Low-cost franchises have become hot commodities, and if you choose wisely and start a business without the heavy front-end investment of a retail location, you can increase the potential return on your money.
It’s a well-known numbers game. For example, the typical new restaurant build-out, including franchise fees, can run into the millions. That means some serious lender financing for most people and putting your house on the line, making it an investment at a level that is out of reach for mere mortals trying to make the jump into business ownership.
That’s where low-investment franchises come in. This category includes perfectly robust businesses that can be run from inexpensive office spaces, or even from home offices.
Maid services, in-home care services, trademarked product distribution, interior decorating, auto-mechanic tool distribution and a variety of mobile, van-based repair services are just a few of the categories. If you can get into the business for a total investment of five figures, consider it a lower-end franchise investment.
Getting started with research
As with all franchises, however, it pays to assess the stability of the concept and the financial risks you’re taking. Just because the level of investment is manageable doesn’t make it low-risk; being able to swing a R450 000 investment doesn’t mean you can afford to lose it all. So here is a nugget of franchise advice that’s worth its weight in pink slips: In a word, research.
Don’t let the idea discourage you – it’s rather enjoyable research of gathering information that will make you better at running your franchise. It’s asking people the right questions, and it’s an organised way to investigate a serious investment.
1. Attend trade shows
To get quality information, you need to start by attending franchise trade shows – the annual Business Opportunities and Franchise Expo (BOFE), International Franchise Expo (IFE) and events hosted by the Franchise Association of South Africa (FASA) are a great way to get your feet wet. These expos allow you to meet dozens of franchise reps and learn more about brands you’re interested in.
Be sure to keep an open mind and spend a few minutes writing down what would best suit your needs and financial ability before going to these events.
- Are you good at selling, good with people?
- What are your interests and what excites you?
- Do you want to run the business or just invest?
Having the answers to these questions before you go will allow you to focus your time and energy on investments in your reach. It’s no good spending time investigating a R5 million concept when you can only afford R750 000 for example.
Your goal: After attending a trade show, you should come back with basic information about a number of brands. Follow up by writing an email to the brands that still pique your interest, asking for more information on their franchise programmes.
Where’s the money coming from?
There is always a wide range of performance levels in a franchise system. Some locations are unbeatable, while some owner-operators are fantastic managers and operators. Then there are weaker locations and poorer performers.
Keep this in mind when you review your chosen brands and get talking to franchisees. Those rolling in the dough are bound to sing the brand’s praises, while those underperforming due to their own lack of performance will moan. This in itself is a good test to determine whether the franchise is training its franchisees properly.
2. Trawl the Internet
The Internet is a great resource for information on franchising, not just what you should know about the business and running a franchise, but for learning more about your chosen brands. Be wary of the ratio of hype to facts though, as it tends to be rather high.
But thanks to news sites, home pages, the Consumer Protection Act, and online customer service sites like Hellopeter.com there is a wealth of information available from customer, franchisee and franchisor perspectives.
Your goal: Try to get as much comprehensive information as you can from the sources listed above. Even if the news isn’t all great (and no brand is completely squeaky clean), you should get a good idea of how the consumer responds to the brand, how the brand engages with the public, and whether you’re a good fit. Your two prime areas of Internet research will be that of the franchisor itself, existing franchisees, and to determine whether the brand is FASA accredited or not. This will ensure that the brands you’re interested in are legit, and have a fair and a comprehensive franchise disclosure document and agreement.
Questions to ask franchise reps at show days
It’s always helpful to begin your research with some qualifying questions for franchise reps. These are the top four:
- Can you tell me the total investment range for your programme?
- What are your initial fees?
- Are there other franchisees in my area?
- How long have you been in this business?
3. Find, talk, meet
The final stop on your research quest is to talk to franchisees and interview as many existing franchisees as you can. Some franchisors will be only too happy to sell you the butterflies and rainbows (complete with pots of gold) story in order to secure your investment, but you will gain valuable information of business performance by hearing things from the horse’s mouth.
Your goal: You want to know how much money you can realistically make and how the franchise performs financially. If you sense that the franchisor is being cagey or overly optimistic about finance, speaking to enough franchisees should paint a clearer picture of what you can expect.