Franchising Remains a Thriving and Growing Sector
The franchise sector in South Africa continues to grow and thrive despite testing economic conditions. According to BDFM Franchising Insight brief for August 14, 2014, this sector, comprising of 668 franchised systems, with just over 30 000 franchised outlets and 17 franchise business sectors, is a significant employer of manpower employing more than 300 000 people nationally.
For those wanting to enter the sector, one of the big questions to address is what industry would suit them best?
“Take for example the number of hours you are happy to dedicate to the project,” advises Richard Mukheibir, CEO of Cash Converters. “For example, Fast Food franchises often require dedicated long hours and if you are not prepared to put in the extra time and make a full time commitment this may not be the option for you. On the other hand, many retail franchisees, while happy to commit, still want weekends and evenings free, so this is a better option for them.”
Then there is the question of capital. Many, if not all, start-up businesses face the challenge of insufficient capital. For those looking to open a franchise this challenge is still a reality but perhaps less of an obstacle as financial institutions base financing decisions on a strong business plan and security.
“Ideally one should look for a business with an established model and a good track record. A successful brand gives you a far greater chance of securing the finances needed,” says Mukheibir, using a franchise like Cash Converters as an example. “We have a tried and tested global formula with intellectual capital from over 21 countries and we offer the major benefit of an international model. This goes along way in making financial institutions pro investing in your business.”
Mukheibir advises that limiting risk is critical when starting a franchise business and points out that size is definitely a factor in start-ups. “Rather first start by finding a business on a smaller scale to cut your teeth on. The principles of running a business are the same irrespective of size. Principles including managing customers, accounts, administration and so on are all pieces that make up a business, regardless of the size of the business, so rather start small, be successful and in three to five years you can expand your store.”
A pre-requisite for success is getting through the hard times, says Mukheibir. “It also helps if the business you started has multiple revenue streams to buffer you from the bad times. All businesses run into problems at times but if you can think and move quickly, ‘fail fast’ if you’re going to fail at all, and nail your business model, this significantly improves your chances of success.”
Franchising is definitely not for everyone and franchisors recognise the importance of selecting the right personality for their franchise system upfront.
“We always ask: does this potential franchiser’s character fit with our business model? If not, there’s very little chance of success and we won’t encourage or back that particular applicant,” says Mukheibir. He advises potential franchisees to be honest with themselves as to their motives, their health, lifestyle and family situation to see if all these fit into the plan to become part of the sector.
“Generally any new business owner needs drive and motivation. If you do fit the mould and have what it takes to be a franchisee, have chosen the right brand and are prepared to work hard, you’ve got a great chance of mitigating your risk and building a successful business,” he says.