A franchise is a business license that allows a franchisee to market a particular product or service while using the franchisor’s trademark. There are two types of franchising: business format and product and trade name. Business format franchising is common in sectors such as real estate, convenience stores, automotive services, and eateries. The franchisee acquires specific services and deliverables from the franchisor.
The franchisor’s package includes:
- Corporate identity through logos and trademarks.
- Comprehensive business operations system.
- Active assistance in selecting the business site, designing the store’s layout, hiring and training the workforce, obtaining the needed inputs, and conducting the initial marketing activities.
In product and trade name franchising, the franchisee is expected to exclusively buy particular products from the franchisor. Unlike the other form of franchising, this one does not attract ongoing fees. This approach is common with petroleum, soft drink, and automobile distribution. However, most franchisees are shifting to the business format since it is more beneficial.
Advantages and Disadvantages of Franchising in South Africa
Advantages of Franchising in South Africa
- Reduced business risks. There is continuous support from the franchisor as well as the adoption of an operating formula that has previously been tried and tested by the franchisor in other locations.
- Stable customer base. Acquiring the franchise of a well-known brand gives the business public acceptance that may difficult to obtain when starting an independent business.
- Highly productive team. The initial and ongoing staff training programs availed by the franchisor results in a workforce with the skills needed to fulfil the enterprise’s objectives.
Disadvantages of Franchising in South Africa
- There is limited creativity. The franchise stipulates how the business should appear and operate. These requirements do not give room for the entrepreneur’s individuality.
- Reputation damage. Since the franchisor has numerous entities, a franchisee’s reputation can be affected negatively by the poor performance of another entity using the same brand name.
- Sharing of profit. The agreement requires the business to share its profits with the franchisor.
How to Join a Franchise in South Africa
At this stage, the assumption is that you have sufficient capital and the crucial business skills. Next, you will need narrow down your list of desired franchises and conduct basic research on each of them before deciding on the one you wish to pursue. After you have fulfilled these foundational requirements, you will need to follow the following steps to benefit from franchise opportunities in Africa.
Contact the Franchisor
To inform the franchisor of your interest in joining the franchise, you can visit their website and acquire the initial franchise application form. Once the enterprise receives your request, they may invite you make a presentation to compete with other potential franchisees or send you a catalogue to review. In the event that your preferred location already has a franchisee, you may be placed on the waiting list or advised to establish the business in a different location.
Complete the Stipulated Application Proceedings
In an attempt to evaluate the suitability of a potential franchisee, the franchisor may include a psychometric evaluation, questionnaire, and an analysis of your credit record. Such an enterprise is usually keen on determining:
- His or her business experience.
- Reasons for your interest in the franchisor and your knowledge on its operations.
- Your administrative and financial skills.
- Your preferred location and willingness to consider other territories.
- Your ability to manage a particular size of workforce.
Notably, most of the requirements encompassed in the application form are related to the applicant’s financial capability. A franchisor will ask about your liabilities and assets to determine if you can still run the business smoothly in the case of an unpredictable fiscal challenge. Evaluating your completed application form may take a while since the franchisor will need ample time to keenly evaluate each detail.
Grill the Franchisor
Now that you have provided the franchisor with all the needed information and your application has been accepted, the tables have been turned. It is now your chance to ask the management any question you may have about the company. You may even talk to other franchisees and visit their businesses to understand the kind of support offered by the franchisor as well as the sales trends. Some of the questions that will help you know the franchisor better are:
- How many franchises have been opened in a particular region over the past year?
- How successful are the established franchisees both in your desired area and beyond?
- What are the responsibilities of the franchisor both at the startup stage and after?
Find the Appropriate Location for the Franchise
In any business, location is a key determinant of success. Luckily for franchisees, the franchisor usually helps in identifying the best site based on their research. Finding the right place may take time but it is risky to settle for a second-rate location.
Secure Your Funds
There are various avenues of acquiring the needed finances. For instance, you can raise the 40-50% of the funds as required by most banks and get the rest through a loan from a financial institution. Since franchisors often guide their franchisees in every step of the way, you will probably get their assistance in developing a business plan and fulfilling the other requirements stipulated by the bank.
Read and Understand All the Details of the Contract
Prior to signing the actual franchise contract, the franchisor will hand you a franchise disclosure document. This document usually has detailed information about the company including a non-disclosure agreement and probable legal actions. It is important to seek the guidance of a lawyer who is conversant with such matters before signing the papers. You should also ensure that you take at least 2 weeks to go through the documents.
While some African states may have unique inclusions in their Consumer Protection Act, there are some basic stipulations related to franchise agreements. For instance, this law acknowledges the cooling off period which refers to 10 days after signing the franchise agreement within which a franchisee can walk away without any penalty.
Make the Preparations Needed to Start the Franchise
Ensure that all the shop’s details are in order before opening the doors to your customers. This includes shop-fitting, stocking up on all the relevant items, as well as the recruitment and training of a sufficient workforce. With all these boxes checked, you are now ready to run and expand the franchise in Africa.
Final Thoughts on Franchise South Africa
One of the way of succeeding in South Africa’s Africa’s business front is by becoming a franchisee. There are many franchise opportunities in South Africa. Like any other commercial setup, there are certain benefits and drawbacks of joining a franchise in South Africa Africa. The key steps embedded in this process include researching about the franchisor, meeting the set requirements to prove that you are the ideal franchisee, and ensuring that the details of the contract are beneficial to you.