The biggest challenge in franchising is…

It is said that franchising is a sure-fire way of securing business success, being cemented on the successes of other aspiring business pioneers. Even though franchise businesses usually come with tried and tested plans and practices, the business concept will still encounter challenges on the road to success. Managing Executive of The Fish & Chip Co, Marcel Strauss shares more on the hurdles in franchising and how these can be overcome, as based on a recent survey shared by FASA.

Sustained success as a franchisee is predominantly an arduous task, as these entrepreneurs encounter a host of challenges and setbacks in a customer service orientated business that requires patience, dedication, and constant attention to detail. It is imperative that the business owner understands the mental fortitude, resolve and commitment required to run a successful franchise. But what is really challenging franchisees and what can be done for them to overcome – or better manage – the hurdles that they face?

The Franchising Association of South Africa (FASA) recently shared the results of the FASA/Sanlam Franchise Industry Survey for 2013, which revealed some interesting results on the South African franchising market and the trends that are emerging throughout.

Aside from surveying existing systems, identifying new franchised systems and their franchisor management and staff, as well as looking at the sector’s contribution to BEE, the survey revealed that the biggest challenge that franchisees face in their businesses, is first and foremost, people related. Obtaining the right staff compliment with the right skills remains a great challenge and one which will have a detrimental effect on the business if not managed correctly from the start.

For any business to attract customers and keep them loyal to the brand, hiring the right staff is crucial as employees are the first point of contact with customers. If they lack in the needed skills and have a poor ability to deal with customers, the perception around the franchise and brand as a whole could be impacted. Franchisors are only able to provide guidance in this regard as procurement in the franchise is not something that is covered by the franchise agreement. Hiring the correct staff is one of the major responsibilities that the franchisee will be held accountable for and something that calls for their constant managerial skills and HR insight.

It is recommended that a franchisee learns as much from the training offered by the franchisor in this regard and really takes the time to implement internal training programmes within their store. Staff need to be continuously developed so that they never lose sight of their value in making the brand a success.

Interestingly, according to the FASA survey, obtaining finance to run the franchise is a challenge that is second to the people related challenges faced, proving that ‘human capital’ is a far greater challenge than obtaining monetary capital.

The establishment of a franchise, as we know, requires a substantial investment, with an average of R905 000 initial working capital required (for fast food franchises) to start the business. Whilst there are individuals who are able to provide these funds from their own resources, the majority of interested entrepreneurs need to make use of external funding sources and obtain financing. The challenge in this? Most banks require up to 50% of the amount that will be invested – in cash or unencumbered funds. The business thus needs to be funded with a mix of the individuals’ own capital and the borrowed capital obtained from a financial institution. Still, most entrepreneurs will not be able to even provide 50% of the total amount needed.

It is with this challenge in mind that companies such as Taste Holdings (The Fish & Chip Co.’s holding company) are working with other financial institutions, namely Nedbank and Brimstone Investments, in order to provide competitive funding for potential franchisees who, under normal circumstances, would not have the required security to acquire a franchise. Through the initiative, potential franchisees need to invest a basic deposit of R120 000 in cash instead of the full R550 000. The balance of the total set-up cost (including working capital) will then be funded by Nedbank.

Overcoming the funding hurdle is never a straight forward one. It is advisable that entrepreneurs do proper research on the franchise that they are interested in and have an informed understanding of the financial requirements involved. It is also good to remember that building up savings for this dream will be worth the wait and investing in a franchise should not be a rushed decision.

The important thing to bear in mind in franchising- as in any business is that there are no quick fixes and no ‘get-rich-quick’ schemes. Challenges do arise no matter what business model is being followed and it is the manner in which these challenges are dealt with that determines the success of the business in the end.

Opinion piece shared by PR Worx.

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