With Statistics South Africa confirming that the country moved out of recession in the second quarter of the year after the economy expanded an annualized 2.5% in the second quarter of this year and with FASA’s annual survey showing the sector contributing 13.3% to GDP (compared to 11.6% in 2016), there seems to be light at the end of the recessionary tunnel.
The figures from Stats SA marked the end of two-quarters of contraction and beat market expectations of a 2.1% rise in gross domestic product (GDP). In the FASA Franchise Survey, sponsored by Sanlam, 71% of franchisors interviewed claimed they had opened a total of 2 789 businesses, 25% of which were fast foods and restaurants and 26% of which were in retailing; 16% were in the Health, Body & Beauty Sector. An estimated 105 businesses closed down, resulting in a nett gain of 2 184 stores.
It is a well-known fact that independent small businesses have a high failure rate as opposed to franchised businesses that enjoy a high rate of success and a low (around 10%) failure rate. This is borne out by the Global Entrepreneurship Monitor SA 2016/2017 report that shows that two-thirds (67%) of small businesses closed last year either because they were not profitable or had encountered problems accessing financing. According to Ben Bierman, managing director of Business Partners Limited, access to finance is not only a significant constraint for early-stage entrepreneurs, but also problematic for established businesses. “Many excellent business ideas never get past the ‘spreadsheet stage’ because entrepreneurs cannot find or convince the right investor for their specific business model or because the true potential of their business idea is not effectively conveyed.”
Those choosing to go the franchise route through an established and bank accredited franchise brand have the advantage that banks and financiers are already familiar with the performance record of that brand and are therefore considered favourably for funding. The FASA/Sanlam Survey results confirm this and show the tenacity and profitability of a business format that enjoys success throughout the world.