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
- 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.
+ 27 11 777 2700/2845, email@example.com, www.kreditinform.co.za
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.
- 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
- 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.
“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
Visit www.colcacchio.co.za or call Tarryn Godley on 084 800 7264 and let’s get this adventure going.
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.
- Brand: Puré Frooty
- Established: 2017
- Website: www.purefrooty.co.za
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.
The four values we pride ourselves in are:
- Customer Satisfaction.
Why Consider This Franchising Opportunity
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 / firstname.lastname@example.org
Want to know more about this franchise? Watch the video below for more.
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.
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.
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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