In this article we are going to show you how a franchise works, the requirements that it must meet and everything you need to know to make it profitable. And if you are wondering what you can invest in South Africa in 2020, franchises can be a good option.
What does it take to franchise a business?
If we want to know how to franchise a business, we must have the minimum legal knowledge and know what are the requirements that a franchisee must meet:
- The first thing we must know when setting up a profitable franchise is that you must have a business that works. Besides, it must be managed for enough time to have proof of its profitability. Let’s not forget that for a franchise to exist, there must be a franchisee, that is, a person who wants to start a business with your brand. If your brand is not profitable, it will be very difficult for you to find a franchisee who wants to do it.
- Have a registered trademark and logo (and a slogan, sometimes). Also, these must be attractive, since it will be easier to sell them.
- Register your business in the Franchisor Registry.
- Sign a contract that reflects the agreement that will be carried out with the franchisee: duration, location, suppliers, penalties, etc.
- Provide all necessary information to the franchisee. 20 days before the signing of the contract, the franchisor must inform about its data (name, address, business name, data of the Franchisor Registry, etc.), the description of the activity sector, the requirement of the duty of confidentiality, etc.
- Define the payment method and expenses as the initial fee or royalties.
7 Tips to invest in a profitable franchise
Like any investment, opening a franchise implies a risk. This will depend on the location since each zone is different, and a good location can make your business work while a bad location can cause it not to do so, and the management of it, since a franchisee that manages well Your franchise will make it more profitable than one that is not well managed. These variables affect the profitability of the franchise more than the brand itself. If we want to invest in franchises, write these 7 tips:
Perform a personal self-analysis
Analyze and examine yourself. Before launching for this investment option, you should ask yourself a series of questions to see if you are prepared to be a good franchisee. What economic and personal situation am I in? What budget do I have and what investment do I want to make? What franchise do I want to invest in? What are the most successful franchises? Will I be prepared for the failure of my franchise? Will I be a good entrepreneur who abides by the guidelines that are imposed on me from the franchising center?
Answering this series of questions will help you to know if you are the right person and if it is the right time to invest in a franchise. From the moment you decide to be a franchisee, you become an entrepreneur, but an entrepreneur who will act under the umbrella of a brand and your relationship with suppliers, employees, customers … will be marked by the franchisor’s guidelines.
Examine the available investment capacity
You must make an economic plan through which you can know how much money you have, how much it will cost you to open a franchise and how you will finance that money. Also, sometimes the franchisor will advise you or ask you for a minimum of own resources to start the project. In addition to knowing if you can start the project and assume the first expenses (initial entry, work, purchase of products and materials, etc.), you must find out if you will be able to stay in time until you start having customers. The success or failure of the project will depend a lot on this phase.
Choose the type of activity and sector
Before opting for a franchise, you will have to study the market, each sector, and within each sector, to know how each franchise works. And it is not the same to opt for a business that offers products to one that offers services, one in which you need local or one in which you do not… The initial investment and the recovery period thereof, the management concepts, the contractual conditions, etc., are very different between sectors and / or between franchises.
A good option may be to opt for a sector that is consolidated and for a brand that is in its initial phase but that bets on innovation and originality, and of course, that has good results.
Search information about the selected franchises
If you want to know which will be the most profitable franchises in 2020, it will be necessary to conduct a study among those that we have previously selected for a possible investment. You must inform yourself about the operation of them, their obligations, risks, essential requirements, whether it is cheap or expensive franchises. At present, it is easy to perform this search due to the amount of information that we can find through the internet, in blogs, in specialized magazines, economy pages, franchise fairs, etc.
Study the market
As in any business, you undertake, you will have to know the market in which you are. Know who your target audience is and how it behaves, to know how to persuade it and turn it into customers. Know your suppliers and see how you can establish beneficial relationships with them. Study the strategy that my competitors perform to see how you can differentiate themselves from them. In short, if I know all the external agents of my business, I can make it more competitive. A franchise will succeed if I have full knowledge of the market and my competition.
Ask other franchisees
The best indicator to know how a franchise works are franchisees. Visit them (if possible even from different cities) and contrast with the aspects that you want to know: how is the relationship with the brand, if they have received help in their initial phase, the support they have from the central to any difficulty, what training they receive and how often … Also, you can compare the points in common that have the strongest franchises, and which have common those that are not going through a good time.
Go to events
As we have mentioned in a previous point, in Sudáfricaseveral events and specialized franchise fairs are held every year. In them, you will have contact with franchisors, and you can learn more about this business formula and its operation. Stay alert to the conferences, talks, round tables and seminars organized by experts in this business collaboration system, as it will be the best training you can get.
We hope this article has helped you to know how to invest in a franchise in 2020 profitably!