Connect with us

Researching a Franchise

Research Your Investment

Want to know how much money it’ll take to buy a franchise, where to get the funds and how long it’ll take to make a profit? Here are your questions answered.

Jeff Elgin

Published

on

OldMutualAdvice

There are many reasons people decide they want to acquire their own franchise business – and each of these reasons involves a variety of considerations. In the mind of most people contemplating such a decision, however, there is one overriding factor: money. If you’re considering buying a franchise, you should be asking yourself a number of significant money-related questions. Here’s what we consider to be the ‘Top 10’.

1. How much total investment will this franchise require?

This is a key question, since the franchise agreement normally expresses this information in terms of a very large range of possible answers. In your calls to existing franchisees, and your research concerning your local market, narrow down these answers to provide as accurate an answer as possible. If you aren’t completely sure, err on the high side.

2. How much will I need in operating capital reserves to cover losses after opening the franchise until it reaches the break-even point in terms of cash flow?

You’re not going to have any customers or revenue on the morning of your first day in your new business, but you will have expenses. Until your revenue grows enough to cover these expenses, you’re going to have to feed additional cash into the business to pay the bills. Make sufficient allowance for this factor in your plans and, when in doubt, guess high. No one has ever gotten into trouble on a new business start-up because he or she had put too much in financial reserves.

3. How much extra cash do I need to cover living expenses while I’m starting my franchise?

This is one of the critical areas many new franchisees fail to consider. After becoming a franchisee, there’s a gap in time before your new business begins operation and typically another gap before it starts making enough profit to cover your living expenses. You need to carefully budget your living expenses to understand how much you’ll need on a monthly basis and then make sure you’ve got sufficient cash – in addition to your business investment – to cover your expenses during this period. Then add a significant reserve on top of this amount – it’ll help you sleep better at night.

4. How long will it take my new franchise to reach break-even?

This is one of the most important money-related questions you’ll need to answer. It’s no fun to feed extra money into a business to cover operating losses, but that’s the reality in most start-ups. You’ll normally find the answer to this question is a potential range of time for the franchise you’re considering. Always plan that it’ll take the longest time within this range to reach break-even, so you’re as safe as possible.

5. How much of my total investment (including capital reserves) do I need to have in cash?

This answer can range from 0 to 100%, depending on the franchise business being contemplated. There’s no right or wrong answer – just make sure you know what applies to you and that you easily have that amount of cash on hand.

6. What standard financing options exist for me?

The most common forms of standard financing are bank loans and/or commercial leases. Any bank loan to start a new business will probably have to be secured by your personal collateral (such as the equity in your home). Most new franchisees find that securing an open line of credit against their home equity is the easiest and least expensive form of bank financing available to them. Leases can also be a favourable option, since they are typically fast to procure and secured by the assets that are being leased (though they sometimes require a personal guarantee as well).

7. What alternative financing options exist for me?

In addition to standard sources, there’s always the standby financing source: family and friends. There are also a number of companies that assist people in accessing retirement money, without early withdrawal penalties, to use as a funding source for a franchise business.

8. How much money can I make in this franchise?

You will normally find the answer is related to the amount of time the business has been open. The first year will probably be a loss, but by the third year the business should be making good money. Ask a lot of existing franchisees about their experience at these levels, and make sure you know what your probable income will be by the time you complete that critical third year.

9. What are the ranges in financial performance of the existing franchisees?

Don’t stop your research until you are completely confident you know both the high and low end of the range. Two answers are not sufficient to establish a range you can have confidence in – 10 or even more would be much better.

10. How financially strong is the franchise company?

The franchise company is required to provide you with a copy of their audited financial statements in the disclosure document. You obviously want to work with a franchise company that is strong enough to survive, but also has the resources to reinvest in training and support of the franchisees. Review their financials and ask for help from a competent advisor if you’re not comfortable doing this yourself.

You should know the answer to each of these questions before you decide to invest in any franchise opportunity. If you do, you can minimise some of your concerns about money as you build your new business.

Jeff Elgin has developed a consulting system that matches pre-screened, high-quality prospective franchisees with the franchise opportunities that best fit their personal profile.

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

Published

on

benefits-of-the-franchise-model

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.

Continue Reading

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

Published

on

By

entreprenerur-franchise-digi-ad-header

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

Continue Reading

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

Published

on

pure-frooty-south-africa

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.

Continue Reading
Advertisement

SPOTLIGHT

Advertisement

Recent Posts

Follow Us

Entrepreneur-Newsletters
*
We respect your privacy. 
* indicates required.
Advertisement

Trending