Before you franchise your business, make sure you understand the process, the costs and how long it will take.

Owning a franchise

  • Run a pilot unit

    You’ll gain valuable insights by running a pilot unit. It’s best to set up a new unit from scratch and run it separate from your core business.

    Once your franchise network is established, you could sell the pilot unit as a going concern, or turn it into a ‘lab’ for developing new products, systems and procedures. You could also use it to train new franchisees and their staff.
     

  • Develop the franchise plan

    Before you start, you’ll need a complete set of financials and a plan that shows the franchises expected development over the next 5 years.

    Include information about:

    • Target areas for expansion: look for areas with similar demographics to your pilot unit and work out the projected number of franchise units to be established.
    • The franchise package: include information about the costs of developing the package.
    • Recruiting and supporting franchisees: estimate the costs of recruiting and supporting franchisees.
    • Calculate the marketing fee: this can be a percentage of sales or a fixed amount.
    • Calculate the franchise management services fee: this fee should cover your costs of developing the franchise package and recruiting and supporting franchisees and should allow you to show a profit as soon as your franchise network has achieved critical mass - usually after 5 to 8 units are up and running.
  • Create a franchise package

    The franchise package contains your intellectual property and the practical knowledge relevant to your business. It includes marketing and training materials and documents such as the operations manual, disclosure document and franchise agreement.

    You can create the franchise package yourself, but paying for good advice could save you in the long run.

    Consider consulting the following professionals:

    • Franchise attorney: this is the single most important professional that you need to include. An attorney with franchise experience will prepare the franchise agreement and make sure the disclosure document and the operations manual interface seamlessly with the franchise agreement.
    • Accountant: your accountant will review your financial projections and make sure they make sense. Choose an accountant with franchising experience.
    • Franchise consultant: franchising a business is complex and a good consultant will add substantial value. Be careful of paying a consultant a commission to recruit franchisees for you, as this could tempt them to sign up poor prospects.
    • Manual writer: a professional will make sure your operations manual covers every aspect of your systems, procedures and processes. They will also present the material in a coherent, appealing way.
    • Branding consultant: if your company’s corporate image has not already been professionally designed, commission professional designs and have them legally protected.
  • Create the operations manual

    A franchise business must be consistent to be successful. The operations manual describes in detail how to replicate the franchisor’s success.

    Among other things it:

    • provides a brief history of the business
    • specifies the corporate identity
    • gives detailed instructions on every aspect of operating and managing the business.

    Your manual and your franchise agreement must work together. The franchise agreement explains the franchisor and franchisees’ rights and obligations, while the operations manual explains how to ensure compliance.

    You can also create a franchisor manual to help new franchisor staff understand the business. It ensures compliance even when head office staff change and, from the franchisee’s viewpoint, it ensures consistency.

  • Draft a disclosure document

    Franchisors must provide qualified franchisee prospects with a disclosure document, as required by The South African National Consumer Protection Act (CPA). This must be done at least 14 days before the franchise agreement is to be signed. It describes:

    • the nature of the business
    • the franchisor’s trading history
    • full details of the investment required from the franchisee
    • trading projections based on the performance of existing outlets
    • a list of existing franchisees and their contact details
    • an auditor’s certificate confirming that the franchise company is a going concern

    Prospective franchisees sign a Secrecy Undertaking because the information is often highly confidential.

  • Draft the franchise agreement

    The Consumer Protection Act describes the franchise agreement and governs the business relationship between the franchisor and the franchisee. It’s best to get a good franchise attorney to draft this for you.

    Be aware: the Act states that a franchisee may cancel a franchise agreement in writing, without cost or penalty, within 10 business days of signing it.

  • Create your marketing materials

    Good marketing materials are essential for attracting quality franchisees.

    Whether you print your marketing materials or publish them digitally, the secret is ‘to tell it like it is’. To promise more than you can deliver is not only unethical, but can also create legal problems in terms of the Consumer Protection Act. Professional design is therefore vital.

Need more help?

Contact us on

011 350 8000

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email us at

franchise@absa.co.za