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2024 FASA Annual Report
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2023 Franchisor Survey
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2024 FASA Franchise Manual
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Your business questions answered
- Is it a requirement to have business experience or have the required skills to run a particular franchise – if not will my application go to the bottom of the pile?
- There is no basis for this to happen although over the past decade or so franchisors have become more stringent in their selection. Most franchisors have sophisticated psychometric testing in place to assess various competencies to find that perfect fit. This is not necessarily linked to educational qualifications but rather to finding the right personality with the right skills set. Franchisors operating in specific sectors or in the professional field (such as accounting, education etc) may require their franchisees to have those qualifications.
- What is the best way to register a franchise as a business entity, taking into account liabilities and risk aversion?
- It is always a good idea to establish a franchise in the name of a separate legal entity such as a company. Business is always risky and you want to divorce the effect of any potential threat to the business from your personal name as far as you can. You will probably not be able to get away from the bank, the landlord, your franchisors and certain suppliers without having to sign personal surety on behalf of the entity but try and avoid to incur further liabilities attached to your personal or your wife’s name.
- So many opportunities promise that you will break even within weeks or months, even working part time. How do I know if I can trust these adverts and how do I know which ones really work?
- A new franchise would take many months to break even and start showing a profit. It is virtually unheard of that a new franchise would break even within a few weeks. It is always a good idea to research the existing franchisee base and question existing franchisees regarding their initial start-up and profitability.
- Why does one pay an up-front franchise fees?
- Franchise fees are levied by franchisors to use the registered trade name and intellectual property which are the property of the franchisor. An entrepreneur who starts a business has to, before he even opens the doors to that business, research the feasibility of the venture, what the market demand for it is and work out how he intends reaching that market. He would need to prepare a business plan, budgets and cash flow projections, registering the name, designing the logo and planning for a marketing and advertising campaign. The risk – both financial and emotionally – is extremely high and he would be, in effect, tackling the challenge on his own at great expense. The franchisor has, in effect, done all that and therefore is entitled to charge franchise fees, both upfront and ongoing, in lieu of the ongoing use of the intellectual property and for the ongoing management services he gives to his franchisees.
- What are the signs for franchisees that a franchise is at financial risk?
- Decline in marketing exposure, fewer visits to the outlets, outstanding payments to suppliers, key personnel seeking other job opportunities, downscaled activity of the franchise company can all point to a franchise in trouble. Most sound franchisors implement bench-marking which allows them to pick up problems with ailing franchisees and usually assist with an “intensive care” programme aimed to help them through the difficult times.
- I want to buy into a franchise that allows for rapid expansion with a view to owning multiple stores. Are there any particular franchisors or sectors that will facilitate this?
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- Multiple-store ownership depends on many factors as well as the strategy of the franchise company. Some franchise companies frown upon a single franchisee owning more than one or two outlets as it is perceived that the franchisee’s ability to run successful businesses could be impaired when they have to divide their attention between many different areas in their businesses. But more and more franchise companies encourage multiple ownership as they prefer to reward successful franchisees with more franchised outlets as they have the experience and have proved themselves
To protect, lobby, promote and develop ethical franchising across all sectors in South Africa with specific focus on transformation.
