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Franchisee Advice

4 Key Questions for Prospective Franchisees

What to ask when you’re researching a franchise opportunity – and how to get the answers.

Jeff Elgin

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Sometimes knowing which rocks to look under is the secret to discovering what you’re looking for. Though there are many topics to explore when researching franchise opportunities, years of experience have shown that if you want to make sure a franchise is a good one, you need to ask four key questions:

1. How well does the franchisor prepare new franchisees to succeed?

This is a broad question but it is also the most important one of all. When you acquire a franchise, what you’re supposed to receive is a proven system for producing predictable results. The bargain you make is that the franchisor will teach you everything you need to do in order to succeed and you’ll follow its direction.

In order to evaluate how well a company prepares new franchisees, you’ll need to do three things.

  1. First, evaluate its training programmes to make sure that all functional areas of the business are completely covered and that systems are in place to assist you as you learn how to operate the business.
  2. Second, evaluate its initial unit opening support systems to ensure that you will have all the assistance you need with every facet of opening a new outlet. That means site selection, lease negotiation, financing, construction, supplies and inventory, and finding and training employees.
  3. The third area you’ll need to evaluate is the franchise’s front line support staff. You should make sure that these people know everything about the operation of a new unit and that they will be there for you when you need help. As the saying goes, in a good franchise you’re in business for yourself but not by yourself, so make sure this is the case.

2. How strong is the ongoing support?

After you get your first unit up and operating, you’re still going to need plenty of assistance to deal with the issues and problems that every business owner faces. So you need to know how well the franchisor is set up to provide ongoing support, assistance and training to help you deal with the challenges you’ll face.

You should also evaluate the franchisor’s ongoing efforts to make its franchisees more successful by maximising their collective purchasing power. Successful programmes can provide savings on supplies and inventory that offset most or all of the ongoing royalty fees a franchisee is required to pay the company, so this is a key factor to consider.

3. How good is the marketing programme?

In order to succeed, you need to attract enough customers to support your franchise. A good franchise opportunity will provide support to both initial and ongoing marketing programmes in order to produce those customers.

The initial marketing programme needs to drive enough trial customers into your business to solidify your primary customer base. Make sure you confirm that the company has specific strategies and tactics to accomplish this and that its programme works consistently in various markets around the country. Ongoing marketing programmes need to drive enough new customers to the business to offset attrition and meet growth goals. Check that the franchise has strong and consistent year after year same-store sales growth and that this result is accomplished by increasing customer numbers and not simply via price increases.

4. How much money can you make?

Many people looking at franchise opportunities naturally consider this to be the most important question, and there are two good potential sources of information to answer it. First, many of the best companies publish their earnings information in their Franchise Disclosure Documents. If they do, this will save you quite a bit of time in finding an initial answer to this question.

Whether the franchise you’re researching publishes this data or not, you still need to verify the information through the second source: calls to existing franchisees. You need to determine how much money a mature unit makes after operating for a few years.

You also need to know how the first year or two looks financially – when units typically reach the break-even point – and how much money franchisees need to subsidise their operations before they reach that point.

Be sure to compare the income expectations to the total investment size to confirm that the return appears to be reasonable. Finally, analyse how many of the existing franchisees own multiple units as a way of increasing their total earnings from the business.

The process you should go through in answering all of these questions is threefold. First, get the official answer to the question from the franchise company. Second, talk with multiple existing franchisees to validate, confirm and perhaps expand on the official answers. Finally, go back to the franchisor to clarify any conflicting information you have received so that you are confident that you have determined the correct answers.

Consolidating your answers

When you have the answers to these four questions, you’ll know if you have found a good franchise opportunity. If any of these four areas are weak, you should pass and find a different franchise.

Once you find a company that meets your expectations in these critical areas, make sure you match up well with the people involved. You should like them and feel comfortable about working with them. If you become a new franchisee, you’ll be in a very close relationship with these folks for years, so you need to be sure that everyone is on the same wave-length in terms of values and goals.

Jeff Elgin has developed a consulting system that matches pre-screened, high-quality prospective franchisees with the franchise opportunities that best fit their personal profile.

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1 Comment

1 Comment

  1. Trevor Wyborn

    Oct 13, 2011 at 09:03

    Here is a question I put to potential franchise buyers, Ask them to go and work for free in any franchise outlet, not the training store, to learn the ropes as a shadow to the owner. Marketing talk is often the exact opposite of reality.

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Franchisee Advice

5 S-Words Make Your Store Site Pay For Itself

Richard Mukheibir, CEO of Cash Converters recently addressed delegates at the FASA (Franchise Association of SA) conference on the topic of choosing the best location for their business. He spoke about the 5-S technique to assist business owners with deciding which premises is best suited for their business.

Richard Mukheibir

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The combination of continuing trading uncertainty in South Africa and the new financial year for many businesses can add up to carefully reviewing costs – including leases on premises. Choosing a site to set up or relocate your business can be just as stressful as deciding where to buy a house – and just as fundamental to its health, finances and sustainability, says Richard Mukheibir, CEO of Cash Converters.

This is not the time to snap up the property with the cheapest rental as that might turn out to be something you regret in the long run. Nor is it the time to be dazzled by the swankiest premises you can find. The potential for bragging rights could turn out to be poor value for money.

“This is a time for your head to rule your heart regardless of the industry you trade in.” he says.

The real-estate mantra of “location, location, location” works just as effectively in commercial as it does in private property but you will often be looking for rather different factors. Mukheibir shares his 5-S technique to help you begin narrowing down the areas where you will consider locating your business – first at the macro level, focus in further to the meso level, then look more closely at the micro level before you start weighing up specific sites.

1. Strategy

Remind yourself of the medium and long-term strategies you have developed for your business. Keep your understanding of your business’s customers, purpose and growth prospects top of mind when you are selecting the areas where you will start looking for sites.

Related: Effective Ways To Bring Customers To Your Door

2. Scope

Within those areas, redline any sections where you feel the competition from other businesses will detract from your potential to grow your market. Greenline areas where there are good synergies between the people who live or work there and the demographic that you have identified as your target market.

3. Synergy

Make sure there is clearly a good pool of potential customers for you – size definitely matters when it comes to ensuring that there are plenty of customers available to you. Look specifically for facilities that cater for the kind of customers you want to attract. Sports stores benefit from being close to schools and tertiary colleges, for example.

4. Sight

Although many businesses now have an online element, most still benefit from attracting customers to walk through the door. For your premises to be a good fit for your business, you should be located in plain sight and ensure that your ability to market yourself locally through signage and lamp-post posters is not restricted by local bylaws.

Related: FASA Establishes Industry Specific Food Franchise Forum

5. Security

You will attract and retain good customers and staff if they feel they’re secure in the area. This perception includes factors such as easy, safe parking and a welcoming environment.

“Making a success of your business is not just about the product or your branding,” says Mukheibir. “It can be as fundamental as finding a site that ends up paying for itself. To do this, it must offer you a well-calculated gap in the market where the strong demand for the product or service that your business offers ensures sales and profit. If you have considered all these steps carefully, you will never worry about making rent and wages payment again.”

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Franchisee Advice

6 Things You Need To Know About Profit And Cashflow

Why your business needs both and how to check.

Richard Mukheibir

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In the heat of the action as you build your business or launch a new line, it’s easy to hope some aspects will take care of themselves. It’s especially tempting to fall into that trap with your accounts if you don’t like dealing with figures.

Despite having a B. Comm degree, I’m happy to admit that I don’t really like accounts. I much prefer strategies, management and business development. Fortunately, my co-founder and our Chief Financial Officer Peter Forshaw tirelessly keeps us on track financially – and his message to our franchisees is always that in your own business, you must understand enough of the financial basics to know whether your business is swimming or sinking…

It’s so important that we include this as part of our franchisee training. To get you started, here’s what Engela van Loggerenberg, our Group Financial Manager, tells new franchisees:

  1. Cashflow and profit aren’t the same: You can’t track one and assume the other shows the same pattern. There is no natural correlation between the two – your cashflow can be positive and you can be making a loss or your cashflow can be negative but you’re making a profit.
  2. Cash keeps you going: It’s vital to have money available in your business so you need to be generating enough cash to pay operating expenses. Otherwise you could be making a profit but not be able to pay staff wages. If so, you will either have to put in some of your own money or take a loan to keep your cash flowing and your business afloat.
  3. Time for a checkup: Both cashflow and profit are important to a business – but you can’t do anything without cash which is why you have to manage your cashflow carefully. Check your profit monthly but your cashflow daily. This will alert you to problems in the making so you can head them off. You will see if your clients are overdue in paying their accounts with you, for example. If they fall behind, this could in turn squeeze your ability to pay your operating expenses, which is why cashflow monitoring is such an important tool to keep your business afloat.
  4. Different perspectives: Remember when you look at your figures that profit figures are a result of what has already happened and are usually reported with a time lag of a month. Cashflow is a snapshot of what is happening in your business now and will have an impact on profit figures in the months to come.
  5. Know what you’re looking for: What you need to know are your net, not gross, figures. For net cashflow that is your incoming cash less your outgoing cash for the period. So if you are receiving more than you are spending, you will be left with money in the bank to meet future expenses. Similarly, your total sales less direct costs make up your gross profit. Deduct all your operating expenses from the gross profit to calculate whether your business is making a net profit.
  6. Make the most of your cash: Take pressure off yourself by keeping spare cash for future expenses such as VAT and taxes in a good interest-bearing account such as a money market, call or investment account. Then set up reminders ahead of time to arrange to withdraw the sum required.

Remember that any system is only as good as the person operating it. So if like me, figures aren’t your thing, make sure that you have someone at your side who can manage them for you.

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

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Franchisee Advice

3 Ways To Ensure Your Loyalty Programme is Working Hard For You

Plastic cards are making way for app-based loyalty programmes. Is your franchise keeping up with the digitally savvy consumer?

Diana Albertyn

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The average consumer today is a member of at least five of the 100-plus loyalty programmes in South Africa, according to a 2017 study by Nielsen. As the loyalty playing field becomes more cluttered and competitive, what are you doing to ensure each one of your franchisees are catering to customer needs when it comes to loyalty?

Mobility. It’s not the newest buzzword, but it is useful for attracting customers who don’t want to lose loyalty points because their card is lost or not with them. Ailsa Wingfield, Nielsen’s Head of Emerging Markets: Thought Leadership, says that as adoption of non-traditional payment methods increases, loyalty programmes also need to introduce payment type flexibility.

“Mobile payment platforms will increasingly deliver an opportunity for loyalty-programme engagement with consumers, providing a convenient and personalised way for programme members and retailers to engage with one another all along the path to purchase.” – Ailsa Wingfield Nielsen Head of Emerging Markets Thought Leadership.

Related: 11 Ways To Double Your Customers In 4 Weeks

Have you considered what role tech could play in your current loyalty programme? Here are three ways to apply digital enhancements that appeal to present and potential customers: 

1. Offer differentiation through more options

Research has concluded that the loyalty programmes devised by retailers and franchises are not innovative enough to capture the attention of the youth – Millennials and Gen Z. it’s time to diversify your rewards offering. But how?

If your customer base is predominantly younger, being omni-present is key, according to the Truth Loyalty Whitepaper: “An omni-channel approach will not only meet the demands of the younger customer, it will also allow your business to combine intelligence on shopping, search and web behaviour history to assist you in identifying when to offer an in-store promotion, extend a seasonal offer or make a product recommendation through the appropriate channels.”

Implementing a digital loyalty campaign is also a smart way to reduce costs. Coffee shop franchise Mugg & Bean’s Generous Rewards App and partnership with Vitality Active Rewards, means members can earn cash-back rewards to spend on their favourites. Just downloading the app earns you a R25 voucher.

2. Use your tools to engage more

A crucial mistake most franchisors make is not communicating consistently with their loyalty programme members once they’ve signed up and increased numbers. They spend a lot of time recruiting customers to join, but expect them to prompt cashiers for points’ balances and produce their cards independently in their various locations.

“You have gained permission to talk to your customers and created the opportunity to collect enormous amounts of valuable data. Use this to your advantage by creating meaningful and relevant engagement initiatives and communications across your customers’ lifecycle,” advises Truth, a boutique consultancy business specialising in customer centricity and loyalty programme strategy and design.

When enhancing your engagement strategy, Accenture advises that you keep the following in mind:

  • 54% of South African consumers are loyal to brands that actively engage them to help design or co-create products or services.
  • 57% are loyal to organisations that present them with new experiences, products or services.
  • 47% are loyal to brands that engage them in ‘multi-sensory’ experiences, using new technologies such as virtual reality or augmented reality.

Related: 3 Ways To Stop Taking Your Most Loyal Customers For Granted

3. Keep the experience simple

Review your loyalty programme. Honestly. Then ask yourself if you’ve made your programme too complicated for the layman. If your answer is ‘no’ or even ‘maybe’, how can your target consumer ever reap the full rewards of this programme if they don’t understand the rewards on offer and how to redeem them?

Changing rules too often is the first complication to go. No matter which one of your stores they choose to shop at, the redemption and earning process should be simple enough to keep members interested and engaged in the programme. Make sure you keep your programme simple and transparent.

“Clicks made a simple but fundamental change to its redemption process – paper-vouchers were replaced with virtual points that can be redeemed as cash-back when you swipe your card at the till. While Clicks and Dis-Chem are among only a handful of brands that do this, it’s a sure-fire mechanism for increasing redemption,” said Amanda Cromhout, founder and CEO of Truth.

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