Establishing a business requires the investment of a great amount of time, effort and money. Most potential franchise owners do not have the capital needed to launch and run an enterprise effectively, and therefore rely on borrowing.
“For many, the opportunity to launch a business is created by a pension or provident fund payment or, very commonly, from retrenchment cheques when leaving the corporate world,” says Ethel Nyembe, Head of Small Enterprises at Standard Bank. “There are, however, other, more conventional ways of finding finance.”
Below, Nyembe suggests and explains the more established methods of funding a commercial enterprise, and which approaches to avoid.
1. Friends and family
“Many potential franchise owners turn to family and friends for finance,” says Nyembe. “This is one of the most common forms of financing a business, but should be undertaken with caution. Family relationships can be tested and even destroyed if the undertaking does not thrive as planned. Even though franchises have a much higher success rate than start-up SMEs, there is no guarantee that they will prosper.”
Two factors should be considered when approaching family or friends for loans:
- The unstructured nature of family loans can cause future problems. Often, money is lent on the understanding that it will be repaid – with or without interest – but no repayment date is set. This can lead to resentment on the part of the lender and disputes.
- If loans are accepted from a number of family members, keeping track of the repayment terms for each could be challenging. It is therefore important that all agreements are put in writing.
2. A business partner
Finding a business partner to invest in the franchise and take a stake in its future is a viable financing alternative.
“A partner should share your values, passion and determination to make the franchise succeed,” says Nyembe. “All aspects of the partnership agreement, share allocation and profit sharing should be placed in contractual form, so that future misunderstandings do not occur.”
Financing a franchise through debt equity (a business loan) is often the best option, as there are a few valuable advantages:
- The banker will probably know the franchisor, the brand and the history of the organisation.
- The bank may already have an association with the franchisor and understand the fee structure required.
- The advice you receive will ensure that there are no ‘unpleasant surprises’ waiting, regardless of whether the franchise is an established outlet or a proposed new outlet.
Although banks are in the business of lending money, the potential franchisee must understand that they are also concerned with minimising risk. When approaching a bank for funding, Nyembe says you must realise:
- It is unlikely that any bank will agree to supply 100% of the funding required.
- The more money you have committed to your venture, the more likely it is that you will get a loan. Banks are more comfortable to grant loans to people who are committed to their businesses.
- Security is important. Providing a bank with security for the loan in the form of assets or sureties (people who agree to pay debt on your behalf) increases the likelihood that loans will be extended.
Says Nyembe, “The advantage of bank loans is that repayment terms and interest rates are agreed upon up front. This helps to regulate cash flow, as the repayments will be calculated on a monthly basis for the period of the loan.”
There are also several methods of financing that should be avoided when seeking funding, cautions Nyembe. These include:
1. Excessive borrowing
One of the most common mistakes made by franchisees is to borrow the funds to make up the unencumbered deposit required by franchisors. Franchisees should remember that their business is not going to be profitable immediately.
They are bound to experience slow months especially at the beginning of their business venture. In this instance, the higher their loaned percentage of capital, the more pressure there is on the business to repay the loan instead of being able to redirect any profits back into the business to build equity.
2. Double indebtedness
Although there are many forms of loans that the franchisee can have access to, they do come with their fair share of pitfalls.
Double indebtedness is the result of a franchisee using a loan to fund the unencumbered portion of their contribution as well as taking out a loan to finance the remaining portion of the capital needed to start the business.
Utilising a personal credit card can prove to cause more harm than good as this will create a secondary, more costly debt for the franchisee. Servicing two loans at the initiation of the business can place the business and the franchisee under undue strain.
3. Raiding your home loan
Servicing the unencumbered portion with one’s home loan is risky as one could lose the equity in the house, extend the repayment term, and have to pay a higher amount on the mortgage.
This will result in a high personal debt as well as a high business debt if a business loan is utilised by the franchisee. With the rise of interest rates, a franchisee’s house and business could be at stake.
“Starting a franchise operation with massive debt hanging over you is not advisable,” says Nyembe. “If the franchise outlet is new, it could take several months before the business is established and the turnover is able to finance operations and costs. It is during this period that you and your business will be most vulnerable to financial failure.
“Avoiding this means doing your homework, knowing exactly how much money you will need and then financing it in a responsible manner.”
Call For Applications: Young Entrepreneurs Global Exposure Trips
Closing Date: 30 November 2018
Investec CSI’s Young Entrepreneurs Programme provides South African entrepreneurs from various sectors with global exposure.
Every year Investec, in partnership with En-novate, sends a group of young entrepreneurs from various sectors to specifically selected countries in order to gain global exposure. Each itinerary provides them with opportunities to network and engage with venture capitalists, funders and captains of their specific industry. The aim is for them to gain learning and exposure to innovation, technology and process advancements. The programme also offers networking with subject and sector experts.
Applications for the Global Exposure trips are now open to ALL entrepreneurs – regardless of sector – who meet the criteria. Closing date is Friday 30 November 2018.
The programme itinerary and each trip is customised according to the profiles of the candidates, stage of business and specific sector.
By way of example, Investec recently sent 14 entrepreneurs from South Africa to Berlin to meet people doing Out of the Ordinary things in textiles: https://www.investec.com/en_za/focus/young-entrepreneurs/sa-entrepreneurs-return-inspired.html
Buy Or Invest In The Next Futuredev Properties Sandton Development
Looking to buy or invest in the next up and coming Sandton residential development? Futerdev Properties are currently developing Full-Title Free standing units, perfectly located just a few km’s away from the hustle and bustle of Sandton’s Central Business District.
Nearly half of all the office development taking place in South Africa right now is happening in Sandton. Sandton Central is the epicentre of this development, which includes many of the most cutting-edge, exciting and innovative new buildings on the continent.
Sandton Central is well established as Africa’s financial and business capital and continues to grow with developments that embody its vibrant, high-energy ‘live, work, play’ environment. It also currently holds the title of Africa’s Riches Square Mile.
With more people looking to be part of this live, work, play environment and the number of foreigners travelling to Johannesburg for business and work, the demand for residential property around Sandton Central has grown exponentially.
Live, Work And Play: Your Home Away From Home
Futuredev Properties specialises in developing Full-Title Residential Homes in the Sandton Area – Morningside and Bryanston to be specific. The most recent surveys have listed Bryanston as one of the better performing suburbs in terms of Capital Growth.
Our properties offer family living and a home-away-from-home feeling for those working in and around Sandton on longer or shorter assignments.
FutureDev Properties was founded by Akbar Hassim. “We have established ourselves not only as an independent, but also a Turnkey Developer – being able to buy Land, Finance the Real Estate Deals, Create, Control and Orchestrate the process of the Development from beginning to end.+
“Our approach to Property Development and Investment therein involves thorough financial and delivery risk analysis, thereafter followed by focused and efficient delivery.”
This approach is underpinned by many years of experience, and an impeccable entrepreneurial spirit.
Buy And Invest In The Latest Residential Developments
We have a number of Residential Developments currently underway, each at various stages. These Full-Title Free standing units, afford residents space and comfort within the security of cluster/ estate living. Perfectly located just a few km’s away from the hustle and bustle of Sandton’s Central Business District, and within close proximity to all major Malls & Shopping Centres, Schools, Hospitals, Gyms and places of worship.
We afford buyers and investors an opportunity to buy or invest in Prim Residential Real Estate, that provide the perfect balance of Excellent Capital Growth and Steady Income Yields.
Our Offering For Investors & Buyers
- Full-Title Free-Hold Residential Cluster Developments
- Prime locations, close to all essential amenities
- Perfect balance of high Capital Appreciation and Steady Income Yields
- Investor buyers can purchase with Rental Guarantees
*Limited number of investor units available
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.
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