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Starting your own business as part of a franchise
Buying into a franchise brings some advantages you won’t have if you go it alone.
Wanting to be your own boss is a natural ambition, but starting a business can be a daunting task. You’ve nurtured your dream, saved up a bit of capital through disciplined investments, and done your homework by taking some business and management courses – now you’re ready to start a business of your own.
Immediately, you’ll be faced with your first business decision. Do you want to go it alone completely, building your own free-standing brand, or would it be better to buy into an established franchise brand as a franchisee? The road you choose depends on numerous factors, but your personality may be the most important.
To franchise or not to franchise?
Owning a franchised business requires strict adherence to brand guidelines. If you have a deep-seated need to make decisions on every detail of your business, and you know you’ll have difficulty following someone else’s direction, especially when you don’t agree with them, then franchising may not be for you.
If you won’t have a problem sticking to the parent company rules, however, becoming a franchisee of a solid, reliable franchise system offers many advantages over starting your own business. It removes much of the guesswork and helps you avoid many of the mistakes that independent start-up business owners make.
Reputable franchises offer a recognised name, a successful concept, and a proven business model. They also provide training and support. When you join a mature franchise, you’re investing in a proven system of operations that already works, so it’s a recession-resistant model that’s especially relevant and attractive in the current economic environment.
What sector do you want to own a franchise in?
It makes sense to look for a franchise match in a sector that you have a personal interest in. Maybe you have a passion for food. You might love interacting with people all day. Perhaps you enjoy getting your hands dirty – you need to find the franchise operation with a solid record of successful franchisees that relates to what you love doing most.
Here are some trends that allow certain sectors to thrive, even in a tough economic climate:
- During recessions, people will often repair and maintain the same car for longer, rather than buy a new one. As a result, automotive franchises remain much-needed services.
- Increased consciousness of health, fitness and personal appearance has boosted the demand for professional personal-care services. Male grooming salons, in particular, are on the rise.
- Greater awareness of the health threats posed by poor sanitation has people paying closer attention to cleaning and hygiene, both at home and in the workplace. As a result, cleaning, hygiene and sanitation services are reliable franchises to invest in.
- The costs and health risks associated with going out to pubs, clubs and other entertainment venues have encouraged many people to spend more time at home, and to entertain more at home. Many are diverting money they would have spent on entertainment into upgrading their homes, so hardware stores, DIY suppliers, landscapers and nurseries are in increasing demand.
- Many parents are choosing independent education solutions for their children, to ensure smaller class sizes and individual attention, better quality learning and a safer environment. Tutoring and other educational support franchises are in high demand and will remain so in years to come.
How to decide on a franchise
Do thorough research and due diligence before making your franchise investment decision. Put in the time to gather all the necessary information, assess it, and reassess it to make an informed decision.
Being able to adapt constantly to new ways of doing business could mean the difference between success and failure
Consider which franchise system in your chosen sector would be best to invest in. The International Franchise Association recommends that you weigh up these factors:
- The costs associated with buying into the franchise, including the continuing right to operate.
- The hours, personal commitment and type of experience required.
- How other franchisees in the same system are doing, and how many of them have left during the past few years.
- The terms and conditions under which the franchise relationship can be terminated or renewed.
- The track record and financial condition of the franchiser and its system.
We also recommend speaking to several current franchisees in the same industry. Ask them if they have learnt anything they missed during their initial research. How long did it take them to become profitable? How much did they budget for start-up costs, and how much did they end up spending? What was the most challenging part of building the business? How supportive is their head office? Ask if they would do it all over again or recommend the franchise to a close friend or family member, given what they know now.
What about funding?
Look beyond the initial investment needed to buy into a franchise, usually listed as the franchise fee and cost of equipment. Getting a franchise up and running can involve hefty upfront costs and the need to survive on break-even books or even net losses before your business catches on. Even if you’re franchising a well-known brand with considerable marketing support behind it, it could take a while for customers to discover your new location.
Fortunately, banks and financial institutions recognise franchises as relatively safe business opportunities, so financing is readily available. In fact, predetermined credit criteria have already been met for certain franchise brands, which improves the chances of acquiring finance to boost your investment.
Staying relevant and cash-flush
What gives you the best chance to make your franchise a success? Digital technology has enabled a rapid rise in e-commerce and alternative delivery models. Businesses that were quicker to adapt and evolve have been the most successful during this transition.
Now more than ever, the online customer experience can make or break a relationship with a brand or retail outlet, so it’s essential that all your elements work together, and your ordering services are streamlined and easy to navigate.
To succeed, brands must offer alternative delivery options, quicker turnaround times, slick exchange and return policies, and most importantly, accurate knowledge of stock availability.
Another necessity is to always have a working capital buffer. Ensuring that clients pay cash on delivery, while negotiating the longest possible payment terms with suppliers, is one way to achieve better cash flow. But to do so, you may need to offer early settlement discounts to clients and, of course, maintain excellent relationships with your suppliers. Managing your working capital carefully improves profitability, stock management, creditor and franchiser relationships, and the overall efficiency of your business.
Examine your existing business plans and infrastructure regularly, and continue to identify other products and services you can offer to expand your business. In this climate of uncertainty, being able to adapt constantly to new ways of doing business could mean the difference between success and failure.
Want to know more about franchising?
Nedbank has a highly experienced, specialised division that understands the challenges and opportunities faced by the franchise sector. Talk to one of our business managers or email us at franchising@nedbank.co.za for more information on how we can help you grow your franchise business now and in the future.
