Anita du Toit gesels met KykNET oor hoe om klein of medium grootte besigheid uit te brei deur middel van “franchising”.
Anita du Toit talks to KykNET about how small and medium sized businesses can expand through franchising.
Our franchise expert, Anita du Toit, recently conducted an interview with KykNET Ontbytsake about the world of franchising
Role players defined
- Franchisor – this is the owner of the business who wants to expand his/her current operation through franchising. Franchising is a mechanism used to expand the business with other peoples (franchisees) capital
- Franchisee – the person who invests in a tested/proven concept, they receive a blueprint to run their own business
Franchises come and go, what can be done to make them stay
- Implementation is key
- Continuous and ongoing support and training to franchising
- Nurturing of the franchisor/franchisee relationship
- Knowledge of what is going on in your franchisee’s businesses
- Uniqueness of the concept
- Always keep a company owned store to be aware of what is happening on the ground and to test new innovations/ideas before implementing change to franchisees
When is a franchise successful?
The biggest success factor for a franchise is profitability for the franchisee and franchisor. There is no point in having hundreds of franchises where half of them aren’t profitable. It is advised to rather have 15-20 franchises who are not only operational but profitable as well.
Franchising works on a multiplier effect, therefore 15-20 franchises would make a concept viable – it is important to note that the franchisor only receives a percentage of turnover in the form of royalties
Overall franchising should be a win, win relationship
- Most people have the misperception that franchising only refers to the food category
- However, in SA only 30% of all franchises are in the food category
- Some categories include business-to-business, retail, education, personal services, etc.
- Statistics about all the franchise categories are released yearly
When can you start a franchise?
The first step to franchising is to have run and proven a successful business operation that is profitable – the concept must be proven first and it is not the best idea to franchise a start-up business. The old saying “You cannot franchise an idea” still stands. For a business idea to be packaged as a franchise, it must have operated at least one unit of the business to be franchised for a reasonable period. The systems and processes applied in the business must have been optimised and recorded to facilitate exact duplication. A detailed franchise expansion plan needs to be developed, and the legal contracts and other documentation required to franchise professionally need to be drawn up.
Critical success factors
When assessing the viability of an existing business for franchising, several critical success factors must be taken into account:
1. Does the business operate in a large and growing market?
2. Is the growth in the market likely to be sustainable?
3. Are attainable margins sufficient to cover fees?
4. Can the product demand a price premium?
5. Does the franchisor have access to sufficient capital?
6. Does the potential exist to establish a memorable brand?
7. Is there a substantial barrier to entry – not easily copied?
8. Will the development costs permit a satisfactory return on investment?
9. Is it possible to grow a franchise culture in the company?
10.Does the concept have staying-power?
11.Is it relatively easy to transfer the required skills?
12.Are suitable systems and procedures in place?
Franchise and Financing
- Franchisees are responsible to provide capital for the franchise
- Financial institutions prefer to finance franchises rather than start-ups due to higher success rate of approximately 80%
Which franchise to choose?
Nobody can really advise what the best franchise would be for you – you would need to do your homework and research on all concepts to decide which franchise would be the best for you with regards to the financial investment required, the type of work you want to do, the location, the business model which best suits you, the relationship with the franchisor; your requirements from the business etc.
The only guideline we can offer in this regard is that a good investment would be a franchised business that can give you a return on your investment within roughly 4 years, after you as the owner have drawn a market-related salary.
Trends in franchising at the moment?
- Personal services
- Health and Beauty
- Any concept that helps an individual to manage their time more effectively
Do franchisees have a say?
- Any good franchisor would consult with their franchisees e.g. new product implementations
- Franchisee committees are established where franchisees nominate a represented and have the opportunity to vote on relevant issues
- Time and again franchisees come up with innovative ideas that can be implemented in the entire franchise network e.g. the Big Mac was invented by a McDonald’s franchisee
For more detail on the topic take a look at the interview and feel free to discuss it with us