How to Buy a Franchise in South Africa
You have access to capital, the right business skills and want to buy a franchise. You have even narrowed down your choices to a few concepts. What happens next? There seems to be a lack of information on the practicalities of buying a franchise. This is why we’ve put together these seven simple steps to talk you through your journey to become a franchisee:
1. Approach the franchisor
The first step is to approach the franchisor to express your interest and see whether you can take the discussions to the next level. Today it is common to find initial franchise screening forms on franchisors’ websites or you could send through a notification through the whichfranchise platform. Once your application is received you may be sent a prospectus to review or be invited to attend a presentation with other prospective franchisees. You may be informed that the area or location that you had your eye on is already spoken for. However, starting the process may get you on a shortlist or waiting list for your preferred area.
2. Complete the application process
The application process will most likely include a credit record check, a questionnaire to be completed and even a psychometric evaluation to test your personality fit. The franchisor will want to determine the following:
- Many franchisors want to know what you already know about them, their franchise opportunity, and why you are interested
- What type of experience do you have?
- Have you managed staff?
- What are your financial and administrative skills?
- What do you like to do and what are your strengths?
- Do you plan to be an owner manager and work in the business?
- What locations or territories you’re interested in and if you would consider alternatives?
Many of the questions will focus on your financial situation. The franchisor will want to know about your personal assets (and liabilities) to make sure you have enough resources to operate the business in case it runs into unforeseen financial difficulty. While you may be able to raise finance from a bank, you will still require a portion of unencumbered cash. Many popular franchises are inundated with requests from interested parties and may take some time to evaluate your application.
3. Find out more
If you pass the application process with flying colours you will now discuss matters in earnest with the franchisor. This is your opportunity to grill the franchisor about any aspect of the business. Here are a few important questions find out:
- Is the franchisor financially sound?
- What is the directors’ background?
- What did they do previously and why did they go into franchising?
- Does a comprehensive operations manual support the training?
- Has the franchisor run outlets in similar areas to yours in South Africa?
- How successful are existing franchisees in South Africa and worldwide?
- What training is offered at the start-up stage and thereafter?
- How many franchises have they opened in the last 12 months in South Africa?
It is often difficult to separate the franchisor’s enthusiasm from the daily realities of running the business. At this stage most franchisors will allow you free access to talk to any franchisees in their network. Use this opportunity to ask questions about sales trends and the support received from the franchisor. We suggest that you take this one step further by spending some time in the franchise operation. By spending time in the business you’ll quickly find out if the business is not for you
4. Find the right location
For most franchises the right location is critical to the businesses success. The challenge is that good sites are in high demand and it may take some time to find the right one. Your franchisor will typically assist you with finding the right site often guided by geographic market research.
5. Secure the finance
If you’re still interested in pursuing the opportunity you will now need to secure the funding. There are many forms of funding, but the most common form is a loan from a bank. The franchisor will often assist you with your application, suggesting a preferred bank and providing templates for you to complete your business plan. Remember that banks will normally expect the franchisee to contribute at least 40-50% of the capital investment required.
6. Sign on the dotted line (but read the small print first)
At least two weeks before you sign a franchise agreement, you’ll receive a franchise disclosure document from the franchisor. This document will give you the full details of the business including any possible areas of concern such as impending litigation as well as in-depth information about the businesses prospects. Read this document carefully and have the documents reviewed by a lawyer familiar with franchise agreements to explain it to you. You may also be required to sign a non-disclosure agreement to deter you from passing on highly confidential information.
If you are satisfied with the information shared you will go on to sign the franchise agreement. Franchise agreements are subject to the Consumer Protection Act (CPA). The CPA states that a franchisee should have at least 14 days to consider both the franchise agreement and disclosure document and that a franchisee may cancel a franchise agreement within 10 days of signing it without penalty. This is known as a cooling off period. Once again, you should have the document reviewed by a legal professional to ensure that the agreement is for the benefit of both parties.
7. Preparing for launch
Now that the legal finalities are concluded you’ll be working hard to prepare for the launch of the franchise. Depending on the complexity of the business this could involve recruiting staff, shopfitting, negotiating leases, buying stock, undergoing initial training and learning new systems. While becoming a franchisee may seem like an onerous process, the real challenges still lie ahead as you grow your business.
We’re there to help you
With more than 650 franchise systems in South Africa, many prospective franchisees are finding the right franchise to be a daunting process. Whichfranchise.co.za is the leading website for potential franchisees looking for information, advice and opportunities in South Africa.
- We’ll help you identify if franchising is for you and provide a step-by-step guide to buying a franchise.
- We work with some of South Africa’s most well-established franchise brands as well as exciting new entrants.
- From raising finance to
- legal advice – we have a team of experts to point you in the right direction.
- Sign up to receive regular newsletter about developments in the South African franchise industry.