Could this be the right business venture for you?

Paballo Rampa*&nbsp|&nbsp@Moneyweb &nbsp|&nbsp2 August 2011&nbsp07:38

JOHANNESBURG- You want to go into business but you arent too sure which route to take. Should you start your own business or should you buy a franchise? Sure it would be cool to run a franchise of a popular company, but what is franchising really about?

Companies franchise in order to grow their business. Becoming a franchisee has nothing to do with owning shares in the business. Its merely a license agreement where you obtain the right to use the brand name of a particular business along with its operating systems for a certain amount of time. The company pretty much lays down the rules in terms of how you should run the business, from the success formula, marketing strategy to how you should operate it. Deciding which franchise to buy can be a bit hard because there are so many franchise categories to choose from including education, food, beauty, financial services, health and fitness, cleaning, jewellery, coffee and business services franchises to name a few. There are also foreign master franchises which are established in their home country but not available here in South Africa. In order to bring them into our country, you would have to buy the rights first and develop a system that will ensure that the franchise will work here. The success rate of franchises is said to be higher than that of start-up businesses, but that does not imply that buying a franchise will make you rich. Just like with any other business, you will still have to put in a lot of hard work and make it happen.

And like with any other business, you have to do a lot of research before you make your final decision. Speak to other franchisees to find out about ongoing support, the training or any other problems they might have encountered. It would also help to suss out the competition and do a background check of the companys credibility along with its credit record. A franchise with a bad credit record will make it hard for you to get. Whatever other questions you may have, direct them to the company. If there is an unwillingness to answer them, maybe it isnt the right company to invest in. Also do the numbers. Make sure that the expected returns are good when you compare with your investment.

What are the pros and cons of buying a franchise?

Pros

• Less risk: Buying a franchise with an established, reputable company has less risk than staring your own business.
• Training: Some franchises offer you training so that you can get the hang of things. The training includes operations and how to run the franchise, including business skills training. Other types of training include on-the-job training in a store or working in a store before you decide so you can make an informed decision. This is a very good idea as you will spend lots of time in the franchise!
• Marketing campaign: A national campaign is available to back franchises. However, in some cases you might have to pay an additional amount for local marketing.
• Established brand: Customers are most likely to go for a well-known brand as opposed to an unknown one.
• Ongoing support: You will be able to share your problems with like-minded people who are within the same company and have gone through what you are.
• Access to trade secrets: You will not have to think of ways to make the business operate well as there is a proven track record that you just need to stick to.

Cons

• Lack of creativity: Franchisors have very set rules on how all their franchises should be run, leaving you, as a franchisee, with very little room to come up with anything.
• Royalty fees: For as long as you are a franchisee, you will have to pay royalties of between 3% and 6% monthly.
• High initial payments: The bigger the franchise, the higher your initial payment.
• Broken promises: Overpromised, under delivery is a common thing with some franchisors, so be aware.

There are apparently no legal requirements to registering a franchise. However many reputable franchisors are listed on www.fasa.co.za. which is a website for the Franchise Association of South Africa, It wont hurt to have a look and check if the company you are interested in buying a franchise from is listed.

*Paballo Rampa is an accounting student and the editor-in-chief of a campus newspaper. In her writings she focuses on youth finances. If you want her to cover any issues e-mail: youngmoneycolumn@gmail.com or follow her on www.twitter.com/pabiramps .