How to choose a franchise
Doing your research when choosing a franchise is critical. Here is a 5-step process to help you choose.
Doing your research when choosing a franchise is critical. Here is a 5-step process to help you choose.
Consider what you enjoy doing and what your personal preferences are. Are you prepared to work 7 days of the week? If not, food or retail franchises may not be suitable for you. Do you enjoy dealing with the public, or would you prefer a franchise where you service-specific clients on an ongoing basis? What do you enjoy doing, and what are your strengths and weaknesses? The answers to these questions will be a good starting point to narrow down the opportunities you consider.
As a hands-on franchisee, working in the franchise will become your full-time job. It would be best if you chose an industry or category that suits you. For example, an automotive franchise may appeal to you if you have technical skills. A restaurant franchise could be the right option if you enjoy people and food. A business-to-business franchise may be more suitable if you are more comfortable in a corporate environment.
Use this method to determine which industry or category you want to research, and then focus your efforts on that industry when doing your research. Identify franchises that operate in that industry and start exploring their offering, their available locations and the investment required.
Before applying to franchises, it’s essential to work out what you can afford. As a rule of thumb, most franchises allow fifty per cent of the investment to be financed. If you are interested in a restaurant that costs in the region of R2 million, you need access to 50% of that in cash or similar funds; therefore, you need to have access to R1 million to finance the franchise. In addition to the cash requirement, you will likely need to provide security or collateral to the bank for the loan amount. The security could be in the form of additional money in the bank, equities, a home loan that has equity, or a policy with a surrender value equal to the loan amount.
Once you know what you can afford and which franchises tick your boxes in your chosen category, you can do your research. It’s advisable to research more than one franchise. Similar to applying for a job, applying for a franchise does not have a guaranteed outcome. It may be that your favourite franchise is saturated in your area with no room for additional outlets.
To research a franchise, start with an online search to find out more about the franchise. There are various online portals with franchise listings, including the Franchise Association of South Africa (FASA). Also, look for press articles on the franchise to gauge whether they are successful or not and whether there are complaints about the franchise from customers or franchisees. Information to consider includes the investment required, locations on offer and application requirements and processes.
Once you have narrowed down your search, the next step is to apply to the franchises you have chosen. Suppose you apply successfully, and the franchisor is interested in offering you the franchise. In that case, the next step will be for them to provide you with a Disclosure Document and Franchise Agreement for your review. It’s essential to understand your rights in assessing this information, and you can read more about the legal aspects of franchising here.
One of the best ways to assess a franchise is to speak to existing franchisees to understand the state of the relationship between franchisor and franchisees. Ask them if they receive adequate training and support. The most important question is whether they would repurchase the franchise if they had to make the investment decision again. A positive answer is a good indication of franchisee satisfaction levels.