Buy into a franchise

2011-07-16 07:00

Franchising is when a ­successful business clones its business model to give someone else the chance to be successful on the back of the brand or business ­model.

The main reason people opt to buy a franchise rather than start their own business from scratch is the benefit of dealing with a recognised brand.

We have all heard of KFC, which is a global franchise where each store owner owns their own store but is ­provided with marketing and products from the central company.

Other franchises include names such as Barksole Shoe Repairs, Battery ­Centre, BlockBusters Video Stores and Butterfield Bakery. There are ­literally thousands of franchises ­ranging from restaurants to printing businesses to car repair and ­equipment hire.

You can find a franchise that fits your pocket (www.fasa.co.za has a full list of franchise opportunities).

The benefit of a franchise is that the ­franchiser has already done the groundwork. They have created a product or service, have done market research, created marketing material and know what works and what doesn’t. For example, if you buy a ­BlockBusters franchise you would be supplied with the DVDs and ­BlockBusters would manage the distribution rights on your behalf.

Because of their buying power they are probably able to get new DVDs at a greater discount than you can. If you bought a franchise like Computers 4 Kids, they would provide you with the programmes to train children how to use computers and would give you the relevant training as well.

You, however, have to put in the ­capital to buy the goods and fit out the shop.

A good franchiser would offer ­ongoing support because their ­success relies on your success. There is usually an upfront fee to purchase the franchise and then an ongoing fee paid either monthly, quarterly or ­yearly.

This fee is usually based on ­turnover; hence the franchiser wants you to be making money. In some ­cases, you may be required to buy your stock through the franchiser, which creates another form of revenue for the franchiser’s business.

Riaan Fouche, head of franchising at FNB, says there are a lot of legalities surrounding franchising, so be sure to find out what’s involved.

Fouche says that on the plus side, from a business point of view you are taking on a tested business idea so your chance of success is higher than if you’re starting out. You are also more likely to get funding because of the existent success of the brand.

But funding is not guaranteed as the bank will still want you to prove you can manage the business.

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