THE BASICS OF BUYING A FRANCHISE AND HOW TO KNOW IF IT’S RIGHT FOR YOU

With the Covid-19 pandemic continuing to wreak havoc on the global economy, people everywhere find themselves currently at a crossroads in their careers. Could running a franchise be your next move?

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Many of us have had to take second – or even third – jobs to help make ends meet during the past few years of relentless economic hardship caused by the pandemic. Others have simply been battling to cope on reduced salaries and earnings. But, for those who dream of being their own boss – and particularly those who have a passion for business – franchising could provide a profitable and relatively risk-free method of creating a brand-new career pathway.

WHAT IS FRANCHISING?
Opening a franchise allows you, as the franchisee, to distribute products and services under the trademark of an established business (the franchisor), as well as to use their existing business systems to drive revenue for your operation. In exchange for these benefits, you will pay the franchisor an initial fee (including investment and start-up costs), plus a pre agreed percentage share of the revenue that your franchise business generates (usually referred to as ‘royalties’).

‘There are two chief dynamics at play whenever you open a new business,’ says financial advisor Ruan du Plessis. ‘These are the degree of risk involved in making the business financially viable, and the amount of control that you – as the business owner – have over the systems and operations of the business.’



STARTING WITH AN ADVANTAGE
Franchising helps to reduce the risk in a number of effective ways. Not only will you, as a new franchisee, receive all kinds of business assistance and training from the franchisor, but the recognition of the brand name you are buying into means that you can draw on a pre-existing customer base. Franchisors often have greater buying power than individual business owners, which can mean larger profit margins for the same amount of turnover. ‘These factors combine to produce a lower risk of business failure for new franchise business operations,’ says Du Plessis.

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WHAT’S OUT OF YOUR HANDS
However, there are restrictions on the amount of control you have over your business. Key decisions – from business systems to supply operations to onsite decor – will be out of your control, as the brand depends on consistency for its enduring success. ‘Opening a franchise still requires you to bring your own passion, energy and ideas to the business – but you do not have a blank canvas,’ says Du Plessis. ‘It is more a question of painting within the lines.’

FRANCHISE OPPORTUNITIES FOR UNDER 500,000,00 IN SA

 DRAIN SURGEON
This well-known plumbing company offers investors a chance to buy into a ‘recession-proof’ business. No matter how tough times are, economically speaking, people will always require the essential service of emergency plumbing. The Drain Surgeon offers a turnkey franchise solution, including vehicle, equipment, signage and training, for an initial investment of 376,28000. This gives you a five-year licensing deal, with a 10% royalty fee and 5% marketing fee due on all business revenue.

 KUMON EDUCATION
Another good option, in uncertain economic times, is to look for new opportunities rapidly gaining traction in the market. With education increasingly moving into digital spaces, online tutoring is becoming an essential aid for overwhelmed students. Kumon Education offers popular Mathematics and English programmes and, as a Kumon franchisee, the chance to set up your own study centre, offering both face-to-face and virtual learning assistance.

The franchise start-up cost can reach 100,000,00 (although this depends on the area), and – in exchange for learning materials, intensive training and ongoing support – you will pay a royalty fee per course to Kumon.

 CURVES
Another often-followed piece of business advice is to try to turn your passion into a career. For fitness lovers, businesses such as the popular female fitness franchise Curves provide a great platform to run a successful business while following your passion. Curves provides a unique business model and an established presence, with more than 10 million customers in its 25 years of operation. Fees start at 395,000,00 – including Curves franchise rights, gym equipment and new owner training – though there may be additional expenses depending on your area and the size of your branch.

 TASTY GALLOS
Finally, for those who have always been drawn to the food industry but are cautious about venturing out on their own with an independent restaurant, the Tasty Gallos fast-food franchise offers a range of attractive benefits. With training and marketing support, low operating expenses and preferential supply relationships – not to mention an established presence on food delivery apps like Uber Eats and Mr D Food – an investment in Tasty Gallos promises significant return on investment. The minimum investment cost is R500,000,00 though, and you will require some working capital in addition to this.

HOW DO I LEARN MORE?
There are many websites dedicated to listing franchise opportunities in South Africa. These are good places to start to get a sense of what’s out there:

• franchisedirect.co.za
• franchisefinder.co.za
• safranchisebrands.co.za

However, most companies that offer franchise opportunities have detailed information available on their websites. Visit any of the companies mentioned here and you will find dedicated sections of their websites (and downloadable brochures) to give you up-to-date, practical information on how to make your dream of opening a franchise business a reality.



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HOW TO SECURE FRANCHISING FINANCING
Three of the most popular methods of securing franchising funding are discussed below. Take note, however, that no matter which method you intend to use, you will be expected to enter into detailed financial discussions with any potential franchisor. These discussions are vital to help you forecast your required expenses and projected revenues, and will be essential in helping you determine the financial viability of the new business venture.

1. PERSONAL SAVINGS AND RETRENCHMENT EARNINGS
Self-financing a franchising agreement is possible, but you will be subject to certain checks and approval processes. You will need to prove your long-term financial solvency and your ability to meet certain financial commitments related to the operational costs of your new franchise business.

2. BANK LOAN
A prospective franchisee will need to go through an intensive application and approval process to secure a bank loan. A bank loan will incur interest payments, and these additional expenses must be factored into your overall financial plan. Bank loan applications are usually accompanied by a number of supporting documents, including:

• A business plan, with accurate financial forecasts;
• Approval letters from the franchisor;
• Proof of surety and ability to meet all financial obligations related to opening the business;
• Creditworthiness and tax-compliance assessments.

3. CASH OR OTHER SHORT-TERM LOANS
Another option is to find an alternative source of loan funding, such as through companies specialising in cash loans or other short-term financial products. Proceed with utmost caution here, however, as all new businesses take some time to get off the ground, and the interest charged on these short-term loans may well reach unmanageable levels before your new venture starts to show profit.

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