees have more control over their competitor landscape than licensee holders and independent business owners. Most franchise concepts guarantee a certain radius of trading territory, which gives franchisees the advantage of no new competitor entrants within the brand.

Nedbank Business Banking has the following tips on how one can tap into franchising opportunities:

  • Identify a franchise within your area of expertise.
  • Raise the capital through own or loan funds – at least 50% personal savings are required to start up the business.
  • Understand the business and do market research.
  • Draw up a business plan – without one, no financial institution will understand your vision.
  • Maintain a good credit history – check the status of your profile through the various agencies as this impacts rental agreements, financial applications and credit for the business.
  • Obtain financing options from the franchisor.
  • Get an accountant and a lawyer – financial and legal expertise is necessary, especially with new regulations.
  • Understand the implications of the Franchise Industry Code of Conduct.

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

For further information on franchise funding send an email to franchising@nedbank.co.za.

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(Watch) Franchises Help Create Jobs

The franchise sector has not been immune to the challenges of the current economic climate. However, it has demonstrated resilience and continues to play a key role in contributing to the economy and creating jobs.

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Mark Rose, Head of New Business Development, on Nedbank Franchising

Recent statistics from the Franchise Association of South Africa reveal that the industry has grown to over 750 franchise systems, with nearly 35 000 franchise outlets, contributing an estimated 11,6% to South Africa’s gross domestic product (GDP) through an estimated R493 billion in turnover in 2016. The franchise sector has helped create more than 350 000 jobs.

See money differently

Nedbank’s new brand proposition encourages clients to ‘see money differently’. We have a broad spectrum of finance products available to clients who wish to become involved in franchising. This includes access to working capital facilities, asset-based finance loans, debtors finance and term loans to enable entrepreneurs to fulfil their dreams.

There are obvious benefits to purchasing a franchise rather than starting an entirely new business, since being linked to an existing brand established in the marketplace can make the financing process easier. We offer funding for all franchise models. However, preference is given to brands that demonstrate ethical behaviour, have operational structures in place and, most importantly, are able to offer their franchisees support, especially in difficult times.

As a bank for business, Nedbank’s finance application approval rate is higher for franchises than for independent business, as we rely on the inherent benefits of a franchise system.

Related: Should You Purchase An Existing Franchise?

What we offer

nedbank-offers

Nedbank has customised packages for franchises that cover lending, transactional banking and value-adding and investment solutions.

Pre-negotiated pricing also provides the respective brands with upfront pricing on transactional banking services.

These are delivered through our local regional offices, which are supported by a centralised credit unit to ensure quick turnaround times on decisions.

Finance solutions for franchises include:

  • New-store financing
  • Financing for resale transactions
  • Financing for multistore transactions
  • Finance packages for alternative energy efficient solutions/projects
  • Financing for revamps or refurbishment.

What we look for in a potential franchisee

As a bank our assessment of potential franchisees is based primarily on the viability of the business: affordability must be evident, location of the business must be sound, the franchisee must have sufficient experience and a healthy credit record, and the franchisor must provide a support mechanism.

Nedbank will assess the application in line with these requirements. The franchisee is generally required to invest 50% in unencumbered funds in the franchise. The finance gearing for the purchase of multiple stores is negotiable, depending on debt levels and performance of your existing outlet(s).

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

To ensure the success of franchisees Nedbank offers additional support in the form of transactional products and services, such as card acquiring services, merchant facilities and electronic banking, which have been designed to add value to franchisees, giving them the edge to succeed in a competitive environment.

Innovation for clients

Nedbank has also introduced a solution for franchisees who have to secure a fuel or rental guarantee, allowing franchisees to secure a guarantee without having to provide the bank with cash cover.

We also offer a variety of products, such as Market Edge, a first-in-market data analytics tool that enables clients to gain insights into their customers’ behaviour and to develop strategies for their business on a multilayered, real-time and user-friendly dashboard.

GAP Access is another innovative product that enables the bank to provide Nedbank merchants with access to working capital, advanced against their point-of-sale (POS) terminal turnover. Repayments are made daily as a small percentage of card turnover, while cashflow is tracked and the merchant is net-settled.

Related: 3 Secrets To Franchising Success

Nedbank Business Banking

Our tailored solutions take franchisees’ current and future goals into consideration, and aim to assist franchises in attaining the competitive edge needed to succeed. A dedicated business banker gives franchise owners the opportunity to have an experienced financial expert as a partner in their business.

For more information on franchising email us at franchising@nedbank.co.za.

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