Franchising offers real opportunity for an entrepreneur
Provided by Business Partners Ltd, South Africa's leading investor in SMEs
Many entrepreneurs steer clear of franchising when choosing a business venture, primarily because they feel franchisors place too many restrictions on franchisees. I suppose the word "restriction" needs to be seen in its entirety before one can truly call the requirements of franchisors "restrictions". Financial institutions like Business Partners are very much in favour of franchises especially for new entrepreneurs, or relatively young people, who wish to be their own boss.
Did you know that according to Franchise Business Review's 2006 industry-wise bench mark survey, 13% of the US franchisees are people between the ages of 18 and 34 years? This is an interesting trend which has its routes in Generation Y. Generation Y - people born between 1978 and 1989 - are establishing a new breed of entrepreneurs who have a very refreshing attitude.
According to research, Generation Y's have the potential to make the best franchisees and are the fastest growing population in the workforce. They have lots of entrepreneurial spirit and they're not only thinking like entrepreneurs, they are also thinking like customers.
One of the key traits of Generation Y is that they want to do something on their own. They are innovators, but they don't want to reinvent the wheel. Because of this, the franchising option would be a good match to their needs. While some of you are thinking this group is too young, they don't have enough experience or expertise or perhaps lack the financial resources, think again.
Many of these young franchisees are more in tune with the latest technology, can connect better with customers and have a more energetic and open approach to doing business. They acknowledge they do not know it all and are prepared to learn and follow systems. The key is to choose the right franchisor. It is very important to do your homework as far as choosing a franchise is concerned.
Here are some questions you should ask about the franchisor:
- Does the franchisor have an evaluating system to judge the entrepreneur's abilities to make a success of the business?
- Does the franchisor have an own contribution policy? If not, then the franchisor does not understand that by gearing the business to high, the viability of the business is affected negatively.
- What does the franchisor offer in terms of marketing, training and aftercare?
- Is the franchisor willing to co-operate with you and your financier, should the business fail?
- Is the franchisor financially strong? Check financial statements to ensure the franchisor is solvent.
- Does the franchisor have future expansion plans? What are they?
- Is the franchisor a member of FASA (see FASA's website: www.fasa.co.za)
- How long has the franchisor been franchising?
- How successful are existing franchises?
- How many franchise outlets are operational? What is the failure rate, or closure rate, of the existing stores?
- How many company-owned stores does the franchisor have?
- What image does the franchisor portray?
- Are there franchisees with multiple stores?
- When you talk to the people of the franchisor, how do they treat you?
Have the insight and courage to know yourself well enough to make a wise choice about whether or not you should be an entrepreneur and then to make the very important decision of what business you wish to venture into. You will be investing all of yourself as well as your resources into the business you choose. You owe it to yourself to do enough homework and research to ensure you invest wisely.
There are many benefits of franchising that even an experienced entrepreneur can enjoy. Any business owner who has started a business from scratch and worked to build their brand and a customer base will tell you that it is a tough road to travel. Franchising offers a successful business model and brand which entrepreneurs can used to make a profitable business.
Franchise stores offer customers peace of mind. Can you imagine going into a Wimpy and not being able to order a Wimpy cheese burger? Or Wimpy's famous coffee? People know the brand. They trust the brand and they know what they can expect when buying from a franchised outlet. That is what makes a franchise brand powerful in the market.
You as the entrepreneur don't need to build brand awareness and loyalty, which is a very costly affair and can require enormous capital outlay. Often entrepreneurs don't have the capital to do this and that is the reason it takes so long for their businesses to get to breakeven point.
Weighing up the benefits
Let us review the benefits of franchising: (taken from the FASA website)
- Provides an established and tested business system;
- Has an established name, brand and trademark;
- Supplies corporate power, know-how, training and support services to franchisees;
- Gains a new outlet with minimum capital investment in setting up;
- Expansion of network cost effectively;
- You benefit from the franchisor's national marketing drives; and
- You buy the rights to advertise and sell goods or services.
Even with these benefits, many potential entrepreneurs interested in the franchising option are concerned about two things in particular: the range of franchising options available to them and the process to follow in order to obtain investment financing and set up the franchise.
Decide on the best franchise option for you - while fast food franchisors pioneered the concept, there is now a wide range of franchising options as diverse as retailing, education, entertainment, auto products and services, health services and real estate, among many others.
Do your homework - you need to access all available information on the franchise organisation you're interested in and you must identify a suitable location for the business.
Developing a viable Business Plan is an essential tool for establishing and defining a business's objectives, as well as for obtaining suitable financing. Ensure that you have been approved as a potential franchisee. Choosing the right financial institution to partner in your new venture is very important to the long-term success of a franchise.
During the start-up phase, it's important to depend on the services and the marketing that the franchise organisation is able to provide and which your franchise agreement entitles you to.
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