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Researching a Franchise

Franchising FAQ’s

Purchasing a franchise is a big investment, so be sure to get your questions answered before taking the plunge.

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Here is some useful advice to address some common franchising concerns.

Readers have almost as many questions about franchising as there are franchises to buy. Here are answers to recent questions.

Q: I’m interested in buying a fast-food franchise. But I’m not sure that I have enough saved to cover the entire transaction. Is it possible that a franchisor will help finance my purchase of an outlet?

First the good news. More and more big franchisors offer financing to those who would buy their franchises.

And the bad news: It’s tough to qualify for those financing deals as a first-time franchise buyer. The good news about franchisor financing stems from the fast growth of the franchising industry. For most people, coming up with the initial fees, licences and start-up costs is a significant investment. Whether franchisors will lend to a first-time buyer of a franchise depends on many things, including how much you invest and your track record as an entrepreneur. Any bruise on your personal credit history is likely to disqualify you.

Some franchisors have relationships with third-party finance companies and banks that specialise in lending to their franchisees.

For the franchisor, how much to lend franchisees is a tricky question. If a franchisor is too aggressive in its financing, it could saddle some of its franchisees with debt that may be too difficult to repay, which is in no one’s interest.

Franchisors need to draw a line between lending for ‘hard’ and ‘soft’ costs. For instance, it might make sense to finance a franchisee’s acquisition of real estate. But franchisees who seek funds for the initial licence fee or employee training will probably be too strapped to make the enterprise work.

Other good news on the borrowing front: Since franchising has experienced such a boom, the industry has established a track record that raises the comfort level for mainstream banks.

If you’re a first-time franchise buyer, you’d best have sterling credit and a nice nest egg to qualify for these programmes. Otherwise, if your heart is set on buying a franchise, you may have to save a while longer.

Q: What are the common issues that franchisees overlook when reviewing a franchise contract?

Just like in life, it’s not what we anticipate and fret over that gets us. It’s the odd banana peel that throws us into a skid as we run for the bus. In acquiring a franchise, most people thoroughly examine the fees, the long hours and the financial commitment required, looking at those issues from all angles. But rarely do they give sufficient attention to the terms of ending the franchise agreement. That’s always the one thing they don’t think about.

This isn’t like planning your divorce before you get married. There are all sorts of legitimate reasons for franchisees to end their relationships with their franchisers. They may just want to sell the business after a good run. A health issue may arise, or a spouse receives a job offer in another town, or they may decide that they’ve made a horrible mistake and just plain hate what they’re doing.

When the time comes to end things, you might find yourself obliged to pay fees even after you’ve shuttered your business, or endure other unpleasant and unexpected terms.

Here are some things to watch out for. Beware of an agreement which gives the franchisor the right to buy your franchise under a predetermined formula. You might do far better selling it on the open market.

Another scenario: You’ve paid all your current fees to the franchisor for three years, but now want to end a five-year contract. Even if you’re closing your business, you may owe the franchisor for the fees covering the remaining two years on the agreement.

Some of these issues are negotiable going in, depending on the franchise. One rule of thumb: the bigger, better-known and generally more desirable franchises typically have fairly standard, cookie-cutter-type contracts that leave little room for negotiating these terms. Meanwhile, it’s buyers of newer franchises who tend to have more leverage to draft the language addressing their exit.

Need we say this aloud? You must find a reputable attorney in the franchise field, one who is knowledgeable about these issues and will ensure you understand and can live with the terms of ending the franchise agreement. Get referrals from the local bar association and other franchisees.

Another troubling area for neophyte franchisees as they execute their purchase agreement: an over-emphasis on territory. Very often, a franchisee feels greedy about territory, assuming the bigger, the better.

Actually, the opposite is often the case. With more franchises already operating in a given city, a market presence is likely to exist for your business before you invest your marketing money. Many have cost-sharing plans for advertising that give you a bigger bang for your advertising buck.

Don’t forget to look beyond the contract. Take your time and interview as many franchise owners as you can. Ask questions like: ‘Knowing what you know now, after several years with the franchise, would you do it again?’ and ‘What surprised you after you purchased your franchise?’

If it takes you three weeks to do that, so what? Consultants can do this research for you, should you desire, but it’s best for you to get this information firsthand and write a report for yourself about what you find, looking for trends. At the end of this process, you’ll have very useful information.

Q: I’ve made a deposit on a pizza franchise. The franchisor has 40 stores in Gauteng and Mpumalanga. It wants to expand into Cape Town, and I’d be the first one there. Is this a good idea?

You sound a bit ambivalent about the fresh territory, which is understandable. Franchise buyers generally regard territory in one of two ways.

One is that the best territory is a big and lonely expanse. You plant your flag and declare dominion over all you survey, proclaiming all of Cape Town’s pizza lovers are mine, mine, MINE!

Other franchisees prefer the safety-in-numbers approach. You join a battalion of pizza purveyors sharing turf as well as your advertising costs and marketing presence. Together you impart a sense of scale, marching in lockstep to conquer the world with your many convenient locations.

If you buy the franchise in Cape Town, you belong to the first group. If you buy in the Gauteng area, you are in the second example.

Franchises differ in how they address territory, of course. Some offer ‘protected territory.’ Under these agreements, the franchisor promises that you have a certain specified turf to yourself. It could be defined by geography, demographics or other parameters.

Others scatter their franchises or crowd them where they like. It’s been a subject of litigation over the years, often with franchisees suing to keep their parent franchise from opening a new store down the street.

You’re in an interesting spot. Judging by its expansion in the region, your franchisor appears to have done quite well in the Gauteng area. Whether this translates into happy franchise owners you must discern from your own research. You’ve done that, right? Including talking to other franchisees?

You may be in a fortuitous position. If the franchisor is very interested in expanding, it’s going to want to help the first franchise in a new market.

To a great extent, the success of the franchisor in a new market depends on your success. So don’t be shy asking for help. Sometimes that may come in the form of financing, perhaps, or negotiating your lease. These are things you’d like to negotiate with the franchisor.

One issue for a franchisee in your position to address is the advertising and marketing agreement. Typically, the franchisees kick in a percentage of revenue toward advertising. Will you be paying to advertise in Gauteng? Will the Gauteng stores be paying for advertising in Cape Town? Or are there national advertising buys that help all?

Q: What franchises are good for absentee owners?

If you are searching for a franchise that is more of an investment than a lifestyle, they are out there. It depends on the franchise. For some franchises, it’s entirely possible, and, for others, it doesn’t make economic sense or is expressly forbidden.

This is an important issue for franchise chains, and it doesn’t take a genius to see why. A business can only benefit from on-site ownership. No one has a stronger incentive in the success of the business, after all, than the owner with his own capital at risk. Many franchises have become well-known for the long hours required to run their businesses – rising at 3am to make the doughnuts – a far cry from the distant oversight you envision.

For that very reason, many franchises demand an on-site owner, and make it a condition of franchise ownership. McDonald’s Corp franchises, for instance, are famous for turning away passive investors and corporate owners, and only accepting owner-managers. With people lining up for a chance to buy a McDonald’s, it can afford to be picky in the selection of its franchisees.

Most franchisors strongly prefer owner-operators. A franchisor selects franchising as a method to expand the business in part to have someone share the risk, and to have an owner with the vim, vigour and vitality to grow the business. Unlike the owner, the typical manager can too often say: I’m off the clock, that trash on the floor is someone else’s problem.

Look for exceptionally strong systems and effective marketing plans, factors that you wouldn’t control even if you were hovering like a nervous mom over the premises every day. Look to well-established chains that have worked the kinks out of their systems. Someone else is going to be following these blueprints, and the more specific, the better.

Food operations are poor candidates for absentee owners, because the detail work and interaction with customers is so important. On the other hand, an absentee-owner might do well with, say, brake or muffler shops, or hair salons.

An absentee owner requires an excellent manager, of course, someone with a track record of integrity and results. Less important is that the manager has experience in that particular franchise. If you are part of a good franchise system, an experienced manager can follow the plan.

Economies of scale also come into play. A small franchise, especially in its early phase, may not throw off enough cash to support a strong manager with profits left for you. It’s likely to be a different case, though, for the owner of several franchised units, all operating under one manager. So, going into this, you’ll require a reasonably good sense of sales and profits, which only a few franchised operations will project. You’re likely to discern this important information only by talking to other franchise owners in the system.

You still will have to figure out a way to stay close to the business, whether it’s reading through the data generated by automated reports or talking frequently to your manager. Nothing substitutes for the unannounced drop-ins. It’ s the best way to detect dirty floors or rude employees before those issues translate into anaemic sales.

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Choose A Job You Love, And You Will Never Have To Work A Day In Your Life

Join Col’Cacchio’s 26-year-long love story.

Col'Cacchio

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Vital Stats

  • Joining fee: R125 000
  • Monthly management fee: 6% of turnover
  • Monthly marketing fee: 2% of turnover
  • Total investment: approx. R2.5m to R4.2m (turnkey) Size: 140m2 to 350m2
  • Unencumbered cash (before loan): 50% of total investment

(Above figures exclude VAT) 

“Owning your own restaurant is like owning your own future.” – Dominic Dempers, Franchisee Durbanville, Belvedere & Meadowridge Cape Town

We’re looking for passionate franchisees who will love our brand as much as we do.

Why you should join this delicious success story

colcacchio-pizza-franchise-dessert

  • Assistance with site selection & lease negotiation
  • Store design & build
  • Full training provided for management and staff
  • Marketing & operational support
  • Product innovation & menu development
  • Efficiency in all systems
  • Healthy margins.

Related: 300 Business Ideas To Inspire You Into Entrepreneurship

#FoodwithaStory

“Our journey started with a single restaurant on the foreshore with the aim to serve the very best pizza around” – Greg Mommsen, Business Developer Director

“Watching this brand grow and empowering people has been immensely rewarding. We have staff that have been with us for over 20 years. It’s like a family, we work hard, we laugh, we cry, we celebrate and of course, we eat a lot of pizza.” – Michael Terespolsky, Founder and Managing Director

“Becoming a franchisee is an amazing opportunity to join the family and become part of the Col’Cacchio success story. We’re 100% behind out franchises at every step, making sure that we all continue to learn and flourish” – Greg Mommsen, Business Developer Director 

“It has been filled with challenges along the way, but all the rewards have made every moment worth it.” – Michael Terespolsky, Founder and Managing Director

Related: Got An Awesome New Business Idea? Here’s What To Do Next

Visit www.colcacchio.co.za or call Tarryn Godley on 084 800 7264 and let’s get this adventure going.

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Smoothie Franchise Opportunity: Puré Frooty Is A One-Of-A-Kind Smoothie Franchise Business

Looking for the next greatest franchise opportunity? Puré Frooty Smoothie is a highly perfected Australian business model launching in the South African market that doesn’t require extensive shop fitting or a large workforce.

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.

An Innovative Franchising Concept

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.

Why Consider This Franchising Opportunity

healthy-smoothie-franchise

Extensive research into the business model and market

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.

Simplified process for setting up a business

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:

  • Free-standing machines: The business model revolves around a free-standing vending machine which needs to be visited to refill and maintenance.
  • No shop-fitting required: 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.
  • Minimal human resources needed: 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.
  • Cashless business: 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.
  • Easy tracking of stock and performance: 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.
  • Efficient handling of maintenance: 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.
  • Human error is eliminated: Everything is done with a computer which leaves little to no room for errors. It is self-order and very user friendly.

Related: SA Fast Food Franchising On The Rise

Why Will Customers Love It

Puré Frooty Smoothie offers a vending machine that 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.

Interested in Becoming A Franchisee?

Visit our Franchise Info Page for everything you need to know about how to become information a Puré Frooty Smoothie Franchisee owner.

You can also call or write to us:

Phone / 012-942 6360
Email / info@purefrooty.co.za 

Want to know more about this franchise? Watch the video below for more.

 

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Researching a Franchise

4 Top Tips To Find Your Best Franchise Opportunity

The President’s recent Job Summit highlighted the critical need to reduce unemployment. The franchise sector employs 369 573 people, 93 percent employed by individual franchisees rather than franchisors.

Richard Mukheibir

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Several years of strong sectoral growth combined with business opportunities that are often backed by an investor safety net is making franchising the top choice for many who want to own their own business.  This assessment is based on the strong foundations of my own experience of establishing Cash Converters nearly a quarter century ago and the recent results of Franchise Association of South Africa (FASA) annual industry survey.

These figures show that the SA franchise industry has grown its turnover by 55 percent from R465 billion in 2014, when FASA conducted its first survey, to R721 billion in 2017. Alongside this, the sector’s contribution to South Africa’s GDP has expanded by 62 percent, from 9.7 percent in 2014 to 15.7 percent in 2017.

The President’s recent Job Summit highlighted the critical need to reduce unemployment and boost the national economy by growing business and stimulating job creation. The franchise sector employs 369 573 people, 93 percent employed by individual franchisees rather than franchisors.

Franchising can be a win-win for franchisees. It enables you to make your dream of running your own business come true as well as contributing to providing much-needed new jobs.

These factors make franchising a particularly attractive option for those wishing to start their own business. But with 865 different franchise systems active in the country last year, the huge range of choice can be confusing.

Related: Key Phases Of The Franchising Relationship

To prevent analysis paralysis and ensure you can get set to make the most of franchising, I can offer four top tips for selecting the best franchise opportunity for you:

1. Choose a credible brand

As you shortlist franchisors that appeal to you, go beyond what they tell you about themselves and find out about what people are saying about them. Do social media searches to find out how consumers are reacting to the product or service offered, pricing and customer service. Your franchise fee should buy you a halo effect thanks to your franchisor’s good reputation. Too much negativity around the brand will affect the potential success of your franchise, from your ability to attract customers and the turnover and profit you can hope to generate.

2. Look for a proven business model

A worthwhile franchise shares with franchisees the intellectual property it has developed over the years. It has created and grown this business model over time, knocking off rough edges and fine-tuning systems for mistakes as they become apparent. Check the brand’s news history online as well as its own sales material. Be wary of any franchise that claims to be perfect or invincible.

Nobody is – so either it has something to hide or it is fooling itself. Either way, such a brand is not keeping its eyes open to navigate the brand and its franchisees through the changing fortunes of business.

Related: Thinking Of Going Into Franchising?

3. Check the support systems

Getting relationships and systems right is vital in business success. They have become even more important since we founded Cash Converters nearly 25 years ago because the volume of legal compliance has mushroomed. Make sure that the franchises you shortlist offer you support in coping with this and that those running the brand are in touch with what happens on the ground in the franchisees’ stores. At Cash Converters, for example, our front-end support staff are in stores every day and the directors devote three days each month to visiting stores. This ensures that our expertise is available to guide the franchisees through any business issues they face.

4. Follow the recipe

When you sign up with a franchisor, you receive access to its business model, including the “recipe” for running your franchise. This forms a kind of safety net so you do not need to reinvent a wheel when setting up your business. But you cannot complain that the business model does not work if you do not implement it. This is one of those times when you must follow the recipe to bake the cake successfully. If you are not the kind of person who wants to do that, then think again about whether franchising is for you.

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