How to Choose the Right Franchise to Buy

Start with yourself, not the brand

Be honest about what you bring. The best franchise for someone else may be a poor fit for you.

• Capital. What can you invest without stretching yourself, with enough left for working capital?
• Time. Will you run it hands-on, or through a manager? Many franchisors require owner-operators.
• Lifestyle. Trading hours and weekend work differ enormously between a food outlet and a service franchise.

Know exactly what you are buying

A franchise is a licence to run a system for a set period, in a set area, under set rules. Before you commit, be clear on the length of the term and renewal, your territory and whether it is exclusive, what the initial fee covers (and what it does not), the ongoing royalty and marketing levy, and which suppliers you must use.

Use the disclosure document

Under the Consumer Protection Act, the franchisor must give you a disclosure document at least 14 days before you sign, and you have 10 business days after signing to cancel in writing, without cost or penalty.

Use those 14 days. The document includes the franchisor's financial position, outlet numbers, growth figures, an auditor's or accounting officer's certificate that the business is a going concern, and a list of current franchisees with contact details. Have your accountant and attorney read it too.

Speak to existing franchisees

This is the single most valuable step. Call several, not just the two the franchisor suggests, and ask them these questions.

• Would you buy this franchise again?
• How long did it take to break even, compared with what you were told?
• How responsive is head office when something goes wrong?
• How much working capital did you actually need?

Consistent answers tell you more than any brochure.

Do your own numbers

A franchisor's projections are a starting point, not a forecast for your site. Add up the total investment, the working capital to carry you through the slow early months, your monthly fixed costs, and the turnover you need to break even. Then ask what the business will realistically pay you once it is trading normally.

Judge the franchisor, not just the brand

The brand brings customers in. The franchisor decides whether you can serve them profitably for the next ten years. Look for real training and field support, ongoing investment in the brand, marketing that helps local trade, buying power that saves you money, and a stable, growing network.

Get the site right

In retail and food, location matters more than almost anything else. A good franchisor will help assess the site and must approve it, but do not let enthusiasm for a brand push you into a weak site or an unaffordable lease. Make sure the lease term matches your franchise term.

Before you sign

Take the full disclosure period, get professional advice, speak to franchisees the franchisor did not introduce you to, and be prepared to walk away from an opportunity that does not fit. There will be another one.

Whether you are considering selling your business, need a professional business valuation, or are looking for your next acquisition opportunity, our experienced business brokers are here to assist. Contact us at aldes@aldes.co.za or visit www.aldes.co.za to take the next step.