What Constitutes A Franchise?

 1. A successful concept and name 

Unlike a business idea or a one-off business, the franchise concept is an established business with a certain degree of success, a proven reputation and an established and recognised brand name.

2. Proven product or service

In franchise concepts there is always a sought after product or service that has proved to be successful and for which there is a demand in other areas. With the franchisor having already taken the set up risks, invested in setting up the business and proved its viability, franchisees are ensured of a better chance of success with minimised risks.

3. Franchise contract

The franchise success is based on a contract that ensures that the concept is correctly followed by each and every franchisee that buys into the business and that its brand name, trademarks and systems are protected. Whilst this seems biased towards the franchisor, it also offers a large measure of security to franchisees who can take comfort that all franchisees involved in the business work towards a common goal of success.

4. The business know how

A reputable franchise system will have its business format fully developed with a comprehensive Operations Manual that gives the blueprint on how to successfully implement the business.

5. Comprehensive training 

The beauty of the franchise system is that it comes with complete training in the business that it offers – from a technical, operational and managerial aspect. As part of the business format the franchisor undertakes to train the franchisee in the operation of the system prior to the opening of the business, and assist with the opening of the business.

6. Ongoing training

The franchisor has the obligation to make his brand and business succeed in the long-term and it is incumbent on him to offer ongoing training that will keep pace with the expansion of the franchise and its future success.

7. Operational support

Whether it’s on the technical, operational or managerial level, franchisors must continually provide direction in terms of where the business is heading, what research and development needs to take place to take it to new heights and always improve on management efficiencies.

8. Benchmarking

The mark of a good franchise brand is its continual bench-marking – both amongst its own franchisees and with its competitors. Keeping ahead of the pack is the single most important task of any franchisor.

9. Marketing assistance

The success of most franchise brands is a result of innovative marketing that ensures that the spread of franchisees is backed by effective advertising and promotion. In most cases funds pooled by franchisees goes towards national advertising campaigns aimed at benefiting both the brand and the individual franchises.

10. Group benefits

The benefits of belonging to a franchise system are many and they all relate back to the pooling of resources. Whether it’s the sharing of the brand name, the sharing and solving of problems and challenges, the pooling of marketing resources or the group purchasing power that results in lower-cost goods, these unique elements are the reasons why franchising has such a high success rate.

Highlighting the challenges

Trading conditions are tough and those franchise groups that have not pre-empted and prepared for the challenges ahead could suffer dire consequences.

For both the entrepreneur wanting to start a franchise concept or a franchisee wanting to invest in a going concern, we highlight some red flags.

For potential franchisors

– Not every single business concept or idea is franchisable.

– Don’t franchise your business unless you have a good financial track record of the performance of the business in a number of different locations and markets i.e. locations in a high street, a shopping mall, in a city and rural applications.

– Test the business with a few franchisees in the early stages that are willing to be ‘test sites’ in order to hone and fine-tune every aspect of the business model.

– Don’t franchise your business unless you have the financial independence to support franchised outlets adequately especially in terms of marketing.

For potential franchisees

– Do not invest in a franchise unless it is an accredited franchisor (if things go wrong as they sometimes do, you are ‘on your own’).

– Do your market research very thoroughly – meet with existing franchisees and learn what they have experienced in respect of promises made by the franchisors, marketing, guidance, training and support and most importantly ask them if they would buy another business from the franchisor.

What do you think are the main benefits of being involved in a franchise as opposed to running your own business?

Franchisors are expected to provide franchisees with:

• Support – starting with selecting the right franchisee for the business, site selection, staff selection and training, establishing the business, marketing, lease negotiations, financial controls and management, HR issues, supply and price input – the list goes on.
• Having a Big Brother – There is no comparison being on your own in your own business especially if you are a new or inexperienced business owner as you have access to none of the above services franchisors usually offer. In some cases it may also be easier to secure funding for a franchise than one’s own business.

For more information and articles on franchising visit: www.fasa.co.za.