Tips on owning a franchise

With over 550 franchised brands and close to 30 000 franchised outlets in South Africa with an industry that employs approximately 500 000 people, the franchise market is definitely a springboard for future development into Africa and globally. Further contribution to the industry can be attributed to the entry of international players which not only increase the strength of the market but also the economy.

Enticing as it may sound franchising also has drawbacks and it is important that the industry is well understood before entering into any binding agreements. “Owing and managing a franchise can be very rewarding. It is a blueprint to success and an attractive career option to those that are seeking a challenge. However, there are pros and cons in franchising that one needs to take note of,” says Morne Cronje, Head of Franchising, FNB Business Banking

According to Cronje, the advantages and disadvantages of franchising are as follows:

Advantages

• Proven blueprint: The amount of time it will take you to establish the business, reach breakeven and eventually attain satisfactory levels of profitability will be considerably shorter than if you start out on your own.
• Established trademark: As a franchisee, you benefit from the goodwill associated with the use of the network’s trademark.
• Possible cost savings: Bulk buying organised by the franchisor provides cost benefits that would otherwise not be available.
• No prior experience necessary: In most franchise concepts, the underlying operations have been simplified and described in detail.
• Mentoring and peer support: The network’s support infrastructure helps franchisees overcome problems or issues as they arise
• Access to group initiatives: The franchisor will arrange preferential deals covering product supply, advertising, professional market research and ongoing product development.
• Logistical support: A new franchisee can draw on the network’s resources. Franchisees can exchange products, provide spare capacity and even the exchange of staff.

Disadvantages

• High set-up costs: The franchisor will insist that a professional image be maintained in the establishment and operation of the unit from day one.
• Operational constraints: Some franchisees consider the operational constraints imposed by the franchisor to be a disadvantage
• Franchise fees: Franchisees have to pay initial and ongoing fees to the franchisor. This can be a burden but in a properly constructed franchise, the multitude of services they receive should more than make up for it.
• Under-performing franchisor: An under-resourced, weak or unprofessional franchisor could stunt the development of its brand and with it the growth of franchisees’ businesses.

“Thorough knowledge of the industry is vital for your business to succeed. Most importantly you need to be passionate about your business venture. The franchise industry has grown substantially and covers all ends of the market. It is also essential that you research and understand the market, competitors and products before you decide to open a franchise,” concludes Cronje.