The fine art of franchising

2014-12-07 15:00

You’ve decided to take the plunge and become your own boss by buying a franchise. But before you go racing off to make your fortune, there are a few things you need to bear in mind. Neesa Moodley reports

Zanele Mvelase was on the executive fast track in the financial services sector, but after 13 years, she realised that while she was building a career, her children were growing up without a mum.

“I wanted an alternative career path where I could be my own boss and have the financial flexibility to plan family time,” she says.

She chose to become a McDonald’s franchisee and completed the nine-month McDonald’s training process, during which time she was responsible for her own finances.

In July 2012, she concluded the purchase of the McDonald’s restaurant in Hartebeespoort and within months she was offered the opportunity to own a second McDonald’s restaurant in Brits, which she opened to the public in July 2013.

Zanele’s success story is one of many in the franchising industry. Simone Cooper, the head of franchising and enterprise development at Standard Bank, says more women in South Africa are following the lead of their counterparts abroad by taking on the challenges and opportunities offered by franchises.

“Internationally, women play a major role in franchising, with estimates indicating two women enter the industry for every man setting up shop.

“In South Africa, the most popular franchising operations are fast food chains, although women can also be found managing enterprises that range from real estate franchises, retail and service outlets.

“The fact that women tend to be detail oriented, work well in teams and have proven to be adept at managing multiple outlets simultaneously, has seen major franchise operations, such as McDonald’s, extending opportunities to women,” she says.

Cooper points out that your chances of failure are reduced with a franchise compared with an independent start-up because a professional team is at hand to assist you with business site selection, marketing, product lines, and staff selection and training.

Buying a franchise is a major business decision and often franchisees end up using their life savings to kick-start their investment because they are so certain it is a “sure thing”.

Jeremy Lang, the regional general manager at Business Partners, offers the following tips if you are looking to buy a franchise:

Know the industry

Choose a franchise in an industry that you know. Your industry knowledge is an important tool for judging the value of the business opportunity, to know if the business suits your personality, and to help you succeed. The ideal scenario is to have worked in an outlet of a franchise that you intend to buy. Failing which, work experience in a similar business is invaluable.

Where even that is lacking, choose a franchise with a thorough franchisee training course, which should be the bare minimum for any franchisee.

Choose within your budget

Work out what price range you can afford. When you do this, take into account your savings, together with finance that you would realistically be able to raise.

There are a number of things to keep in mind here. First, too much finance can ruin your venture.

Even if you can get it, be wary of overburdening your business with too big a loan. Second, calculate the entire investment required, including set-up costs and working capital. Do not limit your funding to just the franchise fee.

Check out the franchisor

The first two steps should dramatically narrow down your search and allow you to focus on a particular type of franchise. At this point, you have to investigate the franchisor. Start by having a look at the documentation the group provides, but go beyond that.

Find out as much as you can about the reputation and financial help of the franchise. Simple internet searches can reveal a lot about a company’s reputation.

Membership of the Franchise Association of SA counts in favour of a franchise, but it does not mean you are guaranteed success.

Speak to others

This is one of the most important steps in the process. A franchisor should be able to give you a fully updated list of franchisees and ex-franchisees, as well as their contact details. You can test all the assertions of the franchise group with the franchisees – their levels of support, the quality of their training, the profitability of the business and the integrity of the franchisor’s business dealings.

Get the value calculation right

It is important to make sure you are not overpaying for the franchise outlet that you have in mind, whether it is a new or existing one. Once you have done your due diligence and market research, sit down with an accountant to check your financial projections and value calculations. Industry specialists are helpful if you can afford them.

Get legal advice

The franchisor will give you a franchise agreement to sign. This is a crucial document detailing the rights and obligations of you and the franchisor.

Get a lawyer, preferably one with knowledge about the franchising sector, to go through the document with you, not only to make sure that it is fair to you, but to explain any clause you do not understand.

While you are in a legal frame of mind, get to know your rights as a franchisee, as per the Consumer Protection Act.

Lease considerations

Don’t neglect to get legal and strategic advice on the lease you will sign with the landlord. Some franchisors might recommend they hold the lease, which can help you if they use their clout to negotiate a good rental.

But the disadvantage is you lose some control over your business if the group ever decides to disband as a franchise.

Financing a franchise

Most franchisees require bank finance to fund their dreams. You need the following:

.?The franchisor – for example, the McDonald’s group – must first approve your application to be a franchisee before the bank will consider your finance application.

.?You will need a copy of your identity document and confirmation of your marital status.

.?You have to provide the bank with a personal balance sheet reflecting your assets and liabilities.

.?You need the registration documents of the company.

.?The bank will ask for a background history, similar to a CV.

.?You must provide proof of the origin of your deposit.

If you expect the bank to provide you with a credit facility for your franchise business, you will need:

.?A comprehensive business plan and a copy of the franchise agreement of sale.

.?A copy of the lease agreement.

.?Signed financial statements and a 12-month cash flow projection. If the financial statements are older than six months, up-to-date management accounts will be required.

.?Six months’ bank statements of business trading account.

Location, location, location

A big part of a successful franchise business is about the business being in the right geographic position. Morne Cronje, the head of franchising at First National Bank, shared the following tips:

Understand your business

There are many different types of franchises, so when it comes to location, consider what type of business you have and what would drive customers there. If you have a restaurant, you want to be situated in a place with a lot of foot traffic and easy access for people travelling in cars as well as people using public transport.

Do your homework

Each franchise and business has its own set of requirements and regulations that govern what type of space you will need for your franchise. A restaurant would need a different type of space compared with a photocopy shop. It’s best to sit down with the franchisor to understand what type of space you need.

Speak to fellow franchisees

It’s a good idea to talk to other franchisees to find out how they went about finding a space for their business. An even better idea would be to speak to franchisees who have made their business a success. Extract as much information from them as possible so that your business can be a success.

Important factors

Factors to consider when choosing your location include studying traffic patterns. You could be on the right street, but are you on the right side of the street? Is there enough parking available? Who are your neighbours? Are they the kinds of stores that your customers will visit? If so, then you have a winner.

Seal the deal

When it comes to negotiating space and rent, have a reputable real estate agent or franchisor representative in your corner so you can negotiate the best deal possible.

You’ve spent most of your time focusing on selecting a site, but a professional will carefully examine details that you might easily overlook.


Where to find more info

There are several organisations and websites you can go to for more information:





.? – click on “finance” then click on “brands and franchise fund”.



.? – click on “small business” then click on “funding” and then “franchising”.


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