Franchise opportunities

What is a franchise?

Franchising is a marketing and distribution system (Cited: SEDA 2009). The franchisor develops the business concept and markets it, and the franchisee buys and runs that business in a particular area/s. 

Franchisor
A franchisor is the owner of a franchise concept. The franchisor is responsible for growing the franchise concept whether locally, internationally or both and for ensuring the consistency of the brand and service amongst the franchisees.

Franchisee
A franchisee is the owner of a particular franchise in a particular area/s. A franchisee buys a franchise from the franchisor and is responsible to run that franchise business in that area. Cited: Franchisefinder, 2009.

The Franchise business offers the franchisee the following:

  • The entire business concept.
  • The initiation and training covering all aspects of running the business, according to the concept.
  • Continuous assistance and guidance from the franchisor.
  • A contract known as the franchise agreement which sets out the relationship between the franchisor and the franchisee.
  • Like any other business, a franchise has its own advantages and disadvantages. Therefore, it is important to conduct a thorough assessment of the business and look at the following factors before you make any decisions regarding whether or not to buy a franchise: Disadvantages:

Advantages:

1) Lower Failure Rate ??" Franchise is a well established concept and has proved its success. Statistics show that franchisees stand a much better chance of success than people who start independent businesses.

2) Help with Start Up and Beyond - You get a lot of help from the franchisor to start your business and with running it afterwards.

3) Buying Power - Your franchise will benefit from the collective buying power of the parent company as the franchisor can afford to buy in bulk and pass the savings along to franchisees.

4) Star Power ??" Many popular franchises have national brand-name recognition. Buying a franchise can be like buying a business with built-in customers.

5) Profits - A franchise business can be hugely profitable.

1) Dependency (Their Way or The Highway) - The main disadvantage of buying a franchise is that you have to follow the rules. As a franchisee, you are not the one who is actually deciding how the business is run, and some franchisors exercise a degree of control that you may find too restrictive. 

2) Incomplete Costs ??" Besides the original franchise fee, a percentage of your franchise's business revenue, referred to as royalties, will need to be paid to the franchisor each month. The franchisor may also charge additional fees for services provided, such as the cost of advertising.

3) Incomplete Support? Not all franchisors offer the same degree of assistance in starting a business and operating it successfully. Some offer only start-up support and everything after start-up is up to you. Others make promises of ongoing training and support that they don't follow up on.

4) Cost - Buying into well-known franchises is very expensive. You will need to have enough money or the ability to arrange all the required financing.

5) Inexpensive franchise - Buying a little-known franchise can be a risk. Be cautious and do your investigations thoroughly before buying. Cited, Susan Ward, 2009.

Franchise Agreement

This is a document that contains the details of the franchise purchase and agreements between the franchisor and franchisee. It may contain information on initial fees, ongoing fees, the obligations of both the franchisor and franchisee with regards to the start-up and running of the business, territorial/ area limitations, legal information and conditions as well as general information, rules and regulations. Cited: Franchisefinder, 2009.

For examples of franchise agreements, click on the following links.

Tips on becoming a franchisee:

  • You must be able to function within a business set-up that someone else has designed.
  • You must have the ability to resist the temptation of redesigning the business.
  • You must find ways to keep your independence while remaining in compliance with rules and procedures set by someone else.
  • You must be able to accept advice and guidance from the franchisor. The main feature of the franchising concept is the provision of skills and knowledge to the franchisee that will make their operations effective from the outset. You don't have to learn from your mistakes, you can learn from someone else's.
  • You must have attention to detail. Regardless of the business layout within which you work, you  must run the business. The franchisor provides the design and some assistance, but in the end you will decide if the business is succeeding or failing.

Franchise opportunities

There are hundreds of franchises operating in South Africa. This gives the potential franchisee a wider choice. For Franchise opportunities, click on the following links:

Sources:

Last Update: 01 March 2010