Low Cost Franchises: Let’s talk the Good, the Bad and the Ugly
Becoming your own boss does not necessarily require a huge upfront investment. There are countless proven low cost franchise opportunities and exciting new franchise concepts on the market.
While the investment amounts might be smaller, the lower-cost segment is big on the impact felt in the South African franchise sector.
The accessibility of these types of opportunities mean that they’re a great entry point into franchising. Today’s tough economic conditions demand a tighter watch on the budget! This means that we can expect to see more low cost franchises emerging in times to come.
The range of low cost business opportunities available can make your decision quite difficult. Take heart, we’ve compiled this article to help you avoid the common pitfalls when selecting a new or low cost franchise.
The low cost low down
A low cost franchise is defined as a franchise opportunity with a total upfront investment of less than R200 000.
According to the latest Franchise Association of South Africa (FASA) the average upfront fee (not total initial investment) is R209 000. The amounts range from:
- R460 000 for a personal services outlets to
- R74 000 for a childcare, education and training outlets.
A low cost franchise would also have low working capital requirements and lower ongoing costs.
Many of these types of business keep costs lean by operating from a home base – reducing risk in those tough first years.
But low cost is not restricted to home businesses; there are even food franchises that fall within the category. A low initial investment also means little or no debt to pay off from the start.
Importantly, less financial commitment also means less stress for the new franchisee.
In some cases, low cost franchises may be the perfect opportunity for investors and people exploring a second revenue stream.
The bright and shiny
Every great franchise brand had to start somewhere. Buying into a new franchise concept is also a possibility for any aspirant franchisee looking to keep initial costs low.
In these cases, the franchisor keeps the costs down in order to compete for the best franchises. Getting in at the beginning can mean a higher return when you exit the business.
With a new franchise concept, make sure that:
- The brand is strong and
- That you’re buying into a network that offers you a good enough level of support.
The franchisor may not have perfected everything yet, but there should be enough groundwork and commitment to win your trust.
Franchising offers you the advantages of not needing to implement systems that most small business lack. Here, the franchisor will have refined many systems and procedures – reducing the administrative burden.
In the case of a new franchise these vital systems may not be fully developed. The franchisor may also not have been able to invest in expensive systems that add value to the franchisee.
On the upside, as a new franchisee, you are set to benefit when these systems are implemented without having paid higher upfront fees.
Pros and cons – low cost vs new franchise option
|Low cost franchise||The new franchise|
Beware of imitations
There are many opportunities that present themselves as franchises without exhibiting any of the hallmarks of a true franchise system. These hallmarks include:
- Strong centralised marketing
- Comprehensive initial and ongoing training
- A head office support structure
Beware of those schemes offering cheap start-up costs with no franchise fees which will leave you stranded without any further support! In many cases these are operated by unscrupulous franchisors whose business model is built solely on collecting upfront fees from unwitting franchisees.
Credentials and fundamentals
As with any franchise opportunity a lower cost franchise should have solid business fundamentals.
Here are 9 must ask questions when making your choice:
- Does the franchise operate in a large and growing market?
- Is there a real demand for the franchise’s products or services?
- How active are the competitors?
- How strong is the brand?
- Does the franchisor have a strong marketing strategy and spend?
- What initial and ongoing training is offered?
- Does the franchisor have an operations manual documenting systems and procedures?
- What is the culture like?
- Are their regular opportunities to interact with other franchisees?
If you’re thinking about purchasing a franchise, it is always a good idea to have the franchise agreement reviewed by an experienced franchise lawyer before you sign on the dotted line.
Start your search today
There are a number of great, affordable fast food franchises including newer, high potential concepts.
Other opportunities represented on whichfranchise.co.za include:
Have a low cost franchise in your sights? Reach out to the experts at whichfranchise.co.za