Franchising dos and don'ts

Johannesburg - While upper-end restaurant chains and estate agency franchises have had a torrid 2009, the rest of the South African franchising sector has remained resilient.

"This year has been tough and it has forced a lot of franchisors to be very creative around their offerings," said Louis van Ravesteyn, head of Standard Bank's franchise unit.

Van Ravesteyn pointed to the fast food industry, where a number of franchisors had shown great originality in their menu options, making them accessible and affordable to consumers who were counting their pennies.

Another industry which saw increased demand was the home improvement supply sector. Homeowners were no longer using the services of contractors, opting instead to tackle renovations themselves.

Asked if he had any advice for franchise owners feeling the pinch from recessionary conditions, Van Ravesteyn emphasised that companies must zero in on managing their cash flow.

"Cash flow is the lifeblood of any franchise operation, and every franchisor should manage finances in such a way that cash is accessible when needed.

"From a lending perspective, franchises already have an advantage because of their established systems, refined models and proven track record. Nonetheless, rigorous assessments and stress tests are conducted with every new application for finance to determine sustainability and viability of the business."

If you need to apply for a loan, Van Ravesteyn has some pertinent advice.

• Speak to your bank's franchise specialist who understands your business:

  Based on this, decide if you really need the finance and if so, what type of finance you should apply for.

• Make sure you have a detailed, realistic business plan:

  This should include cash flow statements, income statements, your balance sheet, a capital equipment list, forecasts with scenario planning, management team and staff info and research.

  This will give your bank a good view of your firm and its prospects, as well as your business strategy.

• Clean up your credit record:

  Even if you have a small bad debt, this can jeopardise your credit prospects.

What to avoid:

• Don't outsource your business plan to someone who doesn't understand what you do.

  If you need help, use a consultant but make sure you work with this person, so that the business plan is an accurate reflection of your business.

• Don't apply for finance if your business is in trouble and needs the cash to stay afloat.

  Rather speak to your bank for advice or approach shareholders to inject other capital before taking on debt.

- Fin24.com