How to buy a franchise
Buying a franchise is a great option for someone that is looking to invest in a proven business model that comes with support from the franchisor. Make sure that you research the available franchises and find one that is right for you.
Get to know more about the franchisor and speak to existing franchisees, if possible. Make sure you know about all the costs involved.
Where to buy a franchise
Online marketplaces are the best place to get the widest range of franchises available. Spend your time going through what is available so that you can narrow down what franchise will be the best fit for you.
You can use various filters in order to whittle the options down. Spend your time researching the options that are right for you. You can filter your options by price, location or type of franchise.
I want to buy a franchise, where do I start?
The first thing you will need to do is determine what it is that you are looking for. Going into your search with clear goals in mind will save you time and, possibly, money.
Decide whether you want to be able to work from home, or on location. You will also need to know what your price range is according to your available capital.
How much to buy a franchise?
There is a wide range of options when it comes to franchising and this is also true of their price tags. You can expect to pay anything from R70 000 to R20 million. The franchises with a large capital investment come with an extremely established brand and franchisees are capable of making huge profits. However, don’t discount the success that you can find owning a smaller franchise!
When buying a franchise, the costs that you can expect will be the franchising fee, the set-up costs and, potentially, legal advice. The franchising fee will be made up of an initial fee, royalties and a fee for advertising.
How to get money to buy a franchise
Don't close yourself off to any ideas when it comes to franchising. You should consider several options. One of these is franchisor financing where the organisation will have tailored financing options for franchisees.
Of course, you can also approach a commercial bank and apply for a traditional loan. Applying for a loan will mean putting together a thorough business plan.
How to sell a franchise
Find out from the franchisor what the transfer fees of the sale will be, what qualities the franchisor is looking for in a franchisee (as they will need to approve the buyer) and how you should value your franchise.
You will then need to market your franchise for sale. You can advertise it through an online marketplace such as BusinessesForSale.com, or you can go through a broker. Alternatively, you might go through your franchisor who will market the sale for you.
How long is a franchise agreement?
This is dependent on the franchise, but they can last for a period of anywhere from 3 to 20 years. In South Africa, most franchise agreements are fixed for a five-term period. The franchisee will then have rights to renew at the end of this term.
How much do franchises make?
The exact amount that you can make as a franchisee is dependent on the franchise that you buy and the number of hours that you work. There are some really profitable franchises that can earn you amounts into the millions.
However, you will need to consider the capital that you invest in the franchise and the overheads that a franchise has when you consider how much you can make.
Can a franchisor be a franchisee?
The franchisor sells the franchise opportunity to the franchisee. The franchisee is offered the right to open and run a franchise using the franchisors systems, branding and knowledge.
How are franchise fees calculated?
The initial fee that you are required to pay is for the use of the brand name within a specific location or territory and the training that you are provided. The marketing and royalty fee is usually calculated as a percentage of the turnover. On average, the ongoing fee is around 8% of sales.
In some cases, service fees are paid through mark-ups on products and equipment and so ongoing fees may be nil. Paying ongoing fees can have the advantage of ongoing interest from the franchisor in your business.
Can you negotiate franchise fees?
Franchise fees are usually non-negotiable. Franchises are offered with the same terms and conditions to all franchisees. This provides consistency between all franchises under a brand.
If you are unhappy with the fees that the franchisor is asking for, you should research other franchises that better fit your needs.
What happens at the end of a franchise agreement?
Finding the right franchise and becoming a franchisee will begin when you agree to and sign the franchise agreement. In this agreement, you will have agreed on a length of term. When you come to the end of the agreement, you will either need to terminate the agreement or renew it.
You should not come up against any problems renewing your contract if the franchisor is happy with your performance. Make sure, though, that you meet with your franchisor before the end date of your agreement so that you can discuss any new terms. These may include refurbishment or upgrades to literature.
Terminating the franchise agreement will require that you give at least 6 months’ notice to the franchisor. Once the agreement ends, you will have to halt trading under the franchisor's brand and separate your business entirely from the franchise. Your franchise agreement may also prohibit you from owning or operating a business that competes with your former franchise.
What are the pitfalls of franchising?
Buying a franchise will also mean buying into the regulations and systems of the franchisor. You will need to be willing to follow these. For some people, following the guidelines set out by a franchisor can be difficult. If this is you, franchising may not be for you.
You will also need to be ready to pay the fees that are required to be a franchisee. These will include the upfront investment as well as the ongoing fees.
You will also need to carefully consider the franchise that you buy as the brand’s success is your success. However, conversely, if the reputation of the brand suffers, so will you.
Can you walk away from a franchise?
Once you have signed the franchise agreement, there is very little possibility of breaking the contract. Most commonly, however, if you need to walk away from the business, you will need to find someone to buy it from you.
In order for this to happen, though, the franchisor will have to approve of the new franchisee taking over and you will need to be up to date with all your payments. You will also probably be required to pay a transfer fee.
Can a franchise owner be fired?
As a business owner, a franchisee cannot be fired. However, a franchisor can terminate the franchise agreement. This would only happen in a situation where the franchisee is in breach of contract.
What happens if a franchise goes out of business?
If the franchisor goes into administration, the franchisee will still be required to pay their fees and be bound by the agreement unless the contract specifically states otherwise. Your fees will be paid to the administrators that have taken over the business.
What is the cheapest franchise to start?
There are plenty of low-cost franchises that you can choose from. Using the filters on our site you can filter the franchise options by price. Once you have narrowed down your search to only the franchises in your price range, you can go through each option to find the right one for you.