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Researching a Franchise

100 Key Questions to Ask Before Buying a Franchise

Carefully consider these questions before investing in your own franchise.

Entrepreneur

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Are You Suited to be a Franchisee?

Financial Considerations

1. Have you and your spouse and knowledgeable family members discussed the idea of buying a franchise?

2. Are you in complete agreement?

3. Do you have the financial resources required to buy a franchise? If not, where are you going to get the capital?

4. Are you and your spouse ready to make the necessary sacrifices in the way of money and time in order to operate a franchise?

5. Will the possible loss of company benefits, including retirement plans, be outweighed by the potential monetary and self-pride  rewards that would come from owning a franchise?

6. Have you made a thorough written balance sheet of your assets and liabilities, as well as liquid cash resources?

7. Will your savings provide you with a cushion for at least one year after you have paid for the franchise, allowing a one year period of time to break even?

8. Do you have additional sources of financing, including friends or relatives who might be able to loan you money in the event that your initial financing proves inadequate?

9. Do you realise that most new businesses, including franchises, generally do not break even for at least one year after opening?

10. Will one of you remain employed at your current occupation while the franchise is in its initial, pre-profit stage?

Personal Considerations

11. Are you and your spouse physically able to handle the emotional and physical strain involved in operating a franchise, caused by long hours and tedious administrative chores?

12. Will your family members, particularly small children, suffer from your absence for several years while you build up your business?

13. Are you prepared to give up some independence of action in exchange for the advantages the franchise offers you?

14. Have you really examined the type of franchise or business you desire and truthfully concluded that you would enjoy running it for several years or until retirement?

15. Have you and your spouse had recent physical examinations?

16. Is the present state of your health and that of your spouse good?

17. Do you and your spouse enjoy working with others?

18. Do you have the ability and experience to work smoothly and profitability with your franchisor, your employees and your customers?

19. Have you asked your friends and relatives for their candid opinions about your emotional, mental and physical suitability for running your own businesses?

20. Do you have a capable, willing heir to take over the business if you were to become disabled?

21. If the franchise is not near your present home, do you realise that it would not be beneficial to sell your home and buy one closer until the new venture is successful?

Other Considerations

22. Do you know an experienced, business-oriented franchise attorney who can evaluate the franchise contract you are considering?

23. Do you know an experienced, business-minded accountant?

24. Have you prepared a business plan for the franchise of your choice?

Business Considerations

25. Do you and your spouse have past experience in business that will qualify you for the particular type of franchise you desire?

26. Is it possible for either you or your spouse to become employed in the type of business you seek to buy before any purchase?

27. Have you conducted independent research on the industry you are contemplating entering?

28. If you have made your choice of franchises, have you researched the background and experience of your prospective franchisor?

29. Have you determined whether the product or service you propose to sell has a market in your prospective territory at the prices you will have to charge?

30. What will the market for your product or service be like five years from now?

31. What competition exists in your prospective territory already?

32. From franchise businesses?

33. From non-franchise businesses?

Checklist for Interviewing Existing Franchisees

Use this questionnaire when trying to investigate franchise opportunities by interviewing existing franchisees.

Financial Factors

34. Are you satisfied with the franchisor?

35. Is your franchise profitable?

36. Have you made the profit you expected to make?

37. Are your actual costs those stated in the offering circular?

38. Is the product or service you sell of good quality?

39. Is delivery of goods from the franchisor adequate?

40. How long did it take to break even?

41. Was the training provided to you by the franchisor adequate?

42. What is your assessment of the training provided?

43. Is your franchisor fair and easy to work with?

44. Does your franchisor listen to your concerns?

45. Have you had any disputes with your franchisor? If so, please specify.

46. If you have had any disputes, were you able to settle them?

47. How was your settlement accomplished?

48. Do you know of any trouble the franchisor has had with other franchisees? If so, what was the nature of the problem?

49. Do you know of any trouble the franchisor has had with the government?

50. Do you know of any trouble the franchisor has had with local authorities?

51. Do you know of any trouble the franchisor has had with competitors?

52. Are you satisfied with the marketing and promotional assistance the franchisor has provided?

53. Have the operations manuals provided by the franchisor helped you?

54. What do you think of the manuals?

55. Are the manuals changed frequently? If so, why?

56. Other comments you would like to make.

Checklist of Information to Secure from a Franchisor

Use this checklist when doing your own investigation and information gathering.

57. Is the franchisor a one-person company?

58. Is the franchisor a corporation with an experienced management that is well trained?

59. Does the franchisor operate a business of the type being franchised?

60. Is the franchisor involved in other business activities?

61. Is the franchisor offering you an exclusive territory for the length of the franchise?

62. Can the franchisor sell a second or third franchise in your market area?

63. Do you have the right of first refusal to adjacent areas?

64. Will the franchisor sublet space to you?

65. Will s/he assist you in finding a location for franchise operation?

66. Must you lease fixtures, signs or equipment from the franchise?
If so, are the prices reasonable?

67. Does the franchisor provide financing? If so, what are the terms?

68. Does the franchisor require any fees – other than those described in the disclosure document – from the franchisee? If so, what are they?

69. Has the franchisor given you information regarding actual, average or forecasted sales?

70. Has the franchisor given you information regarding actual, average or forecasted profits?

71. Has the franchisor given you information regarding actual, average or forecasted earnings?

72. What information have you received?

73. Will the franchisor provide you with the success rates of existing franchisees?

74. Will the franchisor provide you with their names and locations?

75. Are there any restrictions on what items you may sell? If so, what are they?

76. Does your prospective franchisor allow variances in the contracts of some of his/her other franchisees? What is the nature of the variances?

77. In the event you sell your franchise back to your franchisor under the right of first refusal, will you be compensated for the goodwill you have built into the business?

78. Does the franchisor have any registered trademarks, service marks, trade names, logotypes and/or symbols?

79. Are you, as a franchisee, entitled to use them without reservation?

80. Are there restrictions, exceptions or conditions? If so, what are they?

81. Does the franchisor have existing patents and copyrights on equipment you will use or items you will sell?

82. Does the franchisor have endorsement agreement with any public figures for advertising purposes? If so, what are the terms?

83. Has the franchisor investigated you carefully enough to assure himself/herself that you can successfully operate the franchise at a profit both to him/her and to you?

84. Has the franchisor complied with FTC and state disclosure laws? Are there any regulations specific to the industry in which your franchise business will operate? (Include any special licenses or legal restriction on operations set by statutes.)

85. Does the franchisor have a reputation for honesty and fair dealing among the local firms holding his/her franchises?

Other Questions

86. How many years has the firm offering you a franchise been in operation?

87. What is a description of the franchise area offered to you?

88. What is the total investment the franchisor requires from the franchisee?

89. How does the franchisor use the initial franchise fees?

90. What is the extent of the training the franchisor will provide for you?

91. What are your obligations for purchasing or leasing goods or services from the franchisor or other designated sources?

92. What are your obligations in relation to purchasing or leasing goods or services in accordance with the franchisor’s specifications?

93. What are the terms of your agreement regarding termination, modification and renewal conditions of the franchise agreement?

94. Under what circumstances can you terminate the franchise agreement?

95. If you decide to cancel the franchise agreement, what will it cost you?

96. What are the background experience and achievement records of key personnel (their “track records”)?

97. How successful is the franchise operation? (Use credit reports or magazine articles to supplement information the franchisor gives you – visit www.kredit.co.za for info)

98. What is the franchisor’s experience in relation to past litigation or prior bankruptcies?

99. What is the quality of the financial statements the franchisor provides you?

100. Exactly what can the franchisor do for you that you cannot do for yourself?

Editor’s note: This article is excerpted from Franchise Bible from Entrepreneur Press.

Entrepreneur Magazine is South Africa's top read business publication with the highest readership per month according to AMPS. The title has won seven major publishing excellence awards since it's launch in 2006. Entrepreneur Magazine is the "how-to" handbook for growing companies. Find us on Google+ here.

Company Posts

Don’t Tread On Toes – Why Investing In A HIQ Franchise Will Offer You More Opportunities

Are you looking at investing in a tyre replacement and service industry? Look no further than the Hi-Q franchise.

HI-Q

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Vital Stats

Established in 1999, Hi-Q is a successful and diverse multi-product, multi-brand leader in the tyre replacement and service industry with a network of over 130 franchisees nationwide.

With the support of international tyre giant Goodyear, Hi-Q has established a solid reputation of ‘the one you can trust’, and the Hi-Q approach and philosophy is embedded in this.  We have the trust of our customers, our network and our suppliers – that’s why you can trust us to take you and your business to the next level.

When you’re working with people’s safety, trust forms the most significant part of the equation

Hi-Q introduced the original and innovative TyreSurance initiative – the only aftermarket tyre damage guarantee product that backs the consumer no matter the brand of tyre. Each Hi-Q Franchise offers a broad range of brands within the different product and service categories that customers know they can trust, and at prices they can afford. Product and services include tyres, exhausts, shocks, batteries or brakes, wheel alignment or balancing, and a 10-point safety check.

We have identified areas of opportunity to extend our Franchise footprint growth. If you are looking to join a new franchise and you share in our values and vision, we would like to hear from you.

For further information on how to become a franchisee, call us on +27 11 394 3150.

tyresurance-visual

Related: We Want To Invite You To Join Us On The Hi-Q Journey And Become A Franchisee

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Researching a Franchise

Be In The Property Business For Yourself, Not By Yourself

Why property franchising makes good business sense in today’s market.

Keith Broadfoote-Brown

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Opening a real estate franchise has been a thriving and successful business model in South Africa for decades. Despite the challenges currently facing the South African economy, property will continue to prosper and provide entrepreneurs with an opportunity to own their own successful businesses and become leading members of their local business communities.

“The residential property market is a dynamic, thriving industry offering substantial career opportunities.

Joining a property franchise business gives entrepreneurs the opportunity to align themselves with reputable, established businesses with a national footprint who have invested in their brands and have access to international networks,” says Russell Berkman, Franchise Director at Jawitz Properties.

While the property industry is competitive there is still great potential for growth. Worldwide, franchising has proven to be one of the most successful business models with failure rates well below those of starting a business from scratch.

Related: How to Become a Property Franchisee

For the franchisee, it is one of the most intelligent ways of starting and growing a business and by combining the proven business formula of the franchisor with the entrepreneurial drive of the owner-franchisee, the likelihood of a successful business venture for both parties is increased significantly.

According to Keith Broadfoote-Brown, the owner and Principal of the Jawitz Properties Ballito franchise in KwaZulu-Natal, property franchise still makes good business sense in today’s market.

The benefits of being a property franchise owner

Becoming a property franchisee gives a businessperson unlimited potential to succeed in the property industry as the success achieved is a direct result of the effort, commitment and drive put in. It means being self-employed within an organisational structure and offers the same structure and benefits to sales and rental consultants.

“It gives you the opportunity to leverage your business’ success off the intellectual capital, brand, expertise and know-how of an established business that has a proven business model, IT platforms, marketing expertise, training and self-development programmes as well as having access to years of experience in these fields.  My mantra is ‘be in business for yourself, not by yourself’,” says Brown.

Skills needed to succeed as a property franchisee

The most important competencies would be to have an entrepreneurial character and business skills such as financial literacy, HR/people skills and marketing acumen; a people’s person with a resilient and driven personality. Experience in real estate is always beneficial but not required as it is all about using business skills, marketing acumen and entrepreneurial tenacity to make your mark.

Related: How Brigid Prinsloo Made (A Lot Of) Money On Airbnb

Brown explains, “Absolute professionalism and integrity and a fierce determination to exceed your client’s service expectations are essential. And you must be able to develop a highly competent sales team, explore new opportunities for your business and operate as a team player within a franchise structure”.

Current state of the property market

The property market in SA currently reflects the economy and is weighted in favour of buyers, so sellers need to be very realistic with their price expectations. Buyers are buying where they perceive good value and value is indeed the key driver in the market today.

The opportunities are strong for buyers to invest in this ‘down’ market and conditions are also ideal to upgrade one’s home. In every region and in every suburb there are homes offering good value and these are selling well, despite the tougher trading conditions.

Opportunities outweigh the challenges

“The opportunity for real estate professionals is to find and secure the well-priced, good value, properties as they are selling!

It is also an opportune time to enter the market as a franchisee or new agent/intern as I am firmly of the view that great estate agents learn their profession well in a tough market and when the market improves, as it surely will, these sales professionals will have a solid grounding and strong foundation on which to build their real estate careers.

Challenges are to manage costs in these tough trading conditions. To keep motivated and continue to consistently drive the very basic activities needed to succeed in real estate,” says Brown.

Top 3 things to consider before entering the industry

According to Brown, his top 3 considerations are as follows:   

  1. You need sufficient start-up capital as the initial investment in starting the business and the monthly expenses to run the business can be substantial. The income from sales and rentals may be slow in the early years, hence the need for good planning and sufficient start-up funds.
  2. Owning one’s own business means the buck stops with you! A well thought out and well implemented business plan is key. The first 2-3 years consist of long hours and could potentially be financially strained, as in any start-up business, but the rewards of owning your franchise and being ‘master of your own destiny’ are worth it!
  3. This is a tough business for tough-minded people. Having an initial mindset of ‘it is harder than I think’ rather than ‘it will be smooth sailing’ is a better approach and will prepare the franchisee for the hiccups that will surely come along.

Property franchising makes good business sense

The end result of being a successful property franchisee is financial security. Owning a brand office assures the owner of having an asset and the credibility, back-up and brand promise assures clients they are in safe and professional hands.

“I would definitely recommend being part of a major brand rather than a being a small real estate entity, especially in this competitive industry. Property is a challenging industry that, like everything else, goes through cycles, influenced by factors like inflation and interest rates, among others.

Drive, initiative and resilience are therefore essential qualities for a successful property franchisee. Absolute professionalism and integrity and a fierce determination to exceed your client’s service expectations are essential,” Brown concludes.

Related: Want To Start A Property Business That Buys Property And Rents It Out?

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Researching a Franchise

Col’Cacchio – Benefits Of The Franchise Model

Six key benefits of the restaurant franchise model – and what to look out for when considering a franchise.

Russell Otty

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For investors looking to the restaurant industry and considering a franchise knowing it has a proven track record and is therefore possibly a lower risk, there are a few key things to be aware of about the benefits of the franchise model, which if investigated, can also point to a franchise that is not for you.

Russell Otty, Chief Operating Officer of the Col’Cacchio Group, shares some of these key benefits and indicators of whether a franchise is for you:

1. Making the cut as a franchisee gives you the confidence that you are making the right decision

You may think psychometric testing, three days in a restaurant following a franchisee around, and a panel interview with the senior management of the franchisor, is a bit over the top, but the franchisor that puts you through your paces and assesses your ability and commitment to running the business, is doing you a huge favour and may even help you see this is not for you. It goes both ways, and after an intense courtship, you should know if you want to try a long-term relationship.

Related: Col’ Cacchio: A Passion For Pizza

2. Assistance with location selection and negotiation of the terms of your lease

One thing you can do to limit your risk is to not open a restaurant in the first place if your rent is not going to be reasonable or you simply won’t get customers through the door. The franchisor will vet and approve the site – they will have extensive insight into what has worked or not worked location-wise for their brand, and can assist you to weigh up the area and it’s potential to attract customers.

The commercial terms of a lease is very important – you can’t be too ambitious about turnover targets, and having the backing of a franchisor can be beneficial if a landlord becomes unreasonable.

3. Staff training and development tools on hand

Consistency is important with restaurant franchises, as a customer visiting a brand anywhere in the country, goes there knowing exactly what they are going to get. This is best achieved with solid training, perhaps access to resources such as training videos, and regular visits from franchise managers.

You should check with your franchisor what level of training and franchise support you will have on an ongoing basis. Ask about the ratio of field trainers and operations managers to the number of franchisees in the group. You want the franchisor in your restaurant in some shape or form, two or three times a month, whether it be the training manager, the regional franchise manager or the national operations manager.

4. Access to supplier networks to manage your input costs

Negotiating basket pricing with distributors regionally and nationally, the franchisor will leverage their buying power on your behalf. They should assist to manage your suppliers and make sure deliveries happen on time, and ensure that product quality remains consistent. They can also negotiate to ensure your input costs do not increase before the next menu launch – so you can ensure your margins remain intact.

5. Brand loyalty and locality marketing

When you buy a restaurant franchise, you gain a group of customers who know who you are, the food you serve and the way you make them feel. The money you will pay towards marketing each month gives you insight into the broader restaurant market, the experience of what is working across a number of sites, and how best to keep the attention of new and existing customers.

Some franchisors offer locality marketing assistance – your site and area has specific needs that other outlets may not have, or there may be events in the area that can be leveraged to run special offers. Ask if the franchisor offers this as a service, as it can assist you greatly to have an advantage over other restaurants in your area.

Related: Beginners Guide To Digital Marketing In South Africa

6. Business development insights

The franchisor has access to insights gained across the group, and the systems that they have in place to track costs and increase profit margins, can be of huge assistance. If you are looking for business support, a franchise manager can be the one sitting with you telling you that you spent R2 000 too much on cleaning this month or saying you need to wait till next month to make that purchase. The level of business support you will have access to, is an important factor to consider, depending on the level of support you may require.

Recipe for success

Nine times out of ten, a restaurant franchise that fails, fails because the franchisee loses interest or lacks the commitment to make it work. Selecting the best franchise for you as the investor, or as a restaurant entrepreneur, is the most important first step you can take towards success, so do the homework.

Don’t assume that because you are buying into a successful brand that it will be a success – business is not an exact science – you need to do your own due diligence and take responsibility for your business, because it is after all your own investment.

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