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Franchisee Advice

Got a Financing Question?

One of the biggest challenges most franchisees face is securing funding and managing their finances. Head of Franchising at Standard Bank, Thabiso Ramasike, provides answers for some of the questions franchisees have surrounding finance.





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.

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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




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




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




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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