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Low Cost Franchises: Let’s talk the Good, the Bad and the Ugly

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Low Cost Franchises: Let’s talk the Good, the Bad and the Ugly

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

low fixed costA 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

New-FranchiseEvery 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 franchiseThe new franchise
The GOOD
  • Lower entry costs
  • Lower running costs
  • Lower entry costs
  • Greater potential to sell high
  • Greater opportunity to provide feedback
  • Capitalise on the novelty to win new customers
  • Potential opportunities to grow as the franchise brand grows
The BAD
  • There may not be a low cost option in your chosen sector
  • Sophisticated systems require money – these may not exist here.
  • Systems and procedures may not be fully developed
  • Marketing budget may be small
  • Support team may be lean
  • Trial and error may be costly
  • Requires patience – the franchisor may not have all the answers
The UGLY
  • Concepts that compete on low entry costs alone may not be sustainable
  • A prevalent of ‘imitation’ franchise opportunities
  • Higher risk of franchise failure
  • The concept may be faddish without true market demand

Beware of imitations

ImitationsThere 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.

When in doubt ask the franchisor questionsHere are 9 must ask questions when making your choice:

  1. Does the franchise operate in a large and growing market?
  2. Is there a real demand for the franchise’s products or services?
  3. How active are the competitors?
  4. How strong is the brand?
  5. Does the franchisor have a strong marketing strategy and spend?
  6. What initial and ongoing training is offered?
  7. Does the franchisor have an operations manual documenting systems and procedures?
  8. What is the culture like?
  9. 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

Step 1 in Opening a Franchise: Do your ResearchThere 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 

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