Share

The fascination of franchises

Johannesburg - While it may not fit the traditional description of entrepreneurship, franchising remains a good way for would-be entrepreneurs to get their foot in their door using an already successful model.
 
In 2010, one of the best performing stocks on the JSE was that of Famous Brands, the company which owns and operates the likes of Steers, Fish Aways and Wimpy. The company was also over the year an aggressive acquirer of strong existing as well as promising up and coming franchise brands such as O'Hagan's Irish Pub and Grill, Vovo Telo and Mugg & Bean.
 
What this highlights is that whether you are building up a franchise to sell to a larger group or buying into an existing offering, there is no shortage of opportunities to make a return on your investment by looking at franchising.
 
Chris Delport, regional general manager for Southern Africa at financier Grofin told Fin24.com: "Franchising is traditionally seen as low risk as the franchisor has a proven track record and invariably conducts their own assessment based on the viability of the particular venture. This, together with specialised support such as administration, marketing and bulk buying gives more comfort to support a particular business through funding."
 
Bruce Wade from the Entrepreneur Incubator however cautions that while the appeal of buying into a franchise may be attractive, it is hard work and requires a certain type of person to run it.
 
"Not many people wake up one day and because they are passionate about coffee and big muffins go out and buy a Mugg & Bean or have a thrill about pizza and buy a Scooters. As a franchise owner you do not have time to roll your sleeves up and engage your customers on their needs and brew coffee," Wade said adding "Owning a franchise is about spreadsheets, processes and following rules to leverage maximum use of the provided resources. This caters for a great business manager and business owner. Not much risk, entrepreneurial creativity or new ideas are required, just good money and people managers."
 
With commercial funding being tough to come by, many companies are turning to the franchising model to expand their business. This has resulted in a number of new franchisors peddling unproven businesses and brands to would-be small business owners.
 
Delport cautions: "Prospective business owners should also remember that there is rarely something that will get you rich in a short space of time and if the franchisor’s projections looks too good to be true it is probably not true. Hard work, even in a franchise, is still the only recipe for success."
 
He also warns that franchising requires a good understanding of cash flows and businesses cannot afford to be under-capitalised when the investments are made.

"The cost of funding also becomes important by supporting franchisees, as the royalties payable on monthly turnover does have a significant impact on the cash flow of a business," Delport said.
 
Warren Ingram, a director at financial planning business Galileo Capital also raised a further important consideration for entrepreneurs considering an investment in a franchise: that the investment goes way beyond the initial start-up fees.

For example, should the stores require a refurbishment and be closed for a few weeks or months at a time, the franchisees will need to ensure they have sufficient cash flow to prevent the franchise becoming a burden.
 
For those Fin24 readers considering an investment in a franchise, they should take note of the advice of industry veteran Claus Kuhl who has been instrumental in growing brands such as Debonairs, Ola Milky Lane and Juicy Lucy in South Africa.
 
At a recent industry event he said the following should be borne in mind:
  • that at all times, franchisees have to make money,
  • the franchise brand and structure need to scale up to achieve critical mass,
  • both franchisors and franchisees need to be focused on the sustainability of the operation,
  • franchisors need to continue building a strong brand,
  • franchisors need to invest ahead of the growth curve,
  • fine tune and formalise structures and processes, and
  • remember that operations are the heart of the business.
Whether you are a would-be franchisee or you are planning to take the franchising route to grow your business, it will pay off to remember the factors which made Famous Brands the masters of franchising - a strong balance sheet, management expertise and a focus on brand stewardship.
 
- Fin24.com
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.2%
Rand - Pound
23.91
-0.1%
Rand - Euro
20.43
+0.2%
Rand - Aus dollar
12.34
+0.1%
Rand - Yen
0.13
-0.2%
Platinum
910.50
+1.5%
Palladium
1,011.50
+1.0%
Gold
2,221.35
+1.2%
Silver
24.87
+0.9%
Brent Crude
86.09
-0.2%
Top 40
68,346
+1.0%
All Share
74,536
+0.8%
Resource 10
57,251
+2.8%
Industrial 25
103,936
+0.6%
Financial 15
16,502
-0.1%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders