Can I Franchise my Business? – Ten Things to Consider
Many businesses get to a stage where they consider expansion, and franchising is one way of expanding a business footprint. There are many benefits to be had from franchising a business, including expansion with third party capital and the dedication of an owner manager that promotes the business for their own profit. Not all businesses have franchise potential. Any business owner considering franchising should ask themselves the following questions. Ideally, all these questions should have a positive answer.
Anita du Toit
25 November 2020
Many businesses get to a stage where they consider expansion, and franchising is one way of expanding a business footprint. There are many benefits to be had from franchising a business, including expansion with third-party capital and the dedication of an owner-manager that promotes the business for their own profit. Not all businesses have franchise potential. Any business owner considering franchising should ask themselves the following questions. Ideally, all these questions should have a positive answer.
1. Is the business operational?
There are plenty of entrepreneurs with ideas but putting that idea into action is a prerequisite for franchising. Potential franchisees (and banks that offer franchise finance) want to see a track record of operations and profitability.
2. Is the business profitable?
The business must reach the profitability stage prior to franchising in at least one location or branch. Franchisees are looking for a recipe for success, and a positive bottom line is the ultimate marker of a successful business.
3. Can a franchisee afford franchise fees with this business model?
In addition to profitability, the profit margin must have enough room to apply a percentage-based franchise fee and marketing contributions. Franchises thrive when they pool their money to do collective marketing and when the franchisor collects franchise fees to maintain a supportive head office.
4. Can I train other people to do what I do?
Franchising a business implies training other people to operate the business in the same fashion. If the skills required are too difficult to train or if the business is highly reliant on the owner for its success, it will be difficult for the franchise. A good way of testing this is opening another company owned branch to see how the business performs without the involvement of the founder.
5. Do I have enough money to pay for professional assistance?
Franchising has many aspects to consider and it is easy to make mistakes. A potential franchisor should have funds available to invest in the professional advice of a franchise consultant and specialised attorney, to help navigate the journey to franchise readiness.
6. Does the business have an element of uniqueness?
It is easier to franchise a business with some uniqueness, whether it has a “secret recipe” or methods or system that mean a franchisee does not have to reinvent the wheel. It generally feeds market acceptance too, as consumers respond well to businesses that offer something different than the norm.
7. Does the business have an established brand?
Buying into an established brand is a major motivator for franchisees and an essential part of the franchise value proposition, the offering sold to franchisees. If the brand is not known in its area or not well-designed, the business needs to give this attention prior to franchising.
8. Can the franchisee achieve a return on investment within a reasonable timeframe?
A franchisee will make a substantial investment and will most likely apply for finance, whether with a bank or from friends and family. Successful franchises offer a return on investment (after a salary for the franchisee) of between 3-4 years.
9. Will the business achieve financial growth and a return on investment by franchising?
The motivation for franchising a business is usually to grow its footprint and its profits. As a potential franchisor, the business owner should evaluate the potential financial growth and profitability that can be achieved with franchising and whether it is acceptable when compared to expansion through company-owned units.
10. Can the industry sustain a franchise network?
One thing that the Covid19 related lockdowns taught us is that not all industries are bulletproof. If your business is in an industry that will have difficulty in a post-Covid19 economy, franchising is not the way to go. Instead, reinvent and adapt with a new formula before you consider franchising.
Getting professional business advice is the best way forward if you are considering franchising your business. Franchise Fundi has seasoned consultants and service providers available to help new franchisees with every stage of development. For more information, see https://franchisefundi.co.za/
More Sellers Knowledge Bank
Get the latest information, valuable tips and share in the professional knowledge of business experts on selling a business
The decision to sell a franchise is a big one that should be planned and prepared for carefully. If you are a franchise owner currently, chances are you have put a lot of money, time, and effort into the business. It makes sense that with this investment, you want to get the best possible price when you sell. The trick is to use the right steps to ensure a successful sale and a favourable outcome!
Starting out as a business broker may seem daunting; there are many who have been in the business for countless years who have all the connections that those just starting out would truly benefit from. This is where new brokers need to pluck up the courage to speak to those with more experience, and perhaps even form relationships with financial professionals, accountants, attorneys, and other professionals related to the buying and selling game. The right connections will put the broker a step ahead.
There are many small business owners who successfully manage to sell their businesses without using a business broker. There are a few benefits of selling your business without unnecessary third parties – a major one being that the business owner can avoid the transactional fees or commission that the business broker will require from the sale.
Accurate figures can help business owners determine the asking price and how much room there is for business negotiation. Potential buyers should not be chased away by unfair asking prices and negotiations that can’t be justified. Equipped with the right facts and figures, fair business negotiations can run a lot more smoothly.
Whether you’re a new franchisor, or one that has been around a few years, finding the right platform to sell on (when you’re ready to) can be tricky. Many business buyers are opting to buy a franchise rather than a standalone business, because of all the benefits and security of buying a franchise offers. Business for Sale provides an interactive online platform for those looking to buy and sell their businesses. Why would you use a business directory to sell your business? There are a few great reasons!
Selling your business is a serious undertaking, and requires immense preparation and planning. Buyers want to ensure that they are getting the best possible price, while sellers are trying to achieve the same. The process that takes place between the two parties in order to settle on a figure is the negotiation. And there is a definite art to negotiating!
When the market conditions are less than ideal (like now), you’ll probably be reluctant to sell your business. We have already provided useful tips for selling a distressed business, but selling a business in a depressed market is a whole different ballgame. There are many different ways that you can hook a serious buyer who will give you the best price, if you follow some basic best practices.
COVID-19 has had a devastating effect on South African businesses, with many being shut down indefinitely. Even major companies like Ster Kinekor took a huge knock and have had to close their doors, or file for business rescue assistance. Many others are in treacherous waters and have become distressed businesses. But this doesn’t necessarily need to spell D-O-O-M. There are people who are specifically looking to buy distressed businesses. If you are a business in distress, there are tips that you can follow to sell your business, and you can do it conveniently online!
A great ActionCOACH first and foremost has a passion for business, as well as a passion for helping others. All our successful coaches love business. They love the mechanics of business, how it works, finding ways to improve it, fixing broken pieces, breaking unhealthy old ways, learning about different types, creating new ways of doing things, and having fun in the process. For more info contact: Claudell van Eeden, email@example.com
Unlike other businesses, the online venture may not have any tangible assets such as property, machinery, or vehicles instead they will have Intelectual Property, websites, and systems. The company may also have an online presence and income generation as proof of its value. Your business needs to be listed at a realistic market-related price. The correct valuation is thus imperative to ensure that the online business is sold at the right price. Below are four common online business valuation mistakes to avoid.
Employees drive the goodwill of the business and in the case of a change in ownership represent continuity. One of the most important deciding factors for a buyer would always be: Does the staff know about the sale? Will the manager stay on in the business? How long have your staff been working for you? Taking over a business, the continuity of the staff is the most important factor, especially if the buyer is new to the industry they will be very dependent on your current staff compliment.
Though there may be hundreds of businesses being advertised on websites “for sale”, at any given day there are only two types of businesses in the market: Those that don’t sell; and Those that sell.
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