International franchising expert, Jeff Elgin, answers some of the most common questions.
Q: How much freedom do franchisees have? What happens when I have better ideas than the franchisor? Am I able to have any sort of creative licence with a franchise?
Sometimes the price of freedom is higher than what you really want to pay and that’s the reason for the existence of business format franchises. In a good franchise you are going to have a franchisor tell you exactly what to do and how to operate the business but what you’ll get is a much lower chance that you’ll become a business failure statistic.
This is especially true in the beginning of your operation. Most franchise systems are focused on getting a new franchisee up and operating successfully as soon as they possibly can. They are not interested in your thoughts and ideas at that point. They want you to execute their proven systems as well as you can.
Franchisors are much more likely to talk about innovating and incorporating some of your ideas after your business is established and profitable. Some of the best ideas for improving franchise systems come from successful existing operators. The key is to have patience in this regard and focus first on guaranteeing that your survival is not at question before worrying about changing the system.
Q: Should I use personal funds to start a franchise?
Personal funds like savings, stocks, bonds and other assets can easily be turned into readily accessible cash. The biggest advantage to using these types of funds is that you don’t have debt service payments, you don’t have operating restrictions placed on you and you don’t have to give up a big chunk of the upside potential of the business to someone else.
The disadvantage is that if you use too much of your personal funds and then run into a situation where you need more money for the business, you may not be able to raise a loan or attract an investor at that point in time.
Q: What do I need to buy a franchise?
If you want to buy a franchise you’ll need to have three things. First, you’ll need to have the money to get the operation up and running successfully. You can use a combination of your own funds, equity you raise from other people and/or borrowed money to meet this requirement. In today’s market, borrowing is challenging so you should assume that more of the required money is going to have to come from you or your connections. Otherwise, you might have to wait until the credit markets return to a more normal position of lending.
Second, you need to have the management experience and skills that the franchise requires in order to be successful. By buying a franchise, you are contributing your time and talents to building that franchise business. Before you attempt to buy the franchise, you should make sure that your skills set matches up well with the requirements of the franchisees.
Third, you need to satisfy any other legal or regulatory requirements that are mandated by the business you have selected. Sometimes this can be as simple as acquiring a lease or getting permits for your build-out. Other times it can be more difficult because you may need to meet special licensing or educational requirements before you can begin operations. Your franchise company should be able to tell you about any of these sorts of requirements before you buy the franchise.
If you satisfy these three requirements then you are well on your way to being able to buy a franchise.
Q: How can I know if I’d be a good franchisee?
Anytime you’re investigating franchise businesses, you want to be looking at the factors that will reduce your risks and increase your chances for success. The most important of these are:
- Are you capable of owning a business?
- Can owning a business help you achieve your goals?
- Is a particular business you’re looking at going to be a good match for you?
The first step is to ask yourself whether or not you’re cut out for business ownership. Are you comfortable with being the boss? Are you comfortable with being ultimately responsible for everything that happens in your business? Are you willing to work long hours and endure anxiety during the early start-up months or years of a new business? Even though you’ve been out of the corporate world for a while, you need to make sure you’re thinking of getting a business because the characteristics are attractive to you, not just because you haven’t yet been able to find a job.
Assuming that this is the right step for you, you’ll need to decide what results you want to accomplish in your life through business ownership. What are your goals in terms of income, lifestyle and other considerations? You’ll want to have a clear idea of your end point so you can use that picture as a tool to evaluate opportunities you investigate. Can this business take you where you want to go?
Once you have a clear idea of what result you want, you can start looking at industries and then later at individual companies. Focus first on the franchisee role in any given industry to make sure it matches what you want to do. When you find roles that are interesting to you, take the time to look into the companies in more detail to see if you can achieve your ultimate dream through purchasing that business.
Q: Can I buy into a franchise with little experience and capital?
The first step for you is to take every opportunity to increase both your capital and your experience. Work as you have the opportunity to do so and save as much as you possibly can. You’ll be amazed at how much leverage you can get from a relatively small amount of capital when the right opportunity presents itself later, but it can be hard to leverage zero.
Experience is relatively easy to build. Seek every opportunity you can to gain experience in the workplace. Since you’re focused on franchising, start by getting part-time jobs at various franchise operations.
It may seem obvious to focus on fast food because those jobs are highly visible and readily available. I’d recommend against it. You’re not going to become the owner of a fast food franchise anytime soon, so working at one isn’t going to be the type of direct experience you can use toward your goal. Concentrate on the types of franchises (low investment, high return) that you have at least some chance of owning in the next few years.
Also, either initially or fairly soon after going to work, try to get a position that directly works with and/or supports the owner of the business. It’s not as important to know how to clean a toilet or make toast as it is to understand how to hire and manage employees, schedule jobs, recruit customers and other similar tasks. This is what the owner does and working directly with him or her is going to expose you to that type of work.
Q: How can I determine the success rate for a franchise?
Assuming you consider success to imply achieving both financial goals as well as personal goals, then you’ll have to visit with a number of the existing franchisees in the system to learn more about their life and experiences to get the information you’ll need.
There are many businesses that make money and don’t fail. Some might match up well with you so you’d be happy conducting the franchisee role in the business, while others might make you miserable in spite of your financial success. Think of it as a job – most people have had jobs that they succeeded in and made good money from but were not happy doing. This is the same dynamic.
Take the time to find out about a day in the life of the typical franchisee and make sure you’ll be interested and satisfied in the role they are describing. If that’s the case then you’ve found a franchise that can provide not only financial success but personal fulfilment as well.
Q: Do I need an attorney to purchase a franchise?
There is no hard and fast rule about needing an attorney in order to buy a franchise. There are three common sense questions you need to answer in order to determine if you need an attorney:
- Do you understand the franchise agreement? If you are confident that you understand what the agreement is saying then you’ll be more comfortable. If not then you may want to have legal advice from an attorney to make sure your understanding is complete and accurate.
- Is the franchise company willing to modify their contract or is it exactly the same for everyone? Many franchises will not amend their agreement for anyone. If their agreement is exactly the same for everyone and if you understand what it says, then you may think of the expense of an attorney as wasted money.
- How will you sleep at night if you don’t involve an attorney? If you are a worrier and you’ll fret about it a lot then of course it is a good use of money to involve an attorney no matter the answers to the other questions. Do it for the peace of mind and don’t worry about what it costs. Always ask for a fixed fee bid to review the documents because it may save you thousands of rands over using an attorney who racks up the hourly fees on non-critical issues.
Q: Is it risky to buy into a small franchise?
There is risk associated with any business start-up so the obvious answer to this question is yes. You’re looking at a franchise system that has only one operating unit and wondering if that is more risky than buying into a system that has hundreds of operating units. While there are many things you can do to mitigate or reduce the amount of risk you take when buying a franchise, it is far riskier to buy into an unproven franchise. You need to be much more careful evaluating such a purchase.
When any business starts franchising, the owner has usually proven that he or she can successfully run one or more units of the underlying business, and has ‘operator’ skills in this business. What they have not proven is whether or not they can take a new person (you in this example) and quickly teach him or her how to successfully operate a unit. That is a completely different skill set I’ll call ‘franchisor’ skills.
Most franchisors will readily admit that the first 10 to 20 franchisees in their systems were the ‘guinea pigs’ that they used to learn how to effectively bring someone new into their business and have them become successful. These pioneers helped the franchisor learn, often through trial and error, how to become good at their job of employing franchisor skills.
The challenge is that lots of pioneers end up buried beside the trail because they didn’t survive the journey. If you want to make sure you don’t end up with that fate, you’ll need to either find a different franchise or else wait until 10 or 20 others have become franchisees in the system you like. That way they can blaze the trail for you.
It’s not smart to be someone else’s guinea pig when your life savings are on the line.
How Your Fast Food Franchise Can Attract Quality-Conscious Consumers
In a world where customers are becoming increasingly picky about where they dine and what they pick from a menu, it can be challenging to meet demands.
“Major foodborne illness incidents and outbreaks seem to be increasing. Even innocent or careless mistakes can sicken guests and ruin a restaurant’s reputation,” says Francine Shaw, President of Food Safety Training Solutions Inc. “Foodborne illnesses are 100% preventable and could be avoided if food service organisations adopted a food safety culture.”
Following a listeriosis scare in South Africa early in 2018, consumers have become more conscious about the foods they eat. Today’s customer is more concerned about the cleanliness of the food they buy over its taste.
“How food is sourced, prepared and served is uppermost with many diners demanding transparency when it comes to where they spend their hard-earned money.” – Franchise Association of South Africa (FASA)
The addition of more nutritious choices to your menu may be attracting health-conscious consumers, but it’s the quality of the regular – and perhaps popular – menu items that may win over consumers concerned with quality and not just calorie content.
Here’s how you can ensure your customers are at ease with having their next meal at any of your franchises nationwide:
1. Ensure everyone knows why and how it’s done
Even with buy-in from the top-tier, your food safety efforts will be futile if not incorporated into every training touch point and may appear to be optional, when they should be a priority, says Chris Boyles, vice president for The Steritech Institute. When you have well-trained workers who understand the ‘why’ behind food-quality policies, momentum is built and a culture of food safety is created.
“Through encouraging genuine, comprehensive behavioural shifts, your franchise will protect the brand, safeguard employees and sustain a reduction in risk,” Boyles adds.
2. Build food-quality impetus across the network
As a company that serves food to the public you’re in a position of great responsibility. It’s important to pass this message down to your franchisees too. “Co-operation between the franchisee and their employees in this regard cannot be stressed enough,” says Marcel Strauss, Managing Executive of The Fish & Chip Co. – which was voted the top fish brand in 2012.
To get your franchisees on board with tightened food safety regulations, ensure they’re aware of the looming food-quality changes you’re planning on implementing and the ROI for your brand. This enables them to make budgetary allowance for certain credentials and technology you may require to meet certain standards of food safety.
3. Tell your customers every chance you get
Give consumers a glimpse into your production process by including your quality mission statement on customer-facing materials such as your website, social media pages, profiles on external review sites and menus. “Use stories, images and videos to show your practices in action,” Katy Jones, Chief Marketing Officer at FoodLogiQ explains. “Take customers behind the scenes into internal discussions. Practice is the way you demonstrate your commitment.”
To incorporate quality and safety messaging into customer relations, you need collaboration between your food safety managers and marketing managers.
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.
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