Tip for buying a franchise: let the buyer beware

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Sandwich Baron founder and CEO shares her advice.  Sally J’Arlette-Joy

Buying a franchise is probably one of the most important decisions a person can make, yet many aspiring entrepreneurs fail to ask the important and even most obvious questions before purchasing.

Sandwich Baron founder and CEO Sally J’Arlette-Joy has 20 years’ experience in opening her 47 franchise outlets and interviewing applicants. She encourages buyers to be wary of all verbal promises, get them in writing, and speak to franchisees.

She provides her most proven tips that prospective franchise buyers should follow to select a franchise model that suits them.

“If you’re going to succeed with a franchise, you first need to purchase one which is positioned in a business and lifestyle you know you will enjoy doing. You are going to be spending every day in the shop. For instance, in the case of a Sandwich Baron, your primary motivation must be passion for food and for our menu of fresh, tasty sandwiches. Without that passion, a franchisee is unlikely to work in the store each day, and our experience is that unless owners are regularly in the shop, the business is likely to fail.”

J’Arlette-Joy says it continues to amaze her how many people buy a franchise without initially meeting the franchisor. “It is the franchisor you will ultimately have the relationship with, so establish a connection from the outset.” This tends to happen when a prospective buyer is introduced through an agent or intermediary. Neither of these parties has the same level of commitment to a long-term relationship, she explains.

“An agent may make empty promises to force through a sale, or stretch the truth on behalf of an existing owner who is selling. Remember, the seller wants to get out, so be extra careful before accepting what they say. Do not just expect a selling franchisee to be 100% ethical: they will hide details such as unpaid suppliers and how tough the business is.” She recommends, after meeting with the franchisor, that you speak to other franchisees to see if they are happy and if their business is profitable. “If it isn’t profitable, they won’t be happy.”

When you buy a franchise, you’re buying its trusted systems and processes. However, be aware that a brand alone is not sufficient to guarantee success. J’Arlette-Joy says there have been franchises on the South African market which have grown too rapidly and ultimately failed, primarily because the owner himself never ran a store. “In addition to brand reputation, examine the franchisor’s personal experience in successfully running a store.”

Once a buyer has settled on a particular franchise, there are still many details to be considered.

“For instance, is it a turnkey operation which means that the business includes all the equipment, systems and training. If not, you need to verify what you will have to buy in addition.” A franchise agreement may require the purchase of unaffordable top-of-the-range equipment and fittings, or have a clause requiring subsequent renovations. “You need to factor in those costs,” she says. The costs of owning a franchise differ from one to another, so find out exactly what you will be paying and for what.

Depending on the franchise model, training may or may not be included. For example, Sandwich Baron provides a month’s intense development at its training store, followed by a month’s supervision to manage any teething problems. “If a franchisee is left to try and figure out the pieces on their own, the franchise will likely fail,” she says.

J’Arlette-Joy suggests you buy into a franchise affiliated to FASA (Franchising Association of South Africa). FASA requires members to give franchisees a Disclosure Document which lists the history of all stores bought and sold. “This doesn’t replace your own research, but does offer greater transparency.”

Most purchasing mistakes get made by taking a person’s word on something. If it isn’t written in the agreement, you cannot subsequently insist upon it. “Don’t blindly trust a franchisor. Adopt an attitude of wariness and question everything and everybody,” concludes J’Arlette-Joy.

Source: https://www.moneyweb.co.za/

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