FRANCHISING: Owning and Operating Multiple Franchise Units
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With the after effects of the recession, franchisors have turned to granting second multiple units to existing franchisees as they have proven that they can make a success of their franchise. A multi-unit franchisee is defined as Â“the franchisor awarding the right to a franchisee to operate more than one unit within a defined territoryÂ”.
To manage and run multiple franchise units requires ongoing dedication and commitment. Â“A multi-unit franchise owner will have higher expenses not just due to the normal additional operating expenses, but also due to the need for a good infrastructure. Owners will need to ensure that the units are consistent throughout and will have a higher capital requirement as revamps to the outlets will be required,Â” says Morne Cronje, Head of Franchising, FNB Business Banking.
When evaluating and looking at the financial outlook of the franchise, FNB would consider whether the franchisee is buying a new or existing franchise. With a new franchise a new customer base will have to be built and if itÂ’s an existing franchise, it might have a profitable customer base or it may require a turnaround strategy.
The franchise owner needs to ensure that they are able to run an outlet successfully. Â“Financial management is crucial and the owners need to be able to manage their finances efficiently in terms of loan repayments and cash flow management which can contribute to the success of their businesses,Â” explains Cronje.
When looking for finance, FNB usually requires about 50% contribution, unless the franchisor is happy with a lower ownerÂ’s contribution. What may vary is the amount of security/collateral required; this could be less if the current outlets are profitable and show healthy financial returns.
Cronje gives the following tips to franchisees who are seeking to expand and to buy additional franchise units
- ItÂ’s important to prove sound financial management of current outlets and to make sure that bank loans are paid on time.
- Making your own contribution is also important as it shows that the operator is willing to risk some of his/her own funds on the venture.
- The franchiseeÂ’s infrastructure must be evaluated to ensure it will cope with the opening of an additional outlet, it might require the appointment of an additional manager.
- Lastly, itÂ’s important to ensure that the franchisor is supportive of the venture, as they may have limitations on the number of outlets a franchisee may operate.
Â“Running and managing your own business takes lots of dedication and commitment. Upcoming and existing franchisors need to be aware of the ongoing economic volatility, inflation and rising operational costs in the industry. This could impact negatively or positively to the success of any business or franchise in South Africa,Â” concludes Cronje.
Business News Sector Tags: Franchising|