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Researching a Franchise

Understanding the Terms of Agreement

Once you’ve signed a non-disclosure agreement the franchisor should hand over a franchise agreement for you to analyse.

Tracy Lee Nicol

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One thing you absolutely should do before signing a single page is have the franchise agreement reviewed by an attorney specialising in franchising so they can draw your attention to any red flags or clauses requiring negotiation. In the mean-time, here are important points to consider when going through your franchise agreement.

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Issues pertaining to the franchise cost terms

  1. What does the initial franchise fee purchase?
  2. Does it include an ‘opening’ inventory of products and supplies?
  3. What are the payment terms: Amount, time of payment, lump sum or instalment, financing arrangements, etc.?
  4. Does the franchisor offer any financing or help in finding financing?
  5. Are there any deferred balances? If so, who finances and at what interest?
  6. Is any part, or all of the initial fee refundable?
  7. Does the contract clearly distinguish between ‘total cost’ and ‘initial fee’, ‘initial cash required’, or ‘initial costs’, etc?
  8. Are there periodic royalties? If so, how much are they and how are they determined?
  9. How and when are sales and royalties reported, and how are royalties paid?
  10. If royalty payments are in whole or part payment for services by the franchisor, what services will be provided?
  11. Are accounting/book-keeping services included or available?
  12. How are advertising and promotion costs divided?
  13. Is a specified amount of working capital required of the franchisee to cover operating costs until profits can be made?
  14. Must premises be purchased or rented, and are there further conditions on either of these (from franchisor, selected site, etc)?
  15. How and by whom will the building be financed, if purchased?
  16. Does the franchisee have to make a down payment for construction and/or equipment?

Issues pertaining to the franchise location terms

  1. Does the franchise apply to a specific geographical area? If so, are the boundaries clearly defined?
  2. Who has the right to select the site?
  3. Will other franchisees be permitted to compete in the same area, now or later?
  4. Is the territory an exclusive one, and is it permanent or subject to reduction or modification under certain conditions?
  5. Does the franchisee have a first refusal option on any additional franchises in the original territory if it is not exclusive?
  6. Does the franchisee have a contractual right to the franchisor’s latest products or innovations? If so, at what cost?
  7. Will the franchisee have the right to use his own property and/or buildings? If not, will the franchisor sell or lease his property to the franchisee?
  8. Who is responsible for obtaining zoning variances, if required?

We-recommend-tickRecommended: Sizing up Locations

Issues pertaining to the buildings, equipment and supplier terms

  1. Are plans and specifications of the building determined by the franchisor? If so, does this control extend to selection of contractor and supervision of construction?
  2. Are there any restrictions on remodelling or redecorating?
  3. Must equipment or supplies be purchased from the franchisor or approved supplier, or is the franchisee free to make his own purchases?
  4. When the franchisee must buy from the franchisor, are sales considered on consignment? Or will they be financed and, if so, under what terms?
  5. Does the agreement provide for continuing supply and payment of inventory (by whom, under what terms, etc.)?
  6. Does the franchise agreement bind the franchisee to a minimum purchase quota?
  7. What controls are spelled out concerning facility appearance, equipment, fixture and furnishings, and maintenance or replacement of the same? Is there any limitation on expenditures involved in any of these?
  8. Does the franchisor have a group insurance plan? If not, what coverage will be required, at what limits and costs? Does the franchisor require that it be named as an insured party in the franchisee liability coverage?

Issues pertaining to the operating practices terms

  1. Must the franchisee participate personally in conducting the business? If so, to what extent and under what specific conditions?
  2. What degree of control does the franchisor have over franchise operations, particularly in maintaining franchise identity and product quality?
  3. What continuing management aid, training and assistance will be provided by the franchisor, and are these covered by the service or royalty fee?
  4. Will advertising be local or national and what will be the cost-sharing arrangement, if any, in either case?
  5. If local advertising is left to the franchisee, does the franchisor exercise any control over such campaigns or share any costs?
  6. Does the franchisor provide various promotional materials point-of-purchase, mail programmes, etc. and at what cost?
  7. What are book-keeping, accounting and reporting requirements, and who pays for what?
  8. Are sales or service quotas established? If so, what are the penalties for not meeting them?
  9. Are operating hours and days set forth in the franchise contract?
  10. Are there any limits to what is or can be sold?
  11. Does the franchisor arrange for mass purchasing and is it mandatory for the franchisee to be a participant buyer?
  12. Who establishes hiring procedures initially and through the franchise term?

Issues pertaining to termination and renewal terms

  1. Does the franchisor have absolute privilege of terminating the franchise agreement if certain conditions have not been met, either during the term or at the end?
  2. Does the franchise agreement spell out the terms under which the franchisor may repurchase the business?
  3. Does the franchisor have an option or duty to buy any or all of the franchisee’s equipment, furnishings, inventory, or other assets in the event the franchise is terminated for good cause, by either party?
  4. If the preceding situation occurs, how are purchase terms determined?
  5. Is there provision for independent appraisal? Is any weight given to goodwill or franchisee equity in the business?
  6. Does the original agreement include a clause that the repurchase price paid by the franchisor should not exceed the original franchise fee? If so, this eliminates any compensation for goodwill or equity.
  7. Under what conditions (illness, etc.) can the franchisee terminate the franchise? In such cases, do termination obligations differ?
  8. Is the franchisee restricted from engaging in a similar business after termination? If so, for how many years?
  9. If there is a lease, does it coincide with the franchise term?
  10. Does the contract provide sufficient time for amortisation of capital payments?
  11. Has the franchisor, as required, provided for return of trademarks, trade names, and other identification symbols and for the removal of all signs bearing the franchisor’s name and trademarks?

Other points to consider

  1. Can the franchisee sell the franchised business and assign the franchise agreement to the buyer?
  2. Is the franchise assignable to heirs, or may it be sold by the franchisee’s estate on death or disability?
  3. Does the lease permit assignment to any permitted assignee of the franchisee?
  4. How long has the franchisor conducted business in its industry, and how long has it granted franchises?
  5. How many franchises and company-owned outlets are claimed, and can they be verified?
  6. If there is a trade name of a well-known person involved in the franchise, is he active, does he have any financial interest, does he receive compensation for work or solely for use of his name, etc.?
  7. Are all trademarks, trade names, or other marks fully identifiable and distinct, and are they clear of any possible interference or cancellation owing to any pending litigation?
  8. What is the duration of any patent or copyright material to the franchise? If time is limited, does the franchisor intend to renew, and is this spelled out in the franchise agreement?
  9. Has the franchisor provided the franchisee with an offering document package meeting?
  10. Has the franchisor met all law requirements (registration, or bonding requirements, etc.), if applicable?
  11. Are there laws governing franchisor/franchisee relationships, including contract provisions, financing arrangements and terminations? If so, does the contract meet all requirements?
  12. What are you waiting for? It’s time to launch.

Tracy-Lee Nicol is an experienced business writer and magazine editor. She was awarded a Masters degree with distinction from Rhodes university in 2010, and in the time since has honed her business acumen and writing skills profiling some of South Africa's most successful entrepreneurs, CEOs, franchisees and franchisors.Find her on Google+.

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Company Posts

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.

 

ent_mag_6-11-18

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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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