Who is to say business can’t be entertaining, hold on to your seat as we unpack the world of business and franchising with Business Buzz business finance and economic news on Voice of Wits 88.1 FM
During a recent live broadcast, they unpacked franchising and the economic review from various perspectives. Melissa Eva, franchise consultant at Franchising Plus explains how to get into franchising and if opening a franchise could be an option for you. Jo-Ann de Wet, supply and operations officer at McDonalds South Africa shares insights from a franchisor perspective whilst Lydia Ramatisa, Engen franchisee shares her story from starting out as an entry level employee. We end off with a summary on the current economic condition with Zanele Kunene from BDO Wealth Advisors.
1. Getting into the franchising Business – franchise consultant Melissa Eva
When opening a franchise – what does it actually take?
- Franchising isn’t for everyone – make sure you have the right profile of a franchisee. If an individual is interested in entering the franchise market, define whether you want to be an independent entrepreneur or part of franchise system. If you don’t like following rules and guidelines, then you are entrepreneurial/innovative and then franchising isn’t for you. It is important to do a self-assessment. Such an assessment is available on the website: www.whichfranchise.co.za
- Conduct extensive research on the franchise opportunity that you want to invest in as this is a medium to long term investment
- Assess whether you have sufficient cash/capital to invest in the business.
- Determine where your passion lies and what skills you have
- No one can actually advise which franchise an individual should invest in, it is a very personal decision.
What is the typical franchise relationship between franchisor and franchisee?
Franchising is a co-dependent relationship/partnership between franchisee and franchisor to ensure mutual benefits.
The role of the franchisor is to train and support franchisees to ensure the success of the business. Franchisors are only successful if all or the majority of their franchisees are successful
How do franchisors go about fostering these relationships?
- Intensive pre-opening training for franchisees
- Monthly support visits/interactions where they act as a business consultant and review financial performance and planning for the future
- Effective communication
- Encouraging and maintaining a mutually beneficial relationship
Youth franchising and the considerations/implications thereof
There are various unethical franchisors in the franchise industry, so it is very risky if an individual hasn’t done proper, extensive research.
However, we can say that when franchising is done well it’s a great business mechanism, especially for young individuals who might not have the business experience. Franchising teaches you the necessary business skills to operate a successful business within a network and business model/concept that has been proven.
There is a barrier to entry for the younger individuals as they do not have the minimum cash requirements to enter business opportunities.
Franchisor rules and regulations, is there room for freedom?
Unfortunately, franchising is not a democracy. It is governed by rules and regulations to ensure the success of the brand and franchise network. Some franchisees don’t always realise that a franchisor makes decisions on behalf of the entire network to benefit the group as a whole. Franchisees don’t always see or agree to this as they only have sight of what is happening in their store in isolation of the network.
In a good franchise environment, the franchisor will consult with franchisees due to the fact that they are:
- the best source of information
- they are dealing with the clients and the market on a day to day basis,
- they observe trends in the industry
The franchisor will communicate and liaise with franchisees as to what is happening in their business and get their suggestions, they do not always implement the suggestions or take the advice, but they do listen to franchisees and take it into account when making decisions
Breaking away from the system, what are the implications?
A Franchisee signs a franchise agreement for a 5-year term in most instances. If the franchisee decides to exit/break away from the system, there will be penalty clauses relating to this action, each franchise agreement will stipulate the procedure and implications of this.
2. What it means to be a franchisor – Jo-Ann de Wet from McDonald’s South Africa
In the interview with Jo-Ann, the following aspects came to light when being a franchisor:
- Franchisors, especially in the food industry should not chase after outlets as a number but focus on driving market share and growing a footprint in a sustainable manner which generates wealth for all parties involved.
- Recruit franchisees out of communities where a franchisor wants to open outlets
- Look for partners who own and operate the business.
- Be interested in the ‘sweat equity’ (effort put in by franchisees) of the owner operator
- Drive franchisee penetration within the community – a franchisee should be a recognised face that engages with the community.
- Build a culture for the franchise brand – focus on franchisees, head office, community and suppliers
- Differentiate and be unique when compared to other brands within the same industry
- Allow prospective franchisees to do an on the job evaluation, give them the opportunity to interview “from behind the counter and get a taste of what it is like to franchisee”.
3. Becoming a franchisee – Engen franchisee Lydia Ramatisa
Some franchises are empowering employees to become franchisees as an enterprise development and BBBEE initiative.
8 Tips from someone who started as an entry level employee and grown to become a franchisee:
- Take responsibility
- Work hard
- Don’t take advantage of the system
- Prove yourself
- Respect people and customers
- Take initiative and be pro-active
- Be focused and have a goal in life
- Always remember, something small can turn into something big
4. Business and economic review of South Africa – Zanele Kunene, BDO health advisor
What is the current economic state of South Africa?
South Africa entered a recessionary phase. This can be seen by the:
- Decrease in consumer expenditure,
- Increase in unemployment rate,
- Business confidence is down, and businesses aren’t expanding
- Economic forecast (GDP) isn’t growing
- Decrease in currency value
Result of the recession
- It forces government to make tough decisions and provide solutions before or at the mid-term budget speech.
- If no solutions are presented and implemented, we will be downgraded which will result in the country being removed from the city bond index which will force managers to sell their bonds – resulting in money going out of the economy
- This period will influence the Reserve Bank interest rate (interest rate increase and Rand value decrease)
- It causes consumers to be less wasteful – there is a shrinking revenue which the government is trying to revive through increased tax and VAT
- South Africa is in debt
- The State Capture enquiry is in the process of quantifying the cost of corruption in South Africa
In the current economic environment, prospective franchisees should be extra careful and do even more research and due diligence on franchise opportunities before investing and signing agreements.