If you are hoping to become a franchisee, there are several things you should consider first.
Here are some simple steps to take before you buy into a franchise system.
Have you done the homework?
There are many studies and research reports available. Read them and make sure you choose a system that has been proven. But also make sure to speak to other franchisees who are in the type of business franchise system that interests you.
Related: Buying a franchise business
They’ve been there, and they can help you to decide whether it’s for you or not. Ask them what you can expect to earn, chat to them about their current sales and profits and how consistent their numbers have been. Find out how long it took them to turn a profit.
Find out what it is like to be a franchisee in the franchise system that appeals to you. You need to know whether there is likely to be a good fit between you and the company.
Get an idea of the training and support that is provided and find out how much flexibility franchisees are allowed. It’s also a good idea to chat to ex-franchisees who have left the business – find out what worked for them and what didn’t.
Ask franchisees what their day is like. Do they work alone, or do they have employees. How much of their time do they devote to the business? What types of skills do they have?
Do you have the right skills and personality?
You also need to determine what skills you bring to the table. A good franchise offers ongoing training and support which is why many franchises are suitable for people who have no prior experience in whatever industry the franchise operates.
But skills such as sales, administration, marketing, people management and networking can be extremely helpful. Finding a business that plays to your strengths will improve your chances of success.
Consider your personality. If you are an introvert, the restaurant business may not be right for you. Be honest about whether you like to work with and lead a team, or prefer being on your own. Knowing your own traits will give you good insight into the type of operation you’re likely to enjoy and succeed at.
Determine what’s driving you to want to become a business owner. Are you tired of working long hours for the reward of others, is it succession-planning for your kids, or to take home more money?
Which franchises can you afford?
There are franchises to suit almost every budget, from a couple of hundred thousand up to several million. Work out how much money of your own you have available, and then determine what you will be able to borrow.
Related: Buying an existing business
Bear in mind that you will need working capital to see you through the early days. Banks like the franchise model because they can assess the track record of established franchises. To access funding, you’ll need a strong business plan.
South Africa does not have specific legislation in place that regulates franchise relationships. However, there are several pieces of legislation that have an impact on how franchise systems are operated and the relationship between franchisor and franchisee.
These are as follows:
- The Competition Act, No. 89 of 1989 and the Rules for Conduct of Proceedings in Terms of the Act: because franchising infringes against several clauses of the act, the Competition Commission published a paper entitled “The application of certain provisions of the Competition Act 89 of 1998, as amended, to franchise agreements”, which aims to clarify the Commission’s stance on franchising. It can be accessed on the website of the Franchise Association of South Africa – www.fasa.co.za.
- The Consumer Protection Act: Franchise agreements must comply with the requirements of this Act, which aims to protect franchisees.
The main points are:
- The right to obtain a disclosure document when assessing a franchise opportunity 14 days before signing the franchise agreement
- the right to cancel the agreement with no penalty within 10 business days of signing it (cooling off period)
- protection against unfair discrimination by suppliers
- protection against a franchisor receiving a direct or indirect benefit or compensation from suppliers to its franchisees, or its franchise system, unless this is disclosed in writing with an explanation of how it will be applied
- The Trademarks Act, No. 194 of 1993, and other laws governing intellectual property.
While franchisees do not have to have an in-depth understanding of the legislation, it’s important to know the basics, and to understand that the law provides protection for franchisees.
Also on the legal front, make sure that you have access to the following documents before you enter into a franchise agreement:
- Secrecy undertaking
- Disclosure document
- Franchise agreement
- Operations manual
- Lease agreement over premises
- Funding agreements
Remember that you are making a large investment, and as with any other contract, you are strongly advised to consult with specialists in franchise law before you sign on the dotted line.
For a list of accredited professionals in the fields of law, accountancy and consulting, visit the website of the Franchise Association of South Africa (FASA).
The Franchise Association of South Africa
The Franchise Association of South Africa (FASA) is the only recognised representative body
for the franchise industry in the country.
Franchise companies who join The Franchise Association of South Africa (FASA) align themselves and their brands to an internationally recognised body that adheres to international best practices and sound business. Potential franchisees can have confidence that franchisors who belong to FASA have voluntarily committed to ethical business practices.
Related: Step-by-step business plan guide
Members can also network with other franchise owners in diverse sectors and have access to affiliate members such as suppliers, consultants, financial institutions and attorneys.
FASA has extended its membership to franchisees too, whether their franchisors are members of FASA or not. This results in a strengthening of the ties that bind those in the industry and allows all members to benefit from the continual growth of this business format.
Membership benefits include the prestige of being associated with an internationally recognised franchise association, participating in the networking events that FASA holds throughout the year, being informed of the legislative changes that may affect franchising and benefiting from legal, industrial and labour advice.
FASA also offers several discount benefits – from signage to hotel accommodation and general business deals – that will benefit both franchisor and franchisee. For more information, visit: www.fasa.co.za