Findings from the DFID 2016 franchise study indicates that there are over 460,000 Nigerians with minimum investible funds of N1m, who would rather buy a business or franchise than start up one. Franchising, due to its low failure risk (globally 15% failure rate and 5% failure rate in South Africa), appealed to these potential investors, who however may require borrowed equity to successfully buy a franchise.
With about 80% failure rate among start-ups in Nigeria, quite a number of entrepreneurs don’t have the competence to start up and get a business up and running. This is because this requires a lot of experience, time and discipline. However, an entrepreneur can leverage a proven business system, which includes a hands-on enterprise management training to operate his own business through the franchise business concept. This also grants him the opportunity of leveraging a popular and trusted brand without having to go through the rigors of starting the new business where he does not have the required experience.
Buying a franchise is a guaranteed way of owning and growing a business successfully with little or no failure risk. It is advised, however, that you first do your due diligence by ensuring the franchise you are buying is suitable to you, has a proven system and has future growth prospects.
Here are a couple of reasons why you should consider buying a franchise, and 9 tips to guide you in assessing a franchise you want to buy:
WHY YOU SHOULD BUY A FRANCHISE
- The freedom of being self-employed.
- Leverage an informed ready-made customer base of the franchisor and guaranteed patronage from retainer-ship contracts
- Leverage the brand awareness and reputation which are proprietary to the franchisor
- Shared marketing, advertising and launch campaign costs with other franchise outlets of the same brand through global promotion budgets.
- Industry know-how and skill transfer to manage a business where you have no prior experience
- Reduced risk of failure by leveraging a proven business system and proven profitable business
- Margin advantages and cost efficiency through bulk buying advantages. Sometimes this comes with credit supply privileges.
- Opportunity to own a business with ongoing research and development opportunities
- Guaranteed business growth, success, and continuity from brand value and business structure
9 GUIDING TIPS FOR A POTENTIAL FRANCHISE BUYER
1. Conduct a self-assessment, what do you enjoy doing?
It is important that you choose the type of franchise that allows you to do the type of work you like and are good at. This is because if you invest in a franchise that allows you do what you are good at, you are more likely to succeed and get the needed drive to invest the required hard work to see the business grow. For example, you should consider the following activities which can help you identify where your passion lies:
- Talking on the phone
- Motivating people
- Working with your hands
- Direct selling
- Talking face-to-face with customers
- Managing people
- Working with children
- Working with animals
- Numbers, Accountancy
2. What type of experience and interest do you have?
- Have you managed staff before?
- Have you been involved in administration before?
- Are there any particular franchise industries that interest you?
- How many hours and which hours do you want to work e.g. daytime, weekends, flexible?
- Do you prefer to work by yourself or in a team?
- How much money do you want to invest?
- How far are you willing to travel to work each day?
3. Look for a credible franchise.
FBDS Nigeria should be your first point of call for support, but look as widely as you can; search for customer reviews about the brand, see if the internet has any information on the performance of the brand and speak to their competition and see what they say.
4. Talk to existing franchise owners
It is quite important that you engage existing franchisees to see how they operate and how they reflect the brand values as you perceive them. You should be wary of franchisors who do not offer to set up meetings for you with existing franchisees, or try to avoid such meetings.
5. Check out the financial performance
Ask for and examine the budget figures and cash flow forecasts of the franchisor. No matter how good the brand looks from outside, the financial performance of a franchise reveals a lot about the health of the business.
6. Visit and tour the franchise outlet in person
You will require conducting a brick and mortar experience of the franchisor head office and franchise outlet to see how the business is run, their corporate culture, their system and especially how their staff and customers feel about the business.
7. Choose a territory that works for you
Whereas the franchisor should advise you on feasible locations to set up your franchise outlet, the territory you select should not be foisted on you as it suits the franchisor. With the support of the franchisor, you should thoroughly research the territory, including a comprehensive assessment of your competitors, using mystery shopping where possible.
8. Ensure you will receive support from the franchisor
Find out the franchisor’s support plans. Does it have the right capacity to support all its franchisees, does it provide sufficient support to existing franchisees, does it value knowledge sharing with the franchisees? Etc.
9. Never fail to get professional advice!
You may likely require professional advice in conducting all the assessments above, and more importantly in conducting a legal assessment of the many franchise contractual documents that would be provided or prepared to regulate the franchise relationship. FBDS Nigeria is your right partner to finding and successfully buying a suitable franchise.