Franchise opportunities offer a leg up for entrepreneurial spirit - if you're not too independent
February 28, 2008
Tried and tested is one of the many advantages cited for opening a franchise in the competitive business space.
Throw in the wealth of training and support from franchisors and developmental bodies; quality control; and an all-encompassing advertising and marketing plan, and you have what many banks would see as a business model worth investing in.
Not just fast food
It's not surprising that within a relatively short time, franchising has proven to be one of the most popular business concepts ever created - a fact that has not gone unnoticed in local business circles.
In South Africa, franchising contributes about 12 percent to the gross domestic product and employs 412 428 people.
And it's not all McDonald's and KFC: a quick look through the Franchise Association of Southern Africa yearbook reveals a surprisingly diverse range of business concepts, from fast food to retail and beyond.
With the lowest failure rate - 15 percent - compared with other independent businesses, franchising is largely considered the safer branch of entrepreneurship. But make no mistake: an entrepreneurial approach is still a prerequisite for any would-be franchisee. But so is quality training and continued support.
Franchising has been identified as a key growth area in the small and medium enterprise sector, and various support programmes have been launched to help grow prospective franchisees.
Well-known brands
Louis Nhlapo, a franchise support specialist at the Small Enterprise Development Agency, believes that franchising is a key tool for developing local entrepreneurship.
He says: "What sets franchising apart from other entrepreneurial endeavours is the fact that, because it is based on a set of tried and tested business methods and principles, it allows entrepreneurs to be in business for themselves, but not by themselves."
Nhlapo explains that it is also relatively easy to establish a franchise. "You simply complete the franchise application form, research the franchisor and company, raise start-up finance, sign the franchise agreement and set up the new franchise outlet."
Would-be franchisees also find it much easier to access finance than individual entrepreneurs. Most finance institutions feel more comfortable about a franchise's chance of success, with a proven business behind its financial projections.
This is because most franchises are well-known brands and buying the business usually includes some degree of support to the new entrepreneur. Trudi van Niekerk, the general manager for franchising at Absa, says franchise businesses usually have higher turnover than unknown brands.
In addition, Nhlapo says that some franchisors even provide in-house financing for qualifying prospective franchisees.
However, he points out that owning or managing a franchise is not for every entrepreneur.
As in any successful recipe, you need the right mix of ingredients, from front-of-house personality traits to general attitude and business skills, to make a successful product.
Carbon copy
Simply wanting to be your own boss is not enough; you need passion and perseverance to seal the deal. Van Niekerk says a franchise offers many advantages, such as bulk-buying power, higher revenues and branding. However, she cautions that it "is never a get-rich-quick scheme and doesn't guarantee success".
Nhlapo adds that buying into a franchise can be either the best or the worst decision anyone can make, depending on whether there is a clear understanding of the implications that come with the decision.
"Although it comes with the security of knowing that you are not going into the business alone and that the risk of failure is far lower than that of an independent business, there are some elements to take into consideration," says Nhlapo.
"The success of every franchise operation rests upon exact duplication of the franchisor's blueprint.
"Thus every franchisee will be expected to operate a carbon copy of the franchisor's original business, and individuals who thrive on 'doing things their way' are unlikely to be happy as franchisees."
This need to conform to a system is one of the disadvantages of franchising, says Van Niekerk: "You can't start designing your own things."
In the case of restaurants, for instance, there are restrictions on prices and menus.
In addition, Van Niekerk says a franchising business is usually more expensive to start because, as a franchisee, you are buying the goodwill and the brand. Franchisees have to pay a set of royalties and management fees.
Getting personal
For budding entrepreneurs, assessing whether your personality is suited to franchising is just as important as evaluating whether a potential business concept actually qualifies as a genuine franchise opportunity.
Van Niekerk says entrepreneurs wanting to buy a franchise must spend two years running the daily operations themselves. "Some people buy a franchise and continue with their jobs and then, later on, wonder what went wrong with the business."
When considering which franchise to buy, it is important to remember that the only name that matters is the one most repeated by the families in your community. This is because, no matter how much loyalty and goodwill come with a brand, every franchise should be unique to at least some degree.
How this uniqueness is created is a question all franchisees should ask themselves.
At financial year-end, the measure of any franchise's profit margin will depend largely on the franchisee's ability to create a personal experience from a mass-produced product.
A significant portion of this article is based on information compiled by the Small Enterprise Development Agency
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