If you’re thinking of becoming your own boss, starting a tire franchise might be worth looking into.
You’ll get to start a franchise business without having to address many of the typical start-up concerns, thus avoiding many of the problems and costs associated with starting a business. However, franchise ownership isn’t for everyone and nor is every opportunity a gold mine.
Related: Phenomenal growth ahead for the South African tyre market
There’s more to a franchise opportunity than upfront costs and prior success. The devil is in the details. However, becoming a franchisee is one of the best business ideas in South Africa and grants you the opportunity to run your own business while building off of the success of the franchise.
What are your reasons for wanting to buy a franchise?
Buying franchises in South Africa is probably one of the most important decision you’ll ever make. Carefully consider your reasons to buy a franchise.
- You want to work for yourself. Great! Just remember you’ll have to deal with the franchisor’s corporate headquarters and some decisions will have to go through them first.
- You want a challenge and are willing to work hard. If you’re self-motivated and have a lot of energy this will be a great opportunity for you.
- You want to contribute your time and talents. You have the management experience and skills that the franchise requires for success.
Ask yourself the following questions:
- Do I have what it takes to start my own franchise? Determine of you have the abilities, skills and desire to start your own franchise. You need to be a go getter, pursue opportunities and create a business to pursue it. You must be willing to assume the risk and responsibility of starting and managing a franchise.
- Do I have what it takes to be a franchisee? Are you willing to accept coaching and advice from a franchisor? Can you follow someone else’s rules? You need to be willing and eager to learn new skills, work long hours and prepare many, many reports.
- Have I thoroughly researched the type of franchise I’m thinking of buying? Who’s your competition? Do you have enough money for the investment? Does your franchise have a history of litigation? Can you make enough money with this type of franchise? Have you read and understood the FDD and franchise agreement?
- Do I always have to be right? You will need to follow the directions of the franchisor even when you think you know better.
- Am I an advertising genius?The franchisor will provide you with the relevant advertising material, you cannot modify this.
- Am I a team player? You are going to have to work with others to make decisions.
- Am I willing to share information? Franchisors will want you to share business information with them via reports and even tax returns.
Pros and cons of owning a tire franchise in South Africa
A franchise enables you, the investor or franchisee, to operate a business; reducing your investment risk and enabling you to associate with an established company.
Advantages of buying a franchise:
- You can go into business for yourself, but you won’t be by yourself, you’ll have the support and mentorship of the franchisor.
- The use of a recognised name and trademark. A franchise provides an established product or service which may already have brand-named recognition.
- The sale of a known and proven product or service will increase your chances of business success because you are associated with proven marketing and sales methods.
- You’ll be using comprehensive systems for operating the business.
- You’ll receive in-depth training on all aspects of the business, as well as ongoing supervision and management support.
- Increased spending power and access to bulk purchasing.
Disadvantages of buying a tire franchise:
- In addition to franchise fee you might have to pay into an advertising fund and some of this money may be used to attract new franchise owners, rather than promoting your business. You may also have to pay the franchisor royalties based on a percentage of your weekly or monthly gross income.
- Mandatory marketing contributions.
- A damaged, system wide image can result in poor performance.
- Only able to offer product for sale preapproved by franchisor.
- Very little flexibility in the operations of the business. You are required to operate your franchise according to the procedures and restrictions set forth by the franchisor.
- Limitations on sources for supplies.
- Territorial restrictions on where you can establish and operate your business.
What should I consider before buying a tire franchise?
Buying a franchise is a serious investment. To increase your chances of meeting and surpassing your business expectations, it’s up to you to investigate before you invest. It’s very important that you learn as much as possible about the issues facing you.
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Any success you may have when franchising in South Africa is essentially a combination of factors:
Consumer demand: Is there a demand for the franchisor’s products or services in your community? Is it seasonal or evergreen? Make sure you are not dealing with a fad. You want a franchise that generates repeat business.
Franchisor’s business track record for success: A good franchise company has developed a method of doing business that works well and produces successful results. How long has the franchise been in operating?
While a franchisor with a long track record may appear more attractive, there are also many benefits of getting involved with a new franchisor. A new franchisor might be more flexible in negotiations and provide more personalised training and support.
The proposed legal agreement between yourself and the franchisor: Pay special attention to the grant clause, as this will determine whether you are the sole franchisee operating in a certain territory (exclusive grant); whether the franchisor may operate an outlet in the same territory (sole grant); or whether there are no restrictions on the number of franchisees who may operate in that area (Ordinary grant). The number of operators will naturally impact on your ability to turn a profit (Eugene Honey).
Financial strength of the franchisor: Make sure the franchisor is financially strong and stable. Have the franchisor provide you with financial information you can take to your accountant. Look carefully at the background and experience of senior management.
Examine earning potential: Evaluate the profitability of the franchise. Get a comprehensive list of financials from other franchises in South Africa and investigate how successful ones became profitable.
Franchisor’s financial interest: Investigate if the franchisor owns the land or building and will provide you with financial assistance.
Franchisor’s plans for growth and expansion: Determine the franchisor’s strategic plan for the future – how many franchisees and where? Determine the extent of exclusivity of trading area offered and if you can purchase a second franchise location.
Marketing capabilities of franchisor: Make sure the franchisor has marketing assistance to provide you with proven tools and strategies for attracting and retaining customers.
Competition: What’s the level of competition? Investigate how many competing companies sell similar products and services and are they well established in the community.
Franchisor’s financial profile of each franchise location: Carefully determine what the total cost for your franchise is going to be. Does this include equipment, inventory, advertising and promotion?
As with any investment, you must proceed with caution and educate yourself. Purchasing a franchise carries no guarantee of success, but you can reduce the risk of failure by being an informed buyer.
What will I need to buy a tyre franchise?
Initial investment: The price of a standard tyre franchise is R980 000 (excl. VAT). The up-front fee required is R150 000 (excl. VAT). This payment will secure your franchise and trading area. A royalty fee of R7 000 (excl. VAT) is payable on or before the 7th of each month. A monthly advertising contribution of R2 500 (excl. VAT) will also be required. You will probably have to pay R50 000 for the initial stock of your tyre business and an additional R100 000 (excl. VAT) for operating costs. Should you decide to add tyre fitment to you operations, the cost of your franchise will increase by R550 000 (excl. VAT).
Signing a contract: This is your franchisee agreement. The legal, written contract between franchisor and franchisee which tells each party what the other is responsible for doing.
- Make sure the contract clearly specifies payment to franchisor (all fees required).
- Ensure you know if you must purchase proprietary inventory from suppliers and how much.
- Determine if you must meet a sales quota and if the quotas are reasonable.
- Determine the contract term, renewal options and conditions.
- Examine location choices and lease specifications.
- Determine the exit strategy. Under what conditions can you sell your franchise or terminate the contract.
Approaching the bank for a loan: You will need a business plan to approach the bank.A business plan and cash flow forecasts are necessary even if you don’t need to borrow money.
Related: The African fleet market: An overview
A business plan is vital to help establish where you are, where you’re going and how you intend to get there. The bank will need to see your business plan to help assess any request for finance.
Fail safe franchise legal and tax secrets you should know
- The Competitions Act makes it unlawful for franchisors to fix prices for a franchisee’s products and services.
- The Consumer Protection Bill affect all franchises in South Africa. This bill enforces full disclosure upfront and make it possible to cancel an agreement if such disclosure was not offered or it misrepresents what is sold.
- You must meet and maintain the Franchise Association of South Africa (FASA )requirements.
- There may be a capital gains tax payable if you sell your franchise
- You will be affected by the new Credit Act. If the franchisor has funded the franchisee, or granted a loan, they will be regulated according to the terms of the Act.
Tyre franchising business opportunities in South Africa
TYRES & MORE is geared toward becoming one of South Africa’s most recognised fitment centre brands. Their industry specific management expertise will thoroughly enhance the sustainability of the TYRES & MORE business model by empowering franchise owners to focus on growing their business.
Tyre Traders. Established in 2008 this franchise offers a complete mobile tyre fitment service to the South African motoring community. Their combination of ordering tyres online and establishing a business with low overheads has made them a sought after franchise.
Alloy Wheel Repair Specialist. A revolutionary opportunity in the world of Alloy wheels. Earning potential up to 15 to 20% of sales net profit. They welcome master franchisees within countries to develop a network of facilities.
Supa Quick. Aligned with Bridgestone. Supa Quick franchises will help you set up a successful business.
Tiger wheel and Tyre franchise. If you’re looking for a secure investment with profitable returns then Tiger Wheel and Tyre franchise is the business for you.
Carefully weigh the pros and cons.Assess your willingness to follow someone else’s rules and if you are in the right financial position to open a franchise. If you’re honest with yourself and your reasons to buy a tire franchise align with your goals, skills and interest then go for it.
Resource to help you start your tire franchise business
Glossary of common franchising terms