Buying a brand name and a branch of a franchise may sound like a sure-fire way to make money and become a successful businessperson, but you still need to do some research first.
By Craig Falck for Africa Report
Photograph: © Img 191 Llc | Dreamstime.com
You’ve got a couple of hundred thousand or million Rands lying around and your business fingers are itching. What’s the best thing to do? Buy a franchise, of course. However, you need to ask yourself these five important questions before parting with your hard-earned money:
1. How much is this going to cost me? When buying a franchise, you mustn’t forget that it’s not just one lump sum that you’re paying to buy the franchise – there are annual licencing fees and franchising fees that you pay to use the brand name, there might be lease and rental fees for the property as well as equipment, not to mention the other usual business expenses such as salaries, stock, etc. So, you might end up being in for a lot more than you initially expected.
2. Is there competition in your area? Don’t think this only means rival brands. Check to find out if the franchisor plans to sell more franchises in your area or if you’ll have exclusive rights to the brand. Don’t forget about your competition, though – do some research and see what their representation in the area is like.
3. What is the brand’s current business state? What’s the point of buying into a franchise that is failing? There isn’t one. Find out how many branches are being opened annually, how many are closing, how many are being sold and bought, what the financial status of the brand is like; these are all questions that your accountant or auditor will be able to look at and tell you yes or no when buying a franchise.
4. What is franchisor assistance like? Just how willing are the franchisors to help you with training, business transactions, and other deals made for your business? Ideally, you’d like a very hands-on franchisor but also one who lets you run your business your way. If there’s no input, you could find yourself in trouble.
5. What are the contractual stipulations regarding selling the franchise? Ideally you don’t want to be thinking about selling the franchise just yet, but what happens if you become disillusioned with the industry or personal matters or health problems force you to sell your franchise? Can you sell it to just anyone? Are there penalties? Find out how you’re bound to the brand through the contract.
Being a franchiser isn’t easy work. You still need to put in hours of blood and sweat to get to the top. While there are loads of benefits of buying a franchise, you still need to do your homework before handing your money over.
