Q: What are some of the most important criteria a bank looks at when a franchisee applies for funding to purchase a franchise?
We see the role of the bank, franchisor and franchisee as a ‘tripartite alliance’. Therefore, we work with the franchisor and prospective franchisee to identify and manage all factors that could prove to be an obstacle to securing funding for the business, and more importantly that could impede long-term profitability and sustainability.
Standard Bank takes a holistic in-depth look at various factors that help determine whether the business venture will be successful. For instance we will consider whether the applicant is a first-time franchisee or looking to buy a second store, or is already a highly established franchisee who requires an additional store. This gives an indication of the franchisee’s understanding of the proposed franchising model and their own track record, which indicates the potential for them to make a success of the acquisition. Another important factor to consider would be the level of financial contribution that the prospective franchisee would be making to the business. A good credit record and a sound business plan are both essential when a prospective franchisee is raising funding.
Q: To what extent does the track record of the franchisor play a role in the funding application?
The quality of the brand is everything when it comes to funding franchises. The mere mention of the brand translates into its track record and the quality of management. The quality of the brand does impact on how the transaction would be structured and priced.
Q: How important is it to have a clear credit history?
A clean credit history is critical when applying for any credit. It tells the prospective financier that the applicant has a good track record and that tells the financier something about the applicant’s integrity. Furthermore, this also indicates that the applicant has sound financial management skills, and takes his responsibility to repay debt seriously.
Q: How important is it for a franchisee to invest some of their own money into the franchise?
The level of contribution by the franchisee is a sound indication of the owner’s commitment. Unencumbered funds help with cash flow projections and reduce gearing levels for the business. It also provides comfort to the financier and the franchisor in respect of creating a reasonable margin of safety, which is essential to have in case a business experiences financial pressures.
Q: Does a multi-unit franchise owner stand a better chance of securing funding than a first timer?
A multi-unit franchise owner certainly brings more experience to the table, so to speak. A typical multiple franchise owner has a sound track record, already has operating systems in place, has a management team with the requisite track record and understanding of how to run the business. They also have a much stronger relationship with the franchisor and have become much more capable of reading and responding to the market over time. This stronger financial background and muscle will significantly improve their chances of succeeding.
This does not infer that first-time franchise owners have lesser chances of success. First-time franchisees must take advantage of the management, training, marketing and software support available to them as part of the franchise agreement and arrangement.
Q: How can a franchisee determine whether or not the franchise outlet they are interested in purchasing is a good investment?
Granted, there are no guarantees or assurances in business. However, a hopeful franchisee can increase the probability of success by doing thorough research into the brands he believes he has an appetite for, scrutinising their track record, and interrogating future plans. The more established brands are naturally more expensive to buy into, but their proven track record increases the franchisee’s chances of success. Brands that have been around for longer have proven sustainable and successful over and over again, even in a recessionary environment.
A franchisee could approach franchise associations, independent franchise specialists and financial institutions that have been involved in the franchise industry for an unbiased and independent review of the brands they are interested in.
Q: What happens if the franchise isn’t making enough money to cover the loan repayments?
We cooperate with the franchisor and franchisee in order to assist the business and agree on joint solutions in assisting the business to move forward. Typical intervention measures could include a moratorium on capital repayments, royalty breaks as well as debt refinancing and restructuring.
Q: How can a franchisee determine whether or not they can afford a franchise?
Again, the franchisee has to do proper and thorough homework about the nature of the franchise he is buying into. Do your homework thoroughly in selecting the franchise of choice and consider affordability. Work out if you have enough financial resources to pay the upfront and ongoing fees to sustain the business until it breaks even. Take into account management fees and interest rates of the loan. Get financial reports and projections from franchisees. Talk to other franchisees within the brand that you are considering. This will give you a realistic assessment of how much money you need. Do not be afraid to ask questions relating to the profitable viability of the franchise.
The potential franchisee should data mine all the monthly commitments that would need to come into play — royalties, wages and running costs. Understand the appetite for risk.
Q: What are some of the most lucrative franchising sectors in South Africa?
It is very difficult to comment on what is and what is not lucrative. Standard Bank foresees much activity in five key sectors, namely, fuel, retail (mainly food), restaurants, fast-food and telecommunications, in no particular order in 2011.
Q: Is there a way to determine the profitability of a franchise?
A business plan is a crucial starting point in gauging the profitability of a franchise. Various franchisees have set models for making profitability projections. Site and location come into play. It is largely about engaging with the franchisor and finding out what goes into running a profitable franchise outlet, which will vary among all the different franchise systems out there. Simply put though, all projections need to indicate a profitable enterprise.
If one is buying an existing business, the business needs to be profitable at the time of purchase. Alternatively, the buyer needs to have a strategy of how he will increase revenue or decrease costs.
Q: What should a franchisee do first? Secure financing for a franchise or continue with the application process with the franchisor?
Once the franchisee has decided which franchise system he is interested in buying into, and has short-listed possible brands, he should apply to those brands. A potential franchisee may apply with the franchisor and the bank concurrently. However, approval from the financial institution and from the franchisor is always subject to the other. l
Q:What are some of the things that could harm an applicant’s chances of receiving funding?
Among the factors that could impact negatively on an application for finance include an evident lack of understanding of the fundamental principles of franchising and the particular brand they are buying into, and not being able to make an upfront owner-contribution into the business. The bank looks at all the components of the operation in consultation with the franchisor and prospective franchisee. If there are ‘red flags’ Standard Bank would engage with both parties to determine how any risk or impediment to business success could be managed or eliminated.
Develop Digital Marketing Competency In 3 Simple Steps
Conquering the digital revolution needn’t be daunting. Polish up your tech skills and watch your digital marketing prowess increase throughout your franchise.
As a franchisor, digital marketing may be proving to be a challenge due to the unique structuring of the business.
“The very nature of franchises is ‘structured’, however, when it comes to marketing, that structure often lacks,” says Marcela De Vivo, Founder and CEO of Gryffin Media.
Franchisors and franchisees often struggle to reach common ground when looking to achieve different marketing goals. While the franchisor needs to control the brand in its entirety, the franchisee wants to market their business using particular strategies suited to their location.
Research has found that smartphones are the biggest influencers of 82% of users when they make their in-store purchase decisions while. It’s for this reason that the importance of digital marketing for franchises has increased.
Here’s how to harness its power of influence, amplify foot traffic and solidify brand loyalty:
1. Recruit digital natives and early adopters
As much as you’re the leader of your franchise network, there are franchisees in your chain you could learn from. The global increase in millennial franchise owners means it is highly likely that you’ll be able to identify early digital adopters within your franchise network.
“The best people to learn from are those who have been in your shoes before,” says Matt Forman of the Franchise Centre at Griffith University.
“Encourage and support their efforts and use them as case studies to demonstrate to the rest of your franchisees the value of digital marketing, and how to do it right.”
2. Invest in training your team
“Each digital competency level requires more education and resources in order to integrate digital marketing with your physical stores,” says Forman. For this reason, regularly investing in continuous training for your team so as to ensure they keep abreast of any new and emerging trends.
Proactivity and adapting to the constantly evolving digital landscape led KFC to open a LinkedIn account for its founder and mascot Colonel Sanders. KFC’s out of the box tactic is a fresh approach to what has long been considered a B2B platform, under-utilised as a B2C platform.
3. Apply custom targeting techniques
The discovery of new and small businesses is being fuelled by Google searches, social media and online reviews, making these platforms a goldmine of invaluable tools.
Leveraging certain custom targeting techniques like easily searchable keywords and exposure on other reputable and high-traffic websites, gives your franchise’s digital marketing efforts a boost. This results in an effective campaign, favourable reviews and meaningful and lasting interactions with consumers “whether it’s a reply to a Facebook comment or a retweet,” says Entrepreneur’s Emily Conklin.
How To Hire Skilled Workers For Your Franchise
Your staff run your business – you just have to show them how. This is why employing the best people for the job is essential.
According to the Franchise Association of South Africa (FASA) 2017 Franchisor Survey, one of the main challenges facing franchisees is finding the right staff.
“Staffing your franchise can be one of the most challenging parts of running a successful business. Without a great team of employees, you cannot run your business effectively,” says Saxon Marsden-Huggins, founder of WebRover.
These three tips could help you find the best employees for your franchise outlet:
1. Don’t hire in haste
While you may be rearing to go and keen to fill gaps to speed up profitability, research your candidates thoroughly.
As the job applications keep flowing into your inbox, keep in mind that not all of them qualify for the positions available – it may even be a small percent who are actually viable candidates. This is why your hiring process should include:
- Taking the time to thoroughly screen CVs to develop a short list
- Creating a carefully crafted list of interview questions
- Setting aside adequate time for thorough interviews
- Getting to know the candidates through a second round of interviews to confirm your choice.
Giving the hiring process dedication and attention will ensure you get the cream of the crop, contributing to the long-term success of your franchise.
2. Demonstrate support in the workplace
While you can instil the necessary skills into new recruits, it’s difficult to train for culture. This is why choosing the right employees from the beginning will make the rest of your franchise management system will run more smoothly.
“The manner by which you run the franchise will influence employee perceptions of the brand as well,” says Hireology’s Erin Borgerson. “Your staff must become ambassadors of your franchise system to attract the target consumer market.”
The best way to do this is encouraging staff to give you their honest feedback. Your commitment to creating and upholding a positive culture will result in increased loyalty from your current staff and a superior pool of applicants.
3. Offer appealing incentives
When advancement opportunities are clearly communicated, staff is keen to hear how they can get there, as they have career goals of their own. Encouraging this ambition will draw good employees to your franchise.
“Helping employees understand the steps to advancement helps them to view their current job as an important part of a career with an upward path, not just a pay cheque for this week,” say financial reporting technology experts at Qvinci.
Performance bonuses and employee benefits incentivise staff’s efforts, therefore increasing their income alongside the profit of the business. “This serves to make employees a part of the business and not merely people ‘who work there’,” they explain.
3 Ways Communication Helps You Run Your Franchise Better
Managing your business as an independent owner may have been challenging at the beginning, but – as you’ve come to realise – the successful operation of a franchise network requires an extended set of skills.
“When it comes to a multi-location business such as a franchise, effective communication is vital,” says Dani Peleva, Managing Director at online marketing agency Local Fame. “So what happens when you’re struggling to connect with the franchise network you have in place?”
It may be time to upgrade your franchise management skills, because the success of your franchise network has a direct correlation to how you integrate feedback systems into your management processes.
Have a clear comprehension of the challenges your franchise encounters, keep an open chain of communication between yourself, franchisees and managers, and maintain regular interactions between everyone in the network. These are some of the most crucial aspects of successful franchise management:
1. Understand the challenges you face
A thorough understanding of your business requires dedication to regular and consistent groundwork for first-hand experience on how the day-to-day operations of the business are conducted.
“Seeing and talking to the people that make your business will help you understand the challenges that franchisees face and the systems they need to drive higher profitability and growth,” says Rosie Niblock, Marketing and Communications Manager at Proactive Marketing.
“That way you can work more effectively to make improvements to franchise management systems logically and within the financial grasp of all franchisees.”
2. Get personal through regular visits
You never want your franchises to feel neglected. It’ll demoralise them and possibly drop sales, profits and their ability to keep the business running as you intended. Maintaining regular contact and sharing as much information as possible – when you can – fosters strong relations with your franchisees.
Empowerment through information and communication makes a difference in the business and helps franchisees make decisions in favour of the business and to make sure that they all pull in the same direction in terms of customer satisfaction, says Alan van der Westhuizen, executive manager of new business sales at Fournews, a 20-year-old franchise holding company for News Café, Krispy Kreme, Moyo, Brooklyn Brothers, Smooch, Cafe Fino and Go! outlets.
Ensure your response to these concerns is swift. “If not discussed they could fester ad create undesirable rumours,” says Niblock.
3. Create events for network collaboration
One of the most important aspects of managing your franchise is meeting with all your franchisees, at least annually. “Franchise conventions are almost certainly the biggest tool when it comes to building profitable engagement,” says Peleva. “They’re one of the most important things to focus on when you’re considering how to lead your franchise network.” According to her, a successfully attended and executed convention will let you:
- Boost your network-wide productivity
- Hugely increase your profitability
- Drive passion for your brand
Communicating with your franchisees is the best way to identify problems, work towards solving them, and building a pleasant and fruitful relationship with your owners.
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