Top Tips for those Looking to Invest in SA’s Franchise Sector
Gerrie van Biljon, Executive Director of Business Partners Limited, explains why the franchise sector is an attractive investment opportunity for entrepreneurs
South Africa’s franchise industry has been resilient; experiencing strong growth during the tough economic conditions witnessed over the past six years, and has seen an increase in investment by franchisees and franchisors, especially amongst smaller franchised businesses with lower setup costs.
This is according to Gerrie van Biljon, Executive Director of Business Partners Limited, who says that this growth makes the franchise industry an attractive investment opportunity. He explains that businesses operating within the education and training, health and beauty, retail, and quick-service restaurant industries have experienced the most significant growth.
“The growing middle class and increased disposable income in South Africa has resulted in consumers seeking convenience to the ever-increasing pressures of work and home life, and has been the largest contributor to the rise of businesses operating within these industries,” says van Biljon.
He adds that future investment forecasts remain positive for the franchise industry: “Only 17 franchise classification categories of the local economy have a significant presence within the industry, and considering other countries globally, such as Canada, with approximately 50 franchise classification categories, and the United States with 70, South Africa can expect the franchise industry to continue to provide solid growth in the future.”
It has been reported that the franchise sector as a whole contributes approximately 9.7 percent to the total GDP of the country and provides in excess of 500,000 jobs. Van Biljon says that given the current economic environment in the country, the franchise sector offers a safer investment for entrepreneurs when compared to new, untried business models.
“Franchising is about having your own business, but not being alone in your own business. Franchises traditionally have a much lower failure rate than other start-up businesses as an entrepreneur is buying a business concept and system, where most of the kinks have already been ironed out by someone else prior to them.”
Van Biljon elaborates on a few things that entrepreneurs need to know when considering investing in the franchise industry: “As a strong franchise has a well-established and proven track record, a financier therefore may be more likely to provide finance.”
He adds that the guesswork associated with starting a business is also taken care of. “The total package includes trademarks, easy access to an established product, a proven marketing method, equipment and inventory.
“Many franchisors also provide their franchisees with various proven business systems including financial and accounting systems, on-going training and support, research and development, and planning and forecasting, for example. They will equip the entrepreneur with the techniques that have made the business successful and help them use these tools to develop their own business successfully.”
With that said, van Biljon adds that the essence of a franchise – buying and operating a proven concept – can make the entrepreneur feel more like a manager than his own boss. “A lack of control may be difficult for those who are more entrepreneurial and find it hard to conform to someone else’s system.”
The entrepreneur is also committed as a franchise agreement is binding and can be quite restrictive, says van Biljon. “The business owner is locked into certain business practices, fees and even the look of the business. Whether the entrepreneur likes it or not, they must adhere to these guidelines.
“There is also less control when the franchisee decides to sell, as there are procedures that must be followed, including getting the franchisor’s approval of the buyer. Lease conditions and tenure need to also be considered.
Although franchise ownership can provide a proven business model/system with instant brand awareness, it doesn’t always bring about instant wealth. “For that kind of success, business owners need to start a franchise that is in demand, has a good location, possess strong people skills, be willing to put in the hours and learn everything about the company,” concludes van Biljon.