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Researching a Franchise

Buyer Beware: Franchise Warning Signs

What to look out for when researching a franchise opportunity.

Joe Matthews

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Buying into a franchise concept can be an attractive way for some people to become business owners. Ideally, a franchise company has a proven business model, saving new business owners the time, energy and money.

Franchises can still be a good opportunity, but doing more than just glancing under the bonnet is essential.

Red Flags

As a consultant helping people find franchise opportunities, I’ve spotted a number of warning signs over the years:

  • Half the franchisees aren’t making the kind of money you want to make.
    The franchise disclosure document explains how much money a prospective franchisee could make from the franchise opportunity. Hopefully, the franchise company breaks down the range of what franchisees are earning from their operations: top third, middle third, bottom third. If the middle-third franchisees aren’t making what you would need to meet financial objectives, walk away.
  • Franchisors blaming the franchisees.
  • Don’t let a franchise company explain away the performance of the middle and bottom by saying the franchisees don’t understand the system. So what if the existing franchisees are lousy? If the franchise company can’t recruit correctly, what makes you think its operating system is any good?
  • The model is in a perpetual state of flux.
    If the franchise company is constantly tinkering with the concept, you need to be asking why. The model simply may not work.
  • Compliance is more important than results.
    Does the franchise company run a collaborative environment in which its employees listen to franchisee concerns, or is it a bureaucratic nightmare demonstrating low concern for franchisee results and relationships? The franchise company doesn’t get to answer this question. You need to seek out a number of franchisees and hear what they have to say about the relationship.
  • Keeping it in the family.
    Sometimes franchise companies can be too cosy, and turn into benevolent dictatorships where there is high concern for relationships and low concern for results. Look out for franchisors laced with a lot of family. Too often, I see franchise companies where owners choose relatives for positions, ignoring the best people for the jobs. A good franchise company needs highly skilled and seasoned management.

Strengths

Here is what can make a franchise company stand out from the crowd:

  • The executives have integrity.
    Do the franchisees say they trust the people running the company? I would look for franchise companies with a sense of purpose and inspiration. When push comes to shove, what motivates these people? Whatever company you’re looking to buy into, do web searches on the names of the owners. Do you find links to their charitable work – or rip-off reports?
  • The business model is unique and timeless.
    If a franchise company is making money today, pay attention but don’t become enamoured. Will it make money seven years from now? Unless you’re open five to ten years, you’re not going to make a return on your investment. I remember a franchise company that helped design business’s first websites back when the Internet was still a new thing. The idea worked for a time but wasn’t sustainable.
  • The company respects its franchisees.
    McDonald’s is tops when it comes to collaboration with franchisees. Most multimillion-rand McDonald’s ideas came from franchisees. Much of the company’s success has come from recruiting gifted franchisees who know what they’re talking about. McDonald’s has a reputation for respecting and listening to them, too.

Also make sure that the franchise company is the best fit for you. Just because it’s a good business doesn’t mean it’s a good business for you. Not everybody’s wired to run and manage every business.

Pay careful attention to what a typical franchisee does in the business every day. Make sure you have the skills it takes to win, and that you find the work to be meaningful and enjoyable.

Joe Mathews has 20 years' experience in franchising, including management roles with Subway, Blimpie, Motophoto, The Entrepreneur’s Source and other national chains. He is co-author of Street Smart Franchising with Don Debolt and Deb Percival, from Entrepreneur Press. He is based in Litchfield, Conn. Follow him on Twitter: @joematty.

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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Company Posts

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

As the leader in the tyre replacement and service industry, we are invested in providing our network with the tools needed to thrive and grow in an ever-challenging market.

HI-Q

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Vital Stats

This is an invitation to all innovative entrepreneurs who are seeking new and exciting opportunities – here’s your chance to become part of a winning team.

As the leader in the tyre replacement and service industry, we are invested in providing our network with the tools needed to thrive and grow in an ever-challenging market.

The Hi-Q Way

  • Hi-Q’s been voted the 1 tyre retailer by South African consumers in the Ask Africa Icon Brands Survey from 2010 – 2017.
  • Over the years Hi-Q has established itself as ‘the one you can trust’, with customers, the network and suppliers.
  • Hi-Q prides itself on first-class service, a multi-product/multi-brand offering as well as ground-breaking product innovations such as TyreSurance on all tyre brands.
  • Hi-Q has an extensive network of over 130 franchisees
  • Hi-Q has the support of the Goodyear value proposition.

If you are looking to join a new franchise and you share Hi-Q’s values and vision, please get in touch.

visual-2-hi-q

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Company Posts

Puré Frooty Ready To Launch In South Africa

Puré Frooty Smoothie is a unique business model to the South African market. A delicious, fruit filled smoothie will be created at the touch of a few buttons.

Pure Frooty Smoothie

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Vital Stats

Puré Frooty Smoothie is a unique business model to the South African market. A delicious, fruit filled smoothie will be created at the touch of a few buttons.

This innovation in the healthy smoothie industry is ground breaking for South Africa. The machine is manufactured in Australia by a highly skilled team. It took six years to perfect this business model for the consumer market.

The vision of Puré Frooty Smoothie is to offer convenient on-the-go smoothies for anyone. The experience and quality will always be of the highest standard. We aim to be a staple convenience in malls, schools, office parks and hospitals. This is a platform that will allow for self-growth for passionate entrepreneurs.

Our mission is to create a unique customer experience. We want to satisfy the nutritional needs of customers by providing quality smoothies. Puré Frooty Smoothie will be packed with all the goodness a smoothie should offer.

Related: Why Your Franchise Should Adopt A Shared Value Business Model

The four values we pride ourselves in are:

  1. Convenience
  2. Consistency
  3. Quality
  4. Customer Satisfaction.

Puré Frooty Smoothie was an idea, researched widely, by people looking to simplify the business process for the consumer and business owner. There was a gap in the market for simplified customer service and a demand for a quicker turnaround time.

For an entrepreneur it can be very overwhelming to start or buy a new or existing business. There are so many crucial decisions that need to be made from the beginning and new concepts to adapt to. Puré Frooty Smoothie simplifies that drastically. The business model revolves around a free-standing vending machine which needs to be visited to refill and maintenance. There is no need for shop fittings or a large work force. All that is required is an inside space for the machine with a power supply. In terms of a work force, you could either do it yourself or have one person to assist you. There is also a part time involvement where refill station teams can refill and maintain the machine.

The business is completely cashless so there are no worries of a note jam, full cash canister or insufficient denomination rand values. More importantly the machines would do a higher turnover than an ordinary vending machine so safety of no cash is important. A cloud-based system is linked to the point of sale which allows you to monitor your performance and stock from the back-office platform at any given time.

With a live point of sale system, the business is linked to a software which monitors the operations of the machine. Should anything malfunction an immediate notification will be sent with a diagnostics report.

Related: SA Fast Food Franchising On The Rise

Everything is done with a computer which leaves little to no room for errors. It is self-order and very user friendly.

A vending machine which can produce a delicious smoothie in forty seconds. An informative touch screen ordering panel which displays all the nutritional information of the smoothie ordered and has the current news and weather. No time wasted for the consumer. In fact, it’s a learning session disguised as a waiting period. The machine has two wash cycles after every smoothie is made to be freshly prepared for the next smoothie, business hygiene is important.

Consumers live in the fast lane. We are looking for something quick and most times we would like to be healthier. With the hustle and bustle of today’s life every little bit helps. Puré Frooty Smoothie fills that gap in the market.

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