10 Vital Issues To Suppose About Earlier than Shopping for Into A Franchise
In the event you’re trying to be your individual boss by changing into a enterprise proprietor, there’s a persuasive argument for purchasing right into a franchise quite than hanging out by yourself – but it surely’s essential to do your homework earlier than signing on the dotted line.
Franchising has lengthy been a well-liked path to entrepreneurial success in South Africa, with over 800 franchise programs working by way of 48,000 shops within the nation. In a rustic rife with unemployment, the sector employs near 500,000 folks and its contribution to the native financial system is equal to 14% of GDP, in response to the newest FASA survey.
“Whereas native franchising has energy in numbers, the sector struggled throughout the Covid-19 pandemic and is just now starting to stabilise,” stated Grant Smee, managing director of the Solely Realty property franchise.
“Franchising has a considerably decrease failure fee than that of unbiased companies (as a lot as 5x much less) however there are nonetheless vital dangers concerned when shopping for right into a franchise.”
Smee stated that almost all of franchise-specific dangers will be mitigated if a possible franchisee merely does their homework and completely researches each the model and the state of the market earlier than shopping for in.
“It’s additionally essential to think about your private strengths and what will likely be anticipated of you as a franchisee, as not everyone seems to be suited to this journey,” he stated.
Smee outlines the highest 10 components that each potential franchisee ought to contemplate earlier than buying a franchise.
1) Take into account the market
“It’s a troublesome time to be a enterprise proprietor in South Africa so guarantee that there’s sufficient demand on your potential services or products earlier than signing on.” Potential franchisees ought to conduct thorough analysis by way of shopper developments, market demand and any danger components.
“Fortunately, entry to market data and buyer insights are among the main benefits when becoming a member of a franchise, so potential franchisees ought to have the ability to entry this information,” he stated.
2) Take into account your opponents
“When you’ve decided if there’s a requirement for the services or products that your franchise will supply, examine how that demand is already being met by opponents.” Smee recommends having a frank dialogue with a consultant from the unique franchise itself about what market benefits the franchisee can rely on and whether or not they can realistically count on to outsell opponents within the space and why.
3) Take into account the model’s popularity
“Popularity could make or break a enterprise and within the case of franchising, popularity will be influenced by one dangerous actor and find yourself tainting the entire model.”
Smee suggests studying Google and Fb opinions, talking to clients, and discovering out if there was any detrimental media protection across the model within the final 5 years. “It’s essential that franchisees be totally conscious of the general public notion across the franchise, and that this data comes from an goal supply – don’t simply belief what Head Workplace says.”
As soon as the preliminary analysis has been carried out it’s time to begin pondering virtually about what’s required to get the franchise up and working.
4) Take into account different franchisees’ success charges
“Speak to different franchisee’s and ask them to be sincere about their experiences – would they suggest becoming a member of the franchise to others? What have their success charges been like and what challenges have they skilled?”
Taking a look at gross sales information and monetary studies from different franchisees (and the corporate as an entire) can assist spherical out this image.
5) Take into account the start-up prices concerned
There’s an upfront value to becoming a member of a franchise, as franchisees have to pay a licensing payment for the appropriate to make use of the model’s belongings and sources. Whereas this becoming a member of payment is an anticipated a part of the method, Smee recommends asking what different preliminary prices will likely be required for budgeting functions.
“On the plus facet, the franchise’s advertising and marketing sources and assist – a serious benefit of selecting the franchise mannequin – ought to be included on this becoming a member of payment and can assist with getting clients within the door when you’re able to open,” stated Smee.
6) Take into account what your incomes potential will likely be
“As soon as the enterprise is up and working, it might nonetheless be a number of months earlier than you begin to break even. Discover out the common period of time it takes most franchisees to begin turning a revenue so to be financially ready and have the liquid capital essential to cowl working prices.
“Just be sure you have the financial savings and sources to again you up over this era and stay conservative along with your spending.”
7) Take into account the franchise’s enterprise mannequin
“Is the enterprise mannequin of the franchise designed to facilitate your success as a franchisee? Are there tried-and-tested programs in place to make sure the profitability of the enterprise?”
“Analysing the enterprise mannequin of the franchise additionally entails considering the continuing charges akin to royalties that should be paid to the franchisor by the franchisor, as this might have a big influence on profitability,” stated Smee.
The ultimate set of concerns a franchisee should consider earlier than becoming a member of a franchise relate to their very own character and profession expectations – do they align to the character of franchising?
8) Take into account what will likely be anticipated of you as a franchisee
Turning into a franchisee carries most of the similar obligations as being an unbiased enterprise proprietor – you’ll be chargeable for workers and for the sensible necessities of conserving a enterprise working. “To be a profitable franchisee you must be a frontrunner and it will require sacrifice and making arduous selections – earlier than you tackle this position it’s essential that you’re conscious of what’s going to be anticipated of you.”
9) Take into account what sources can be found that will help you succeed
Enterprise mentorship is a serious advantage of the franchise mannequin, however not all franchises have programs in place to advertise ongoing mentorship and assist to their franchisees. “Select a franchisor that has made mentorship a precedence and that provides assist and sources to their franchisees lengthy after the preliminary coaching.”
10) Take into account whether or not or not being a franchisee aligns along with your ardour and private strengths
Lastly, Smee stresses that not everyone seems to be lower out to personal franchisee. “You must be keen about becoming a member of the franchise, and dedicated to its success even when it isn’t your title on the signal. You want to embrace arduous work, duty and the pursuit of excellence in case you begin this journey,” he stated.