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Considering turning your business into a franchise

29 Aug 2014

New business owners often aggressively pursue market share and profits at all costs, without having a proper business strategy in place to sustain growth.

Ravi Govender

Commenting on a recent episode of the 'Think Big - Building Business Champions' series, Ravi Govender, Head of Small Enterprises at Standard Bank, advises on the steps to be followed when considering to grow an existing business into a franchise. The business evaluated on the programme was Vuyo's, which operates in the fast food industry.

"Taking a business to the next level and going national through self-funding or by taking a step into franchising requires substantial planning and guidance. Failing to plan properly at this stage could lead to long-term disadvantages, pushing up operating costs, diluting market share and even preventing the business from taking advantage of real growth opportunities," says Govender.

He advises aspiring entrepreneurs to take these factors into consideration when planning to take the next step and turning a business into a franchise:

Assessing the business, the niche it operates in and whether there is widespread demand for the product or service being offered.

Having a head office and the specialist staff needed to run a multi-faceted geographically spread out operation.

Getting funding from family and friends or other investors to buy into your dream in return for a stake in the business.

Approaching a bank is also an option. However, before taking this step a comprehensive business plan should be developed. A franchise specialist at the bank could also be approached for advice.

"If the thought of becoming a DIY franchisor is too daunting, consulting franchise brokers who are well versed in the requirements and dynamics of the franchise business is an option," he says, adding that some of the challenges to be expected include:

Deciding on the systems required for the business.

Getting legal advice and assistance with contracts through an experienced franchise lawyer.

Ensuring that cash flow remains positive during the start-up process.

Developing a proper growth strategy.

Understanding that your franchisees may have little or no experience in a franchised business. Providing the necessary training and marketing support will be vital to success.

Determining capital investment and franchisee fees.

Govender says that launching a new brand, particularly a food brand, in a competitive market will require selecting franchisees who share your passion and dedication. However, if done correctly, growing from SME to franchisor can be the most rewarding step that any entrepreneur can take.