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Researching a Franchise

The Financial Stability of the Franchise

Before you invest, make sure your franchisor is financially stable.





Q: I am thinking about buying a franchise, and there are several franchisors to choose from. How do I tell if a franchisor is financially stable and able to meet its commitments?

A:One of the dangers of investing in a franchise is getting caught up in the hype – the sizzle of the opportunity. You simply need to step back and spend the time looking to see if there is any steak. There are probably no more important questions to ask than whether a franchisor has the financial ability and a track record of meeting its commitment to its franchisees.

Understand the franchise sales process. Great franchise salespeople can make you feel like there is an urgency to buy. The best of breed can make you feel reluctant to ask the hard and important questions – even while they are creating the illusion of pressuring you to do just that. The process calls for you to provide reams of information on yourself but doesn’t always get your questions answered in depth. Sometimes you find that the person working with you doesn’t even work for the franchisor you are interested in. They’re brokers, and the amount you have to spend, the speed at which you are willing to spend it and the size of the commission they get from the franchisor are more important than how good that investment is for you.

Finding out about a franchisor’s financial capabilities is not a complicated process, but it often requires some investigation outside of the disclosure documents they provide you. Begin by requesting and examining their financial statements. Franchisors should provide you with their audited financial statements for the past three years or for a shorter period if the company has not been in business that long. Find out:

  • Does the franchisor have a history of profitable operations?
  • Does its balance sheet reflect a company that has
    financial stability?
  • Is it sufficient that they are making money? It’s certainly a good sign, but that’s not enough. Many franchisors do not disclose the sources of their income, and, depending
    on how long they have been in business and the size of their franchise system, the answer to that question can be critical.

When franchise systems are new, they often rely to a great extent on the initial franchise fees they collect from franchisees. That’s understandable, because the system is growing, and there are not a lot of franchisees yet open. But as the franchise system matures, more and more of its daily operating income needs to come from more sustainable sources – the continuing royalties paid by its franchisees. No matter how profitable a franchisor is, if it is relying on initial fees to support the system – and franchise sales slow or stop – the franchise system is going to be in jeopardy, and that will impact franchisees.

While some franchisors may provide a detailed breakdown of revenue, others that do not may provide you with a supplemental disclosure of this information if you ask. Sometimes if the information is not broken down in the income statement, it may be contained in notes to the financial statements. Often, though, you will have to estimate initial fee revenue based on clues in the disclosure document that may simply be multiplying the initial franchise fee times the number of new franchises in the system. Remember, that is not an exact science because area fees, deferrals, etc, will impact your calculation. However, by making your analysis over a few years, you will begin to get an understanding of where the system is deriving its income and how much of that income is coming from continuing sources. Your accountant and attorney will be able to help you pull the clues out of the documents.

It is exciting to be part of a growing system. The brand recognition is improved, buying power increases, and it just seems that customers have an easier time finding you. But growth can be a double-edged sword if the franchisor is placing too much of its resources into growing internationally or if domestic growth is not in areas that benefit you. If resources are placed into growing the system and little is left over for research and development, system improvements, headquarters and field support, you are going to have problems since system growth won’t provide you with much, if any, benefit.

Look at the literature for the industry the franchisor is in. If the company is public, look at its annual reports. And don’t forget the folks who are already in the trenches – the existing franchisees. They are the most knowledgeable people, as they experience the franchisor on a day-to-day basis.

It’s your responsibility to do your homework on any investment opportunity. The great thing about franchising is that much of the information is readily available and can be easily verified.

Conduct a Credit Health Check Before You Invest

Before you sign on the dotted line, make sure the business or franchise you want to buy has a clean record.

So you’ve done the homework and you’re ready to buy a franchise or invest in a business opportunity. You’ve researched the credibility, performance and management of the company. You’ve sussed out the competition. You know all the costs and obligations on both sides. But have you checked the credit of the seller? Rob Campbell, sales and marketing director at KreditInform, explains why a credit report is a no-brainer when it comes to making the decision to invest in a business.

Why is it advisable to obtain a credit check before investing?

A business credit report provides a snapshot of everything you need to know about the credit status of the business. This includes adverse information about the company such as reputational damage arising from late payments. It’s advisable to have this information at hand before you make any decisions, as a poor credit record may mean that you will not easily find suppliers for the business.

Do you have to get permission before requesting a credit report?

Permission from the business owners is required to investigate a business with a turnover of less than R1 million. All other companies are governed by the National Credit Act and consent is not required.

What types of reports are available?

A variety of reports are available, from detailed analyses to basic information.

  • The Platinum Report provides intensive investigation into areas of concern and includes financial information, payment analyses, and other valuable information about the company.
  • The Gold Report is the most detailed of KreditInform’s telephonically researched reports. It includes a detailed assessment of the company’s potential risk.

The Silver Report offers all the standard areas of credit reporting including payment trends that have been monitored over a protracted period.

  • The KreditInformation Sharing System reflects the overdue percentage over a 12-month period and provides a total outstanding and total overdue amount, spread over a number of suppliers. It tracks a debtor’s payment performance and reflects any cyclical trends in payment. 
  •  An Enquiry Analysis reflects the number and timing of enquiries about the subject, indicating how credit active a company is.

KreditInform’s Assessment provides a professional view of a debtor for a particular amount over a specified term.

What information is of most use to prospective investors?

Payment behaviour is the most important aspect. You need to know how the business conducts itself, and how long it takes to make payments.

How long does it take to obtain a report?

Online reports are available immediately. Where more thorough research is required, a report takes between 24 hours and five days to generate.


Costs range from R150 for a basic report, depending on volumes purchased, to R7 000 for an in-depth analysis.


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Company Posts

Don’t Tread On Toes – Why Investing In A HIQ Franchise Will Offer You More Opportunities

Are you looking at investing in a tyre replacement and service industry? Look no further than the Hi-Q franchise.






Vital Stats

Established in 1999, Hi-Q is a successful and diverse multi-product, multi-brand leader in the tyre replacement and service industry with a network of over 130 franchisees nationwide.

With the support of international tyre giant Goodyear, Hi-Q has established a solid reputation of ‘the one you can trust’, and the Hi-Q approach and philosophy is embedded in this.  We have the trust of our customers, our network and our suppliers – that’s why you can trust us to take you and your business to the next level.

When you’re working with people’s safety, trust forms the most significant part of the equation

Hi-Q introduced the original and innovative TyreSurance initiative – the only aftermarket tyre damage guarantee product that backs the consumer no matter the brand of tyre. Each Hi-Q Franchise offers a broad range of brands within the different product and service categories that customers know they can trust, and at prices they can afford. Product and services include tyres, exhausts, shocks, batteries or brakes, wheel alignment or balancing, and a 10-point safety check.

We have identified areas of opportunity to extend our Franchise footprint growth. If you are looking to join a new franchise and you share in our values and vision, we would like to hear from you.

For further information on how to become a franchisee, call us on +27 11 394 3150.


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

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Researching a Franchise

Be In The Property Business For Yourself, Not By Yourself

Why property franchising makes good business sense in today’s market.

Keith Broadfoote-Brown




Opening a real estate franchise has been a thriving and successful business model in South Africa for decades. Despite the challenges currently facing the South African economy, property will continue to prosper and provide entrepreneurs with an opportunity to own their own successful businesses and become leading members of their local business communities.

“The residential property market is a dynamic, thriving industry offering substantial career opportunities.

Joining a property franchise business gives entrepreneurs the opportunity to align themselves with reputable, established businesses with a national footprint who have invested in their brands and have access to international networks,” says Russell Berkman, Franchise Director at Jawitz Properties.

While the property industry is competitive there is still great potential for growth. Worldwide, franchising has proven to be one of the most successful business models with failure rates well below those of starting a business from scratch.

Related: How to Become a Property Franchisee

For the franchisee, it is one of the most intelligent ways of starting and growing a business and by combining the proven business formula of the franchisor with the entrepreneurial drive of the owner-franchisee, the likelihood of a successful business venture for both parties is increased significantly.

According to Keith Broadfoote-Brown, the owner and Principal of the Jawitz Properties Ballito franchise in KwaZulu-Natal, property franchise still makes good business sense in today’s market.

The benefits of being a property franchise owner

Becoming a property franchisee gives a businessperson unlimited potential to succeed in the property industry as the success achieved is a direct result of the effort, commitment and drive put in. It means being self-employed within an organisational structure and offers the same structure and benefits to sales and rental consultants.

“It gives you the opportunity to leverage your business’ success off the intellectual capital, brand, expertise and know-how of an established business that has a proven business model, IT platforms, marketing expertise, training and self-development programmes as well as having access to years of experience in these fields.  My mantra is ‘be in business for yourself, not by yourself’,” says Brown.

Skills needed to succeed as a property franchisee

The most important competencies would be to have an entrepreneurial character and business skills such as financial literacy, HR/people skills and marketing acumen; a people’s person with a resilient and driven personality. Experience in real estate is always beneficial but not required as it is all about using business skills, marketing acumen and entrepreneurial tenacity to make your mark.

Related: How Brigid Prinsloo Made (A Lot Of) Money On Airbnb

Brown explains, “Absolute professionalism and integrity and a fierce determination to exceed your client’s service expectations are essential. And you must be able to develop a highly competent sales team, explore new opportunities for your business and operate as a team player within a franchise structure”.

Current state of the property market

The property market in SA currently reflects the economy and is weighted in favour of buyers, so sellers need to be very realistic with their price expectations. Buyers are buying where they perceive good value and value is indeed the key driver in the market today.

The opportunities are strong for buyers to invest in this ‘down’ market and conditions are also ideal to upgrade one’s home. In every region and in every suburb there are homes offering good value and these are selling well, despite the tougher trading conditions.

Opportunities outweigh the challenges

“The opportunity for real estate professionals is to find and secure the well-priced, good value, properties as they are selling!

It is also an opportune time to enter the market as a franchisee or new agent/intern as I am firmly of the view that great estate agents learn their profession well in a tough market and when the market improves, as it surely will, these sales professionals will have a solid grounding and strong foundation on which to build their real estate careers.

Challenges are to manage costs in these tough trading conditions. To keep motivated and continue to consistently drive the very basic activities needed to succeed in real estate,” says Brown.

Top 3 things to consider before entering the industry

According to Brown, his top 3 considerations are as follows:   

  1. You need sufficient start-up capital as the initial investment in starting the business and the monthly expenses to run the business can be substantial. The income from sales and rentals may be slow in the early years, hence the need for good planning and sufficient start-up funds.
  2. Owning one’s own business means the buck stops with you! A well thought out and well implemented business plan is key. The first 2-3 years consist of long hours and could potentially be financially strained, as in any start-up business, but the rewards of owning your franchise and being ‘master of your own destiny’ are worth it!
  3. This is a tough business for tough-minded people. Having an initial mindset of ‘it is harder than I think’ rather than ‘it will be smooth sailing’ is a better approach and will prepare the franchisee for the hiccups that will surely come along.

Property franchising makes good business sense

The end result of being a successful property franchisee is financial security. Owning a brand office assures the owner of having an asset and the credibility, back-up and brand promise assures clients they are in safe and professional hands.

“I would definitely recommend being part of a major brand rather than a being a small real estate entity, especially in this competitive industry. Property is a challenging industry that, like everything else, goes through cycles, influenced by factors like inflation and interest rates, among others.

Drive, initiative and resilience are therefore essential qualities for a successful property franchisee. Absolute professionalism and integrity and a fierce determination to exceed your client’s service expectations are essential,” Brown concludes.

Related: Want To Start A Property Business That Buys Property And Rents It Out?

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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




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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