Q: What in your opinion makes a franchise business successful?
We believe it is the ‘Ps’ – people, product and position. People need to have a desire for what they do, that’s what is needed to grow a business. Our product has made the business transferable to other countries. We always look at what is available in the country before we launch. Having the best position is critical. The Boost Juice franchise is very much a walk-by concept so it is essential to find a location with high traffic. Apart from those three aspects, it is also important to market yourself properly. Whenever we open a new branch we have a big launch so that people can see us and taste the products. One other aspect is getting feedback from people. It is good to get this so that you can find ways to turn a disgruntled customer into a fan.
Q: What do you look for in a franchisee?
We look for like-minded people. We are not just interested in selling franchises, we want to find the right people with the right attitude. They need to have some business experience but the most successful franchisees have passion and an attitude to succeed. If you think franchising is going to be nice and easy then don’t get into the business. It takes a lot of blood, sweat and tears before you get the flexibility of being your own boss.
Q: So you do think there is flexibility in owning a franchise?
For the first two years you have to be involved in the business to run it. Retail is detail and you have to manage cash flow and expenses tightly.
Q: What are some of the most important qualities a franchisee should possess?
In a franchisee interview I look for the right attitude. Also I favour a husband and wife team as one will usually work on the business while the other still earns an income. This means there is less financial pressure in the early stages and they will usually have different skills that can complement each other. If the franchisee has no business experience, I recommend doing a few short courses, it is particularly important to have a basic understanding of accounting. Boost will teach you how to run the franchise, deal with customers, use the technology and improve sales but we don’t teach accountancy.
Q: What about getting outside help from a bookeeper?
It is a big mistake to hire a bookeeper; instead you should find an expert on software like Quickbooks. They can teach you how to do the basics so that you are handling every invoice and paying everyone. The products are amazing for small businesses. If you do your own accounts you will pick up mistakes that quite possibly a bookeeper wouldn’t. It is vital to take the time to learn. Don’t just say that you are too busy in the store, if you are not doing your own accounts you are losing at least 20% of your profits.
Q: How important is it for a franchisee to be an owner manager rather than employing a manager to run the store?
Many franchisees can be owner managers of one or two stores, but a good owner manager is one who can leave their store to go on holiday and it continues to run efficiently. To do this you need to hire the right people. I’m a firm believer in hiring the right people. A great manager is a leader. By having the right people, systems and processes in place, they give themselves options after two years. This could be buying another store or having a significant amount of flexibility. But some people don’t ever get there because they are unable to lead or hire the right people.
Q: Why do you think it is better to be part of a franchise than opening an independent business?
The international statistics are positive. Only one out of five independent businesses survives, while four out of five franchise businesses survive. Apart from that, by being a franchisee you are part of a network which has better buying power. You also contribute to a marketing fund, which means you get more bang for your buck, and you are part of a group of people on the same journey – you get head office support but also interact with people in the same situation as you. You should get to know the other franchisees so that you can get together and help each other out. As a franchisee, you have other people thinking about product development, using resources you couldn’t afford if you were to open ‘Joe’s Juice’.
Q: How can a franchisee ensure they are choosing the right franchise for them?
They need to look within and think ‘What am I passionate about?’ We find that our franchisees are usually interested in health and fitness and have a sparkle in their eyes. Once you have identified what you are passionate about, you need to look at what’s available, and then at the franchise itself. How long have they been around, how many company-owned stores are there, the structure, do you like the people and can you find solutions with them?
Q: How important is it to invest your own money in a franchise?
Whether you are investing your money or money from a bank, it’s still your responsibility. The best option is to borrow the least possible as paying off a loan adds to your monthly expenses. Using your own money takes a bit of the pressure off.
Q: What advice can you give franchisees?
You need to have the right attitude. We have a saying, ‘Don’t be a VERB, rather SOAR’. VERB stands for Victim Entitled Rescue Blame and SOAR, Solutions Ownership of problems, Accountability for outcomes, Responsible for your own success. The outcome from this response is more positive. Being accountable for your own business is powerful. Saying it is my fault when something goes wrong gives you incredible power. I hate the word ‘try’ – you have no option but to do it.
Q: How much research should a franchisee do before buying a franchise?
They need to do an enormous amount of research but should beware of ‘analysis paralysis’. I know of some people who spend up to five years researching a franchise, and never get around to actually buying it. You need to look at financials, the brand, the business and do your own site research – you can sit at the site and do headcounts for a few hours.
Make sure that you meet with the franchisor and talk to them face-to-face as well as other franchisees who will give you the ‘warts and all’ information.
Q: What would you say is the biggest challenge for franchisees?
Staffing is a big challenge. Don’t settle for mediocrity, find people who are bubbly and hard working. Always do a reference check, but if this is their first job determine whether or not they are confident, and have numbers acumen. You may get it wrong sometimes, but be sure to fix it quickly.
Q: What are some of the most common mistakes franchisees make?
Thinking that it is easier than it actually is, not doing their own accounts, mismanaging their expenses and holding on to staff who should have moved on. One other mistake for female franchise owners is not replacing themselves when they have a baby. If you don’t find a replacement you can expect your business to go down by at least 20%.
5 Tips For Franchise Agreements
Below are 5 tips to ensure that your franchise agreement complies with the CPA.
South Africa has some great homegrown franchises – Mugg and Bean, Steers, Debonairs and Nandos, to name a few. South Africa is also no stranger to international franchise groups, such as McDonalds, KFC, Wimpy and SPAR, although there has been an increase in the number of international franchises investing in South Africa in recent years.
The Consumer Protection Act, No 68 of 2008 (“CPA“) is the first piece of legislation in South Africa that specifically regulates franchise agreements. The CPA prescribes certain minimum requirements for franchise agreements, as well as certain information that must be disclosed prior to a franchise agreement being signed. It is important that all franchise agreements comply with the CPA as provisions in franchise agreements may be declared to be void for non-compliance.
Below are 5 tips to ensure that your franchise agreement complies with the CPA:
1. Make sure you meet the minimum requirements
The CPA prescribes “minimum requirements” for franchise agreements. These requirements, which are set out in the Regulations to the CPA, set out mandatory terms (i.e. terms which must be included) and prohibited terms (i.e. terms which must not be included). They also prescribe that franchise agreements must be drafted in simple and plain language so as to be easily understood. Legal jargon must be avoided unless absolutely necessary.
2. Include prescribed minimum information
The CPA prescribes minimum information that must be included in a franchise agreement. Most of this minimum prescribed information is fairly general in nature and would be contained in the franchise agreement in the ordinary course (for example, name and description of the types of goods or services that the franchise relates to, the obligations of the franchisor and franchisee, and any territorial rights).
There are, however, certain more unusual requirements in relation to prescribed information, which information would not necessarily be contained in a franchise agreement in the ordinary course (for example, the qualifications of the franchisor’s directors, and details of the members/shareholders of the franchisor). These more unusual requirements must be kept in mind when preparing a franchise agreement.
3. Prepare a disclosure document
The CPA requires the franchisor to provide certain minimum prescribed information to the franchisee in a disclosure document delivered to the franchisee prior to the signature of the franchise agreement (including a list of current franchisees, if any, and of outlets owned by the franchisor; the direct contact details of the existing franchisees; an organogram depicting the support system in place for franchisees; and an auditors certificate confirming that that the franchisor’s audited annual financial statements are in order).
This information is intended to provide the franchisee with enough information about the franchise, its financial viability and potential business success so as to enable the franchisee to make an informed decision as to whether or not he/she wishes to “acquire” the particular franchise.
4. Prepare a non-disclosure agreement
It is important to ensure the protection of confidential information which may be disclosed to the prospective franchisee during the preliminary stages of negotiating and concluding a franchise agreement.
This may include, for example, the growth of the franchisor’s turnover, and written projections in respect of levels of potential sales, income and profit. Although not a requirement under the CPA, it is advisable for a franchisor to ensure that a prospective franchisee executes an appropriate confidentiality agreement prior to being sent the disclosure document.
5. Beware the “cooling-off” period
It is important to bear in mind that a franchisee has an entitlement under the CPA to cancel a franchise agreement without cost or penalty within 10 business days after signing such agreement, by giving written notice to the franchisor.
6 Top Tips For Reading Management Accounts
There is a golden key that reveals the secret of whether your business will survive and thrive. It is keeping tabs on the figures that summarise the strength of your business – your monthly management accounts.
There is a golden key that reveals the secret of whether your business will survive and thrive. It is not the brilliance of your business concept. It is not your talent for talking clients to sign on the dotted line. It is keeping tabs on the figures that summarise the strength of your business – your monthly management accounts.
Many entrepreneurs are usually more interested in operations and find product development or sales much more enjoyable than catching up on accounts. I sympathise – I’m one of them! So if you feel the same way, my top tip is always to make sure that you partner with or employ someone who can oversee the finances for you.
But that does not mean you can let the figure boffins and the finances take care of themselves. To function properly in your business, you need to know the outcome of your sales and development strategies – and the story of that is told in your management accounts.
If you never look at your management accounts, it is like blinding yourself in one eye. It means you risk being literally blindsided by a big surprise, whether it is heading for a significant loss or being confronted by an unexpected provisional tax payment.
Here is how Engela van Loggerenberg, our Group Financial Manager, puts management accounts in perspective for our new franchisees. She urges them to focus on six key areas:
- Priorities: Management accounts can help you pinpoint areas that you need to prioritise, whether to capitalise on growth or because they are not performing as well as you hoped.
- Strength: All businesses aim to grow their assets over time and the balance sheet in your management accounts will reflect whether and how you are achieving that.
- Control: A strong balance sheet is one that shows you have your business liabilities well controlled. The key marker here is your current liquidity ratio, which results from dividing your current assets by your current liabilities. To keep your business healthy, always aim to keep this ratio at least 2:1.
- Revenue: Ideally, you want to see your revenue grow month by month. Check your income statement both for the trend in actual revenue and also for actual against budgeted revenue to check how well your strategies are delivering results.
- Profitability: Of course, revenue is not the same as profitability. You need to know your gross profit – the basic figure of your sales less the cost of those goods – and net profit, which also deducts a range of other expenses including taxes. Track the percentage of these two profit figures as well as the actual cash amount they represent to keep a check on whether your costs are creeping up too high.
- Finance: Most businesses at some point want to finance their growth by borrowing from a bank. A set of well-regulated management accounts is a prerequisite to obtaining finance.
Your management accounts do not have to be particularly complicated to give you these vital pointers – and if you are figure-shy, the more straightforward the better.
The important thing, though, is that you do not allow yourself to be too scared to ask if there is something which is not clear to you. That is the way to keep control of this key to your business fortunes and to keep building your business from strength to strength.
A Three-Pronged Approach To Franchise Success
Danie Nel, head of business development for Cash Crusaders franchising, says the brand’s success over the past 22 years is attributed to the sentiment that “a profitable franchisee is a happy franchisee.”
What is your current footprint?
220 Stores. We’re looking to increase that number by another 20 stores for the 2018 financial year, which will then bring us to a total of 240 stores. Depending on the economy, we’re looking to grow our footprint even more to around 300 to 350 stores nationwide in the near future.
What are some of your brand’s biggest achievements that other franchises can learn from?
Our ability to read the retail market and innovate to stay ahead of times. We have recently launched an online platform where customers can sell their goods or borrow money — all online. This was a first for online retailing. One other achievement that I would wish to highlight is the launch of our mobile phone range, Doogee, exclusive to Cash Crusaders. Personally, having the honour of opening our 200th store was a tremendous achievement.
Franchisor involvement has also played a big role in the success of the organisation. Our CEO Sean Stegmann and other senior managers are as much involved in the business as any other operations manager or operator.
There is simply no ‘ivory tower’ management in our business and it makes a huge difference.
What are some of the challenges you’ve encountered and how have you overcome these?
Some of our daily challenges include securing a premises at a favourable rental and securing a franchisee with sufficient unencumbered capital, who is credit- worthy. Once the store is open, cash flow management and stock procurement is key.
In addition to this, it’s a challenge to achieve profitability immediately and to meet franchisee expectations. It’s also vital to ensure superb customer service and to retain those customers in the current retail and economic climate. I would say that our single biggest challenge is to retain and to build our customer base.
What attracts franchisees to Cash Crusaders?
Our unique retail model that allows for multiple streams of income through one business. These three profit centres include: New goods (variety of imported quality goods), second-hand goods (which we buy directly from the public, either through customers coming directly to our stores, or via our house-buy system offered by some of our stores) and secured lending (a financial service where customers can borrow money against valuables, determined at store level, and the loan is repaid within 30 days — or the contract is renewed for another 30 days with interest and service fees charged).
Why is it important for successful franchises such as yours to have a strong banking partner and how does it benefit both the franchisor and the franchisee?
Gone are the days where you just got a deposit book or cheque book and a little business loan from your bank. Banking has become more sophisticated and the technology that the bank offers is as important as its service, making life for both the franchisee and the franchisor easier on a day-to-day basis.