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Five things that Keep New Franchisees’ Awake at Night

News, Articles, Success Stories and Advice on Franchising
Five things that Keep New Franchisees’ Awake at Night

Five things that Keep New Franchisees’ Awake at Night

Being a franchisee means you’re “in business for yourself but not by yourself.” The franchisor offers you a solid business model, proven demand for a product or service as well as support to run the business. Surely this means new franchisees have nothing to worry about? Not quite. Despite the advantages, franchisees have deep-seated and quite natural fears. If these fears aren’t managed, they could cripple the business before it gets off the ground. To avoid this fate, find out what these common fears are and how to manage them.

Five new franchisees fears and how to deal with them

1. SA’s poor economic outlook

South Africa's Economic OUtlookOver the years, South Africa’s economic performance has deteriorated. During his budget speech earlier this year, Finance Minister Nhlanhla Nene said the economy would expand by just 2% this year. Growth would be a still sluggish 2.4% next year. In addition, these economic forecasts could deteriorate should the electricity crisis worsen.

This doesn’t bode well if you’re an entrepreneur looking to establish a new business.

How to deal with this fear:

While the country’s economic outlook is poor, it’s not all doom and gloom if you’re in the franchising sector. A recent survey by the Franchise Association of South Africa (FASA) showed that South Africa’s franchising sector remains strong and is a substantial and growing contributor to the economy. In fact, the franchising sector employs more than 300 000 people and comprises an estimated 9.7% of the country’s GDP.

The economic conditions may be tough, but this doesn’t mean that you won’t make money.  Commit to the business and weather the storm. It’s also critical that you select a franchise that is recession resistant.

2. Failure to reach business goals

Failure to reach business goalWhen franchisees look at documents such as the franchise agreement, operations manual, and their obligations, many will fear that they will be unable to achieve all their business goals.

How to deal with this fear:

While buying into a franchise is not a guarantee of success; you need to know that with a good franchisor on your side, you will reach your business goals such as profit targets. If you break down goals into small manageable pieces, you’ll find that they become achievable. It may be useful to find a mentor or coach to guide you to meet your business goals.

Don’t be afraid to ask for help. It’s also important to realise that a good franchisor wants to see you succeed and is more than willing to support you, protect you and help you build a growing business.  Just bear in mind that a franchisor’s support doesn’t alleviate the personal commitment of being hands-on in the running of your business.

3. No-one understands what I’m going through

Feel alone in the big bad world of franchisingWhen faced with challenges, new franchisees start to feel like no-one understands what they are going through and that they are all alone in the big world of franchising.

How to deal with this fear:

You are not alone as a franchisee. South Africa has 668 franchised systems and about 30 206 franchise outlets. There are many people in the same boat! As a franchisee, you can also join the Franchise Association of South Africa, an industry body dedicated to keeping members informed and also to providing benefits to members.

If you have fears, go out there and talk to franchisees in your network or even those who aren’t. If you haven’t bought into a franchise yet, speak to franchise owners of the franchise you’re considering to find out the following:

  • How the franchisor treats them;
  • What challenges they face and how they deal with them; and
  • If they would do it all again.

4. Initial fees are unreasonable

Franchise Initial FeesMany franchisees believe the fixed amount, usually payable upon the signing of the franchise agreement, in exchange for the right to use the franchise’s name, logo and business systems is too high. They may believe that they are being exploited.

How to deal with this fear:

Before you conclude that an upfront fee is too high, you must understand why you need to pay it. You need to pay an upfront fee because:

  • It helps the franchisor with the development of the franchise business, site selection, lease negotiation business planning, securing finance, outlet design and build, staff recruitment and training as well as pre-launch marketing locally.
  • This fee is also remuneration to the franchisor for developing the concept – the business know-how.

If you are dealing with an ethical franchisor who belongs to the Franchise Association of South Africa (FASA), chances are, he/she will charge you a fair upfront fee that’s market related.

As a franchisee, you have a duty to do your research. You have to compare what the market is charging and look at what the franchisor is offering. You also have to remember that upfront fees aren’t the same for all franchisees. It varies, depending on a variety of factors. For example, if an outlet is in a prime area, it will certainly be more profitable and provide greater returns than an outlet in a secondary area. Therefore, a prime area justifies a higher fee.

Paying an upfront fee is certainly justified in the franchising sector, and it’s important to be properly informed before jumping to conclusions and screaming exploitation.

5. Not having adequate skills

Adequate skills to become a franchiseeBeing in the franchising sector is totally different, and it requires certain skills to run the business effectively. Most new franchisees worry that their skills won’t measure up.

How to deal with this fear:

This concern can be cured by shadowing an experienced franchisee for a day or two. You’ll quickly figure out what’s required to be successful in the business. The franchisor will also provide detailed initial training usually consisting of class-room and in-store training to equip you and your staff to run the business.  Also be reassured that a responsible franchisor will have conducted a rigorous recruitment process, including psychometric testing. This means that the franchisor has every confidence that you’ll succeed.

Don’t let fear get in the way of your business success

Fear is a normal part of life. So it’s not surprising that as a new franchisee or as someone considering being a franchisee, you would have fears about this business model. Don’t let fear get in the way of your business success. For more information about what it’s like to be a franchisee navigate around or send a question to one of our many franchising experts.

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