Do Business Well

Once you have honed in on one or a few franchise opportunities, you can commence the evaluation process in earnest. Create a shortlist and visit the franchisors of your choice. Ask them to show you around and to provide you with additional information. We have already said that the main rationale for the purchase of a franchise must be your conviction that the franchise will make your business success more predictable. This requires that the franchisor offers you, firstly, a tried and tested concept linked to a respected brand and secondly, extensive initial and ongoing support.

• Please remember that every bona fide franchisor will be happy to give you as much information as you want, and more. Many franchisors will even invite you to spend a day or so at one of their units, some go as far as making it compulsory. In other words, they will not be prepared to take discussions further unless you have spent some time at a unit. This is an excellent opportunity for both of you:
• It will enable you to see the workings of the business from the inside and get a real feel for it.
• The franchisor will have an opportunity to observe you in what might well become your future environment, and give you meaningful feedback.

When selecting a franchise, in addition to the other aspects we have discussed, the franchisor’s growth plan will provide you with valuable clues. Just like good generals, responsible franchisors will be careful to expand in stages, all the while making certain that they have surveyed the new territory and have the logistics in place to support it. To purchase a franchise that is far removed from Head Office, with no branch support structure in place, may turn out to be a poor choice.

Figure 12 will help you to evaluate yourself, and Figure 13 will guide you in the process you should follow when you evaluate a franchise offer. Not every item the checklist contains will be relevant in all cases. This will depend, to a certain extent at least, on industry specifics as well as your own expectations. We recommend that you proceed as follows: When you assess a franchise, compare the extent of services the package offers with the items shown in the checklist. Highlight those areas that the franchise package fails to address and decide whether they actually are relevant to the business under investigation, and how important they are to you.

By proceeding in a systematic manner, you will make your preliminary selection with confidence. Armed with your findings, you are then ready to seek professional advice. Should you be fortunate enough to deal with a bank that maintains a franchise division, make it your first stop. The bank’s franchise relationship manager will know the industry and its main players. He may not be willing to take a firm stance in the matter, simply because client confidentiality may come into play here. If you listen attentively to his responses, however, you should be able to notice the vibes, and whether the proposal merits further investigation or not.

If you have the feeling that this is indeed the case, ask an attorney experienced in franchise matters to check out the franchise agreement, and an accountant to scrutinise the financial projections the franchisor has provided you with. Expect to pay for this advice and remember that it would be false economy to save on this score.

Ask yourself: “Will I be happy
as a franchisee?”

Before you even consider what franchise opportunities you should investigate, a little exercise in self-assessment could be useful. The following questions will guide you along. As you answer them, remember that if you are less than realistic or truthful, you will be the one that is likely to get hurt.

Am I entrepreneurial material? To become an entrepreneur is a big step in anyone’s book. Indeed, in most people’s lives, it will be the most important decision they ever make. Why? Simply because to set up a business of your own generally requires an inordinately high level of commitment, as well as the ability to motivate and control others. Should failure occur, the consequences can be catastrophic, both from a financial and an emotional point of view.

Can I accept instructions? Many entrepreneurs want to do things their own way and find it difficult to follow instructions. If this is you, a franchise with its highly standardised approach may not be what you are seeking.

Am I a people person? Most franchises are marketing-oriented and require a great deal of interaction with customers. Should this make you uncomfortable, be extra careful in selecting a type of franchise where this is of lesser importance.

Am I a team player? Whilst many entrepreneurs are highly individualistic, a franchisee will be expected to interact with the franchisor, his staff and other franchisees in the network on an ongoing basis. Relationship building will be important in this regard.

Do I have the necessary motivation? It is true, of course, that every entrepreneur, be he an entirely independent operator or a member of a franchised network, needs to motivate himself, but there is an important difference. For some independents, to become the biggest and the best in their area will be the ultimate goal, others will be quite content to earn a good living. As a franchisee, you are unlikely to have this choice. Franchise networks will expect you to maximise the potential of your territory - are you prepared for this?

Evaluating a Franchise offer -
Questions to ask the franchisor

Ask: May I have a copy of the disclosure document?

The disclosure document contains most if not all of theinformation you and your professional advisers will need toassess the franchise offer. If the franchisor you are investigating does not have a disclosure document, proceed with caution. At the very least, you will have to obtain the information that would be included in the disclosure document, for example:

Names, background and experience of the individuals involved in the business at senior level?

When was the business established, what is its track record and future expansion plans?

Industry overview, who are the main players and how does your company fit in?

What is the potential of the territory under negotiation, and how did you arrive at these figures?

How soon can I expect to reach breakeven?

Do you have a site identified or will you assist me in securing one?

State the amount of the initial franchise fee and what does it cover?

What ongoing fees will I be expected to pay and how will they be calculated?

How much will I have to invest in total to get the business operational?

Does this figure include a provision for my initial working capital needs?

Will you assist me in drawing up a business plan for my future territory?

Are you listed as an approved franchisor with a major bank and will you put me in touch with them - would such an introduction give me access to preferential interest rates?

Will you assist me with equipment/product specifications?

Will you train me in all aspects of the business and how long will this take?

In your experience, how long will it take from the day I sign the franchise agreement to the day my unit opens its doors?

How many people will I need to employ and will you assist with their recruitment and training?

Will you help me to get the business started, for example by arranging a Grand Opening event and has the cost been included in the projections?

Do I have to purchase goods / services from you or a supplier nominated by you, and is this based on minimum purchase levels?

How can I be sure that you will always be able to supply, and at competitive prices?

What is the extent of your ongoing franchisee support?

What happens if I encounter operational problems - do you have troubleshooting arrangements in place and who bears the cost?

Do you conduct monthly / quarterly / annual meetings? I Do you publish a newsletter for your franchisees?

Will you give me a list of established franchisees, and may I contact any one or all of them, at my choice?

May I spend a day at one of your company-owned units?

Will I be expected to sign a confidentiality undertaking before you release detailed information to me, and what does this entail?

May I show the information you give me to my professional advisor In conclusion:

Insist on full disclosure and question the justification of upfront fees that are higher than average;

Resist attempts to rush you into a decision - bona fide franchisors be just as keen as you are to ensure that the deal suits both sided

Discuss the opportunity with your professional advisors;

Seek out additional information from any source that is accessible you and obtain additional literature/ guidelines from the Franchi Association of Southern Africa.

What if the unimaginable does happen?

As we have mentioned before, some practitioners are fond of comparing the franchise relationship with a marriage. There is yet another aspect where this holds true. Young couples of all ages, having just announced their engagement and busy planning their forthcoming wedding, are unlikely to contemplate what will happen should the marriage end in divorce. Although this is human, it is also a mistake many people have lived to regret.

In franchising, too, people are excited about joining a network and working together with the franchisor for mutual success. They know that although the relationship is based on cooperation and trust, it is formalised through the franchise agreement, yet they refuse to contemplate the possibility that this agreement could come to an untimely end and what the consequences of this would be. The reasons for forced termination of the franchise ‘agreement will be set out in the agreement itself. Discuss this aspect with your attorney and be aware of the penalties you might face.

But what if the truly unimaginable happens and the franchisor goes lout of business? Although incidents of this nature are rare, they are not unheard of and you should know where this places you.

To give you the good news first, you will not be liable for the franchisor’s debts and your business will be able to continue, albeit without support.

The liquidator will attempt to sell the brand and the franchise network to a third party. If such a deal goes through, the franchise agreement will remain intact and the franchise will essentially continue to function as before. The new franchisor would be bound by the terms of the existing agreement and could not amend them unilaterally.

If no new franchisor can be found, you have two options:

Terminate the agreement on the grounds of the franchisor’s inability to meet his obligations, change your trading name and continue as an independent operator. To proceed in this manner would be beneficial in the absence of bulk purchasing benefits, or if the brand is relatively weak.

Form a syndicate with other franchisees and operate the franchise as a joint venture. This course of action would be advisable if the brand is well established, or if significant price benefits accrue from bulk purchasing.

Possibly related posts: (automatically generated)
Assessing a franchise offer

• Some Franchise Terminology
• Is a franchise the optimal solution? From the prospective franchisor's viewpoint
• Selling the Franchise
• Relationship Franchise Agreement - Operations Manual
• Is a franchise the optimal solution? From the prospective franchisee's viewpoint
• The franchise agreement
• Business format franchise
• Preparations for franchising
• Is the business franchiseable? Some critical success factors
• Investing in a franchise: Take it slow
• Mutual Expectations (franchisees) part 1

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