Franchises have become a popular choice for investors who have a reasonably large sum of money on hand, and would like to take a hands-on role in wealth creation. Buying a franchise has several advantages: you are investing in an established brand that customers may be familiar with, and you are given access to a supply chain that covers all the basic materials you will need to run your business.
However, for every benefit there is a possible disadvantage and the ability to judge the risk of a franchise will stand you in good stead when making an investment decision.
The choices are endless. With the sheer number of franchises out there, from tiny one-man businesses to entire restaurants and retail outlets, being able to choose the right franchise could make the difference between success and failure. If you are presented with a franchise opportunity and would like to put it to the test, follow the steps below:
- Search the Franchise Association of South Africa for the franchise business you are considering. If the franchisor is a member, you can be confident that the business is legitimate. FASA also offers a course in franchise management that will teach you to evaluate a franchise and understand your legal obligations including the Consumer Protection Act.
- Go to a complaints website such as Hello Peter where you can search the franchise name for any poor customer reviews. This should give you some idea of how well supported you will be as a franchisee and how popular the franchise is with consumers.
- Ask your attorney to review the contract given to you by the franchisor – this should alert you to any suspicious activity.
- Finally, ask for a list of franchise holders and speak to them about their experience dealing with the franchisor. If they are at all secretive, you may want to give this particular franchise a miss.