5 Things to Know About Low-Cost Franchise Opportunities
What is a Low-Cost Franchise?
A low-cost franchise is a franchise opportunity that falls in an investment category considered below the average establishment cost of a new franchise outlet. According to FASA (Franchise Association of South Africa), the average investment required to purchase a franchise is R1 098 013 (including working capital). whichfranchise.co.za defines low-cost franchises as franchises requiring a total investment of R500 000 or less.
Characteristics of a Low-Cost Franchise
- Many low-cost franchises are home-based businesses or mobile types of businesses requiring the franchisee to purchase a vehicle for the operation of the franchise.
- Essentially, a low-cost franchise can be viewed as “buying a job” and as such many low-cost franchises are not staff intensive, relying on the franchisee and perhaps one other person to perform the duties associated with the franchise.
Low-cost franchises span many industries, anything from pest control to business coaching or so-called “white collar” franchises. Whichfranchise has various types of listings in this category, it also includes education type of franchises, especially those related to children and their extra-curricular or educational activities.
In the current economic climate, choosing an industry that is Covid-19 proof is critical. Consider the industry and ask yourself whether they stand to gain or lose in lockdown periods. Some industries currently doing well include professional cleaning services, occupational health and safety, low contact educational franchises and courier services.
What To Expect From Low-Cost Franchises
Low-cost franchises are often managed on a lean basis as the type of franchise and royalties generated often times preclude the presence of a large head office. However, that doesn’t mean that these types of franchises shouldn’t get any support. As in other franchise categories, initial training must be conducted, and the franchisor should also provide franchisee support post opening.
How to Research a Low-Cost Franchise
All franchise opportunities from franchisors, regardless of cost or industry, should provide potential franchisees with a Disclosure Document containing pertinent information on the franchise. A franchisee should have at least 14 days to consider the information in the Disclosure Document along with the franchise agreement before signing up. Some of the most important information to consider and use in the Disclosure Document is the contact details of existing franchisees. Potential franchisees should make contact and ask about the support provided from the franchisor, the marketing campaigns and the training provided. As with any other franchise opportunity, it’s important to do your homework.
Low-cost franchises can offer individuals with limited resources the opportunity to get into a business. In the current environment of retrenchments and economic stress, buying such a franchise with a retrenchment package may be the easiest way to generate income again. However, this comes with a note of caution, do your research as outlined in this article and on our website and make sure you spend your money wisely, especially if you have limited capital available. Any individual purchasing a franchise should always ensure that they have a reserve of cash available as a contingency plan.