Franchising Pulls in Profits
South Africa’s franchise industry succeeded in improving its turnover by 12% over the difficult period between 2008 and 2010, and the success rate of new franchises remains excellent. It is much better than for new businesses in general.
Bendeta Gordon, of Franchize Directions, says 2,286 new franchise businesses started over the previous two years, and R287,15 billion was contributed to South Africa’s economy.
“Franchisors are constantly improving their systems and business models to make up for the uncertainty in the market. If these enterprising people see only a little growth potential you can be sure new business opportunities will come from it,” says Gordon.
In its latest economic preview for franchises, PwC also stressed that it is a growing, successful sector. South Africa’s franchising industry (which currently contributes around 11,8% to the GDP) still has a lot of expansion potential, however, when one bears in mind that franchising contributes an estimated 50% to the United States’ economy and 25% to Australia’s.
Vera Valasis, CEO of the Franchise Association of South Africa (Fasa), confirms that a franchise picked and tackled correctly can be very rewarding. “However, for some it can be very stressful if they haven’t researched the industry properly before investing in it.”
Fasa therefore recommends that prospective franchisees should investigate the industry very thoroughly before making a decision. It is also recommended that investors should adopt a long term approach. This includes research into the particular franchise’s chances of succeeding financially; how long it could take before turning a profit; and whether it is in line with your own plans to be involved with a business for several years.
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Before you Enter the Franchise Industry
• Compare the different franchise options, even within a sector. You could perhaps feel more at home with one franchisor than another. Liaise with Fasa about a franchise group’s status.
• Let an accountant look at the figures before you go to all the trouble of drawing up a business plan. Look realistically at turnover potential, training and other costs and even hidden expenses. Can you survive until it becomes profitable?
• Make sure you understand exactly what the legal aspects of the business involve. Get guidance from lawyers with specialist knowledge of the field.
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• Most importantly: Does your personality suit this rather rigid industry?
Source: Fasa
Story by Johann van Zyl
