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Business: Seeing the Late-life Opportunity in Franchise Businesses

 





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Many more 50-something people are looking at the option of buying a franchise, as opposed to relying on ever-more volatile and undependable stock markets to provide them with an income they can live on during their retirement years.

And according to Anita du Toit, FNB Commercial Banking’s franchise specialist and one of South Africa’s most experienced franchise consultants, there is an ideal window of opportunity at the moment for such people to do so.

“Given the economic situation, there are experienced businesspeople being offered early retirement who are really in the prime of their lives, alert and still physically strong. There is also a growing understanding that someone who has reached the age of 50 will typically go on to at least age 80 – so there is a longer retirement period they have to provide for,” says Du Toit. There are also more franchises than usual coming on the market as the recession bites.

“We are seeing increased interest from this demographic sector – the ‘silver surfers’ – to take a lump sum from their early retirement payout and either buy a franchise directly, partner someone, or invest as an angel investor in a franchise run by a friend or family member,” she says.

But mostly, these are people who want to enliven their mature years with a second career. Du Toit points to UK research which shows that people over the age of 50 are more successful in their own business, due primarily to their years of business experience.

However, she explains that such people, because they are approaching the end of their careers, have less scope to recover from a poor choice and therefore need to do thorough homework.

“If an individual is going to become an owner-manager – which is something franchise companies typically demand – then they have to realise they are making a lifestyle choice. Running a pub that closes at 3am every morning might not be the best option.

“The major advantage of a franchise is the ability to create wealth. In addition to the monthly income it can generate, one can also boost the value of the business by expanding its turnover and later sell it for a profit. However, how much value can be created depends not only on one’s own efforts, but the value of the brand – so all the more reason to be choosy in selecting which franchise to buy,” adds Du Toit.

Selecting one of the better brand names often means a waiting list, but is worth it. However, in the current market environment where, more businesses than usual have failed, there might be a shorter waiting list.

“In terms of sectors, food retailers are still doing well, especially the more budget or convenience-type operations. Some of these businesses are actually doing better than usual, because more people are working overtime to make ends meet and have less time to cook or shop. However, any business reliant on discretionary income, such as a full-service restaurant, may be experiencing difficulty.”

She lists the auto sector as another thriving sector, as people are extending the lives of their vehicles with a consequent need for more maintenance.

Another factor underpinning the current window of opportunity is that the end of the recession is within sight, as is the 2010 FIFA Soccer World Cup.

She also advises prospective franchise-buyers to ensure that they are able to come up with 40-50% of the total investment cost, and ensure the business is not over-geared.

“Get the approval of the franchisor before approaching the bank, as a purchase agreement is the first thing we will want to see. Before that, do research into the various franchises and especially speak to franchisees of the franchise system you’ve selected, to ensure that everything promised is realistic and that the figures correspond to promises.”

If a franchise is up for sale because it is insolvent, special care should be exercised before buying it. Some fail because of poor locations, which is a fatal weakness, while others fail because they were over-geared, which can be remedied.

“Even in a recession, consumers stay loyal to a brand, but poor locations do not find the same support during a recession. The same fault exists with non-premium brands,” adds Du Toit.

More and more new ideas are coming to market. Du Toit sees untapped opportunities in franchised services like painting and pool cleaning. These are both big businesses in South Africa and, through a reputable franchise, an operator would have a branded vehicle and uniform, giving customers some recourse.

In addition, new ideas are coming to market as part of the outsourcing of non-core activities by business. They’re seeing the opportunity to firstly franchise it, and secondly do it as part of their BEE strategy.”

 
 
 
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