FASA: Money Talks

FASA’s executive director, Vera Valasis talks about the challenges currently facing franchising and shares some insight on funding.

FASA: Money Talks

What is the best advice you would give a franchisee?

Potential franchisees must research the company that they are interested in and ask as many questions as possible, especially of existing franchisees. It’s a good sign if franchisees want to open a second or third outlet under the same brand name.

What do you think the most common misconceptions among franchisees are?  

Some potential franchisees still think if they have their own franchise they can run the business as they please, have more time to themselves and have financial freedom. Franchising is not for true entrepreneurs as franchisors sell a business model that franchisees have to implement and adhere to.

Business owners often have to perform most functions in the business and therefore have less leisure time than they anticipate. Financial freedom happens to a few successful franchisees after many years of hard work and is not a given.

What are the most important steps a new franchisee should take when starting out? 

Potential franchisees must ensure that the business is geared correctly and that adequate funding is available to manage the cash flow during the first six to 12 months of opening the new business. Debt-ridden start-up franchises have a lower chance of success because unforeseen expenses often sink the business during the first year or two.

What is the next big trend?

Global economic constraints may result in fewer international brands entering South Africa as they usually charge a relatively high master licence fee which is affordable only to a select group of business owners. Growing the business is then the next challenge, as funding (especially for new or start-up brands) is still a huge obstacle to overcome.

There are many interesting concepts in the SME sector and with the right support and nurturing, these concepts may become recognised franchises over time.

What is the biggest current challenge for franchising? 

Over time, franchisors have to successfully transform their franchised divisions to accommodate black franchisees in larger numbers. Future growth lies in building a successful brand where perhaps the majority or a large number of the franchise owners are black South Africans.

The old traditional approach to business has died out and unless franchisors also embrace social media marketing and retain their track record of reliable decision-making they too will die out. The industry quickly needs to move to an international standard of reporting on their successful franchisees irrespective of colour, but reflective of the country’s population.

Funding remains of critical importance. The days where funders granted funds willy-nilly to inexperienced young business owners buying an expensive franchised outlet are over. Funders not only put the potential franchisee under scrutiny but also the franchisor as well as the outlet to be sold/franchised.

Franchise Zone
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Franchise Zone is published by Entrepreneur Media SA. It offers advice and franchising opportunities in South Africa.

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