Taking over an existing franchised business as a going concern requires research, homework and decisions based on sound advice. Many people entering franchised businesses are doing so for the first time, and are often using hard-won savings or accrued pension funds to realise their dreams of independence.
Getting the Right Advice and Support
Banks are well placed to offer advice on finance and also offer potential purchasers peace of mind by having extensive knowledge of which franchisors give franchisees the highest levels of support.
The extensive knowledge of franchising is backed by the ability to help a prospective business purchaser take a 360-degree view of their financial status and offer them specialist support from other financial areas. This gives clients the advantages of a streamlined, integrated financial base and easy control over all their needs.
What is not generally known is that many franchisors require operators to refurbish their outlets every five years. When making an offer on a business, it is vitally important to ascertain when a revamp is next due. Failure to do so could find you paying for a business without knowing that major costs are waiting around the corner.
Things to Consider When Buying
Purchase and sale agreements are vital. They must comply with specific legislative criteria such as the Insolvency Act. It is also required, for instance, that advertisements are carried in newspapers of all languages for 30 days prior to a sale to ensure that creditors who may have done work for the original owner do not end up knocking on your door later to demand payment.
The major research begins with the banking aspects and the actual value of the business assets. A business may have many fittings such as shelves, freezers and catering equipment. The stated value may be several million rand. What may not be realised by the purchaser, however, is the fact that over time these assets depreciate.
Their value drops and, because of wear and tear, and if the purchase of the business is made late in the lifecycle of the assets, they may be worth very little.
Getting an approved valuation from an expert should therefore be the very first step in the purchase process. It is essential that a valuation is made on site. Desktop valuations where only information on hand is used without leaving the office should be avoided. Attention should be paid to all equipment ensuring that it is all in good working order and there are no faults that could be expensive to rectify later.
Ownership of assets should also be clearly ascertained. In some cases specific equipment may be owned by the franchisor, rather than the franchisee. They should not therefore be included in the overall value of the business. It should always be borne in mind that a correct list of assets is invaluable when applying for bank finance, as it provides the bank with security against a loan.
A goodwill payment should also not be included as a business asset. A medium-term loan or a business-term loan should rather be considered.
Stock in hand is also not considered as an asset. This is because some franchisors hold non-negotiable general bonds over the stock. The stock is owned by the franchisor until payment has been made by the franchisee.
A Great Future
Buying a going concern is also not simply a case of signing an instalment agreement sale.
Essentially, when financing an existing going concern, Standard Bank uses a ‘sale and lease-back’ mechanism to complete the transaction. The timing of this transaction has got to be just right as ownership has to pass from the old franchisee to the new franchisee and documentation must be signed as ownership passes across.
When making a move into a franchised business the question of buying a new or existing outlet is obviously top-of-mind. Buying an established business that has a solid customer base and a financial history may be regarded as first prize. It is more likely to be so if the deal is approached with caution.
The Future Of Franchising Looks Smaller (And Fancier)
Franchises are adding smaller locations and reduced menu options, as niche markets emerge, to attract the customer of the future.
As the owner of a thriving franchise, you’re well aware of the fact that fluctuations in the world economy has both negative and positive effects on business. When it comes to your successful franchise, tough times could mean adopting new trends or seizing gaps, potentially resulting in a new franchise concept you wouldn’t have otherwise thought of.
“The buzz word in global franchising is ‘flexibility and adaptability’,” according to the Franchise Association of South Africa (FASA). “Whether a result of a need to inject some life into stagnant franchise brands or as a result of the new world order brought about by the recession, franchising is embracing alternative and options in a big way.”
You can do this by either devising innovative areas to franchise or allowing more flexible ways for franchisees to operate to help with their bottom line. FASA has earmarked these as some of the biggest franchising trends in 2018 and beyond:
Smaller, more cost-effective franchise models
When franchisees don’t have high franchise fees and start-up costs to worry about, they can focus more on what customers want, and deliver. The added benefit of smaller spaces include having fewer employees and reasonable rental.
Among the new frontiers in franchising are the food court losing its legacy as the preferred setting for food franchises, as service stations increase in popularity in the industry. A number of brands – like Steers, Debonairs and Mugg & Bean On-the-Go outlets – are co-locating with major fuel retailers to create fully-integrated accessible centres.
Niche markets are offering one-of-a-kind franchises
“The opportunity to get in on the ground floor of a new franchise trend is also on the rise,” notes FASA. This could be offering a unique gourmet food experience in your outlets or a ‘green’ space of energy saving technology in your operations.
“Consumers have gained control of what they want,” says Morné Cronjé, head of franchising at FNB Business. “It is no longer about what you have on the menu, but how your product or service can be tailor-made to what a customer really wants.”
Founded just five years ago (2013), RocoMamas boasts over 60 franchise outlets, clearly responding to the essence of this trend –allowing consumers to build their own burgers without having to pay for items they’d rather leave out.
Stay ahead of the game
For long-term success, franchisors who want to expand their business should start exploring beyond present circumstances and current predictions.
“2018 will no doubt bring its challenges, however for every challenge there is a window of opportunity to explore. We are advising franchisors to scrutinise these trends carefully, it can definitely give them a boost for 2018,” says Cronjé.
As Consumers’ Tastes Change Can Your Franchise Keep Up?
More of your customers are eating in, and if you’re not packaging, portioning and pricing your food accordingly, they’re heading to a retailer that does.
It’s generally believed that it’s cheaper to cook your own breakfast, lunch or supper than to go out and pay a much higher price for the same food in your fridge at home. But today’s consumer’s live fast-paced lifestyles – so food is becoming more about convenience.
31% of 6 022 middle-to-high income South African earners surveyed by BusinessTech, put eating out and entertainment at the top of their list of things they’re most willing to cut their spending on in 2018 to save money. Research by supermarket giant Pick n Pay correlates, reporting an increase in customers buying quality convenience food, not just to entertain at home, but for dining at home.
Consumers are empowered by variety
You’ve heard about the ‘fast casual generation’, aka Millennials? They are demanding healthy, affordable eating experiences. But do you know how this affects the future of the food industry, and your business in particular – because they’re not the only ones adapting their lifestyles.
An increasing number of food brands and chefs are compelled to create complete ranges of new, convenient meal options that are not only packaged, portioned and precooked attractively, but affordable too.
The fastest growing sector of retail foodservice for the past four years has been the convenience store sector. Non-traditional avenues of distribution are growing, gobbling market share while establishing new patterns of consumption, price points, and customer loyalty.
Shoppers are becoming value-focused
A savvy franchise would acknowledge that although pre-packaged and pre-cooked convenience food isn’t a new trend among consumers and supermarkets, it is gaining popularity. “Some of the most notable trends in 2017 were an increasing shift to convenience foods as customers looked for both value and convenience,” says Pick ‘n Pay’s Head of Marketing, John Bradshaw.
Value for money and healthier food choices will continue to be top of the convenience food list for consumer in 2018, as more shoppers cut down on luxuries.
“We’ve seen significant growth in the number of customers looking for an easy way to enjoy a good meal without the cost of eating out,” says Bradshaw.
But he cautions that South African shoppers have always been value-focused, and while the most significant shift Pick ‘n Pay has seen is how all its shoppers, no matter what their income levels, are watching their budgets.
Maximise Your Social Media Reach This Holiday Season
Quick and cost-effective, social media is your best tool to reach target markets when it matters most – during the holidays.
It’s not just the end of the year that can be lucrative for businesses. School holidays and other major breaks during the year present consumers with more time to spend shopping. Why not ensure money is spent at your franchise by capitalising on the minimal cost and maximum exposure of social media?
You don’t have to create entirely new deals or promotions from what you may already have running on your store, but find a way to make it special for your social media followers, suggests Kelly Mason, marketer at Customer Paradigm.
Holiday campaigns on Twitter, benefitting from popular hashtags, streaming live content, and receiving information instead of just distributing it via social media are just some of the ways to stay ahead of the competition.
Know your customers well
The first step to attracting customers and getting them to complete a sale is understanding their customer journey.
“Being able to document where they spend their time online, which social channels they use most, and what they’re reading or watching on those channels is a huge plus. Finding that crucial information is fairly easy to do, thanks to modern-day marketing tools and resources,” advises Paul Herman, VP: Product and Solutions Enablement Group, at Sprinklr, a unified customer experience management platform for enterprises.
The better you understand your customers, the easier it is to reach them through a campaign optimised for their interests.
Master social listening
You could be using social media all wrong in the run up to all your holiday campaigns. Perhaps it’s time you used this platform to listen to your customers?
“Through social listening, marketers can identify major trends and product keywords in their industries,” says Herman. “For instance, knowing those keywords can help marketers identify which social platforms are more popular for a target audience. With that information, they can make smarter decisions about where to spend their money and which products or services to promote on each platform.”
Related: 10 Laws Of Social Media Marketing
Use the information gathered to determine what customers like about your product, what they dislike about it, and how you can improve upon it so they can buy more of it. The more of this data you collect, the better and more effective your interactions with customers will be.
Try something new
50% of consumers look for a video of the product they want to buy before going to an ecommerce store to buy it, according to a 2016 Google survey. “Video can be an extremely effective way to get your customers to take action – in this case, to make a purchase with your store,” adds Mason.
Video adverts are often used as an experimental tool in social marketing and switching it up on platforms such as Facebook Live, Instagram Live, Instagram Stories, or Snapchat – depending on your brand’s activity and your audiences’ interests – can help attract customers during seasonal periods.
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