BUSINESS TIPS - So You Want To Buy A Franchise

BUSINESS TIPS – So You Want To Buy A Franchise?


By Nikki Viljoen – Viljoen Consulting CC February 2010

So many times I’ve heard people say “My dream is to open a little coffee shop/restaurant/take away/pizza place (insert your own dream/idea here), when I retire. Sadly, more often than not they sink their hard earned life savings into a Franchise something, only to discover somewhere down the road, that it is not what they expected or even worse, the business is not able to sustain them and they end up losing everything.

Research people! Research!

You really need to know exactly what it is that you are getting yourself into. Your need to understand, in graphic detail exactly what the business entails, especially if you have never worked in that particular arena before (cooking dinner for family and friends once a week is very different to running a kitchen in a busy fast food outlet).

Here are some of the issues that you need to look at, familiarize yourself with and indeed, understand at some level.

1. As I mentioned before – research is vital and just to be clear on this, the research that needs to be done, needs to be done by you! You are the one that needs to understand all the pros and cons. You are the one who needs to be interested in the whole process – therefore you are the one that needs to develop as much first had knowledge as possible. Attend as many franchise expos as possible, surf the internet, find something that matches your passion and once you have decided which franchise you are interested in, you can move to the next step.
2. Now the real research begins! Firstly, look at the industry that your choice of franchise is in. find out all the information that is available for that particular industry. Have a look at all the other franchises that are in the same sector. What makes the franchise that you have chosen ‘stand out’? Is the sector a growing one (this means that you have to look at lots of statistics and even know how to read them properly)? Have a look at all of the trade magazines (or on the internet), what do they say about the industry, the sector, the competition and the franchise that you have chosen?
3. Next you need to look at the brand of the franchise that you have chosen. What makes it unique? Why would customers/clients use this brand and not something similar around the corner? Look at the physical branding – things like signage, logos, staff uniforms, shop fittings – does the branding run through all the stores so that they all look and have the same ‘feel’, or are some of the stores different and if so why? In other words, is the brand, colours, logos easily identifiable and recognizable?
4. The next thing to research thoroughly is the actual franchise organization. What are the rights and obligations of the franchisor, and what are the rights and the obligations of the franchisee? What are your expectations and will they be met. What are the expectations of the franchisor and will you be able to meet them. What is the support structure in terms of procedures, policies, templates, IT, staff training, product training and so on? Will the franchisor give you all the investment and financial information that you need? Will the franchisor give you their ‘disclosure documents’? Are their disclosure documents updated annually as prescribed by the FASA (Franchise Association of South Africa)? Make sure that you not only read, but also understand all of these documents. Ask questions. Get your lawyer and/or accountant to also look at the documents and ask questions. Make sure that the answers that you get satisfy the question that was asked and don’t be afraid to ask more questions.
5. If, after all of this you still want to purchase the franchise talk to the professionals, take the documents to a franchise consultant or a business broker (preferably one that works in the franchise arena) and get their opinion. Get them to look at the questions you asked and the answers you got. Make sure that they are comfortable with every single point in the contract. Let them explain it all to you again, point by point and in a language that you understand.

Next week we will look at the information that should be contained in a disclosure document.

Nikki is an Internal Auditor and Business Administration Specialist who can be contacted on 083 702 8849 or nikki@viljoenconsulting.co.za or http://www.viljoenconsulting.co.za