Curves Fitness Centers were launched by a 20 year old entrepreneur and today there are over 9000 of them. KFC started as a failed store owned by Harland Sanders (or as we know him, The Colonel) and now has a franchise in about every country on the planet.
Every successful franchise has a different path to success, and it all begins with knowing how to choose and run one.
Buying a franchise is in no way the same as starting a company. In some ways, it is far simpler to get off the ground, because so much of the groundwork has already been done, while in other ways there are still the risks and the challenges which affect all companies regardless of their origins. In this guide, we will explore all the franchise opportunities on sale now.
There are many reasons why a person will be attracted to investing in a franchise; but what anyone new to this sort of venture needs to know, is how to get started.
What is a franchise and how does it differ from starting a company?
A franchise is the authorisation from a company (franchisor) to allow an individual or a group (franchisee) to carry out commercial activities using the company’s name and marketing materials, among other things.
Those who buy or invest in a franchise will also have access to the franchisor’s knowledge, their various business processes, and their trademarks, all of which will allow the franchisee to successfully sell the business’ products and/or services.
The authorisation is given in the form of a license. Those who want to own the franchise will need to pay a specified fee and will then be given what they need to develop their franchise. Under these types of agreements, the franchise owner will generally also be given some assistance to ensure their success.
The franchise owner will have a few options as to how they’d like to own and run their new franchise. Some people like to co-own their franchise as a way to share the initial capital and stress, while others like to go it alone and create something that, although not the only company of its kind, is still 100% unique to them.
The difference between a franchise and say, a corporation, is that a franchise is 3rd party owned while the corporation has stockholders. And the difference between a franchise and your average business is that your everyday business is born from an idea and generally owned and run by an entrepreneur or small business owner.
One interesting thing to take into consideration when weighing up the options of buying a franchise vs. starting a company is that franchises are generally more successful than start-ups. This, as you can imagine, has to do with the fact that the franchise is a part of an already successfully established company that has a history of financial success.
The advantages of being a franchise owner
The single greatest advantage of becoming a franchise owner is that all of the franchises are going to fit neatly under the franchise umbrella. This means everyone has the same trademark and the same concept. In some cases, they might even share the same business plan.
The advantage of this is that there is a distinct power and influence of brand awareness, the approach to client expectations, purchasing power and advertising. In essence, the business never has to work on its own when it comes to the marketing, product sourcing, and in some cases even the administration.
There are also other fantastic advantages for the owner.
To start with, the risk of failure is much reduced as the franchise owner has been given a fully functional, successful business plan. With a bought and paid for, not to mention already known, trademark in place, franchise owners won’t have to worry about paying out to register a trademark.
Those who become franchisees will often receive regular training. This allows those who are running a business for the first time to do so with more than just a little operational knowledge which will ensure that the new owner can run the business to great success.
Other benefits are going to include:
- Continuous research and development
- Supervision and assistance
- Financial assistance
- Advertising
- Standardisation
The disadvantages of buying a franchise
With the positives sadly there are always going to be a few negatives to be navigated.
Much like becoming a small business owner is not for everyone, neither is buying a franchise.
Owning a franchise can feel quite constraining for those who are used to and enjoy their independence when it comes to running their business. Franchises might be owned by the franchisee but they come with certain rules since those who buy a franchise are going to be using reputable trademarks and selling recognisable products and services.
And then there is the very real reality that not all franchises are made the same. Some are incredibly supportive while others are hardly going to provide the knowledge and encouragement needed to turn the investment into a thriving success.
This is why it is so very important for those looking to buy a franchise to make sure that they know what it is that they are getting.
In summary, disadvantages include:
- A lack of control
- Problems of the franchisor become the problems of the franchisee
- A contract is binding
Selecting a franchise requires a level head. It is so easy to be led astray by thoughts of great financial success and the excitement that accompanies working for yourself. The reality is that even though owning a franchise is exciting, it still requires a lot of thought, planning and dedication.
Considering Costs
There is a lot more to payout than just the initial franchise license payment. Once the franchise is bought, the hard work begins and that work requires a stream of capital.
Generally, capital investment for the actual payment of the franchise license will be determined by how profitable the company is. This is why franchise fees will differ.
Other factors that are going to determine the franchise price is whatever else the franchisor is going to throw into the deal, like training. These costs should also be considered.
- Premises
There certain instances where the franchisee will be responsible for buying either the land or the building from which they will run their franchise. In other cases, renting might be the only option. Make sure you ask the franchisor about the facility or the location from which the new franchise will be run.
- Inventory
Opening inventory is an absolute necessity as naturally no business can be done without it. If the franchise involves the selling of products, some franchisors will provide at least two weeks of stock to get the new franchise up and running. If not, provisions must be made.
- Every day capital
No business can run on nothing. Rent, internet and telephone payments, topping up on stock when it starts running low, paying salaries, paying for unexpected issues when they arise, and just having your general every day cash for the basics, is a serious monthly consideration.
And you are also going to want to make sure that you can pull a monthly profit.
- Advertising
Most franchises as you already know are going to include some advertising. What they don’t tell you is that this advertising is not free. Every franchise owner is going to have to contribute an amount to the regional or national advertising. Keep in mind that even though you are paying in, you will still be reaping magnificent benefits when it comes to the advertising.
And if you wish to do more local advertising you are going to have to pay for it yourself.
How to pick the right franchise?
There is much to consider when you decide to go down this exciting business avenue. To make the most out of this experience, you need to ensure that you have all of the knowledge to make the best possible decision.
If you have got this far in the guide, you have an understanding of the pros and cons of owning a franchise as well as the potential costs involved. Now you need information about how you will choose your franchise.
Much like a good relationship, choosing the right partner, i.e. franchise, is what will be the difference between the franchise being a financial success or a complete failure.
To find the right franchise, these are some questions to ask.
- Are the initial costs reasonable and can you cover them?
- Is there a local market for this franchise?
- Are the trademarks correctly registered?
- Has the franchise suffered from any legal or financial issues in the past?
- How long is it going to take for a profit to become a reality?
- Is there going to be extra training and is it going to be free or cost money?
- Do you have a passion for the industry or for what it is that you will be selling or the service you are providing?
- Will you have access to other finance options?
- How much support are they willing to offer you?
- How long will it take for the franchise to be set up?
- What to do before you put money down on a franchise?
After considering all of the practical things that you need to know about buying or owning a franchise, it can help to look a little deeper into yourself and determine whether or not you are suited to becoming a franchise owner.
It helps to study your strengths and perhaps even take it a step further by doing or going for a personality test. This is because it takes a certain type of person to turn a franchise into a thriving success.
You should also take the time to carefully study the field you are about to enter. As much as making money might be a motivating factor, to begin with, when real life takes hold, you have to remember that it is important to love what you do or to at the very least have an interest in it. So before you launch your new career, make sure that you know what you are getting yourself into.
Don’t fall into the same traps that franchisors before you have become victims of. There is no guarantee that the franchise will be a success. Sometimes businesses fail for all sorts of reasons and franchises can so easily suffer a similar fate. Don’t believe the lies that having a franchise is a guaranteed success.
How to finance your franchise in South Africa?
Funding a franchise is far easier than finding funding for a start-up. Many banks and other financial institutions are quite happy to fund a franchise, mostly because the business model is good and has already been proven to work quite successfully.
One thing that you can look for, when you are in search of funding for your franchise, is those banks which have a dedicated funding department. These types of institutions have teams who know exactly how to assist you in such a way that your funding will perfectly suit your requirements.
And it is not only funding that they can help you with. These teams are specialised and as such, they have years of exceptional knowledge that can be used to give you valuable advice as to how you can make a success of your franchise venture.
Many banks are not going to fully fund your venture, and this is certainly something you need to keep in mind when approaching a bank. In some cases, you might have to pay between 40% or 50% yourself, with the banks then matching the balance.
ABSA and FNB are two prominent South African banks who offer financing for franchises
Frequently Asked Questions
Is buying a franchise a good idea?
Absolutely, if you fit the criteria of a franchise business owner and you have successfully weighed up the pros and the cons and decided that this is the route for you.
Do franchise owners make money?
There are not all that many franchise owners who are filthy rich but they are in a position to make a very comfortable monthly income that will keep them sustained for as long as the franchise remains a functional success.
How do you go about investing in a franchise?
Everything you need to know about investing, advantages, disadvantages, costs, financing, how to pick the right franchise and more can be be found here
Franchises for sale South Africa – An opportunity guide
Do banks finance franchises?
Yes, there are quite a few South African banks who finance franchises.
Can owning a franchise make you rich?
Yes, but keep in mind that it is not the franchise model alone that is going to make a franchise owner rich.
Read more about how to buy a business.
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