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Brian's
Introduction
By
Brian Walsh (Founder & CEO of
Entrepreneur.co.za)
Banks traditionally favour franchises,
especially established ones. This is because
they are backed by existing tried and tested
working models, and risk is greatly reduced.
Having said this, you will still need to qualify
personally for the loan, as franchises don’t
traditionally help you acquire financing.
However, somewhat uniquely to South Africa, some
established franchises will help with your
finance applications. There are also special
finance options like Khula’s loan
guarantee scheme which are available to
deserving individuals who can convince the
lender of their ability to successfully run a
particular franchise.
There are a number of financial commitments with
regards to buying a franchise. These include:
‘Joining’ or ‘franchise’ fee
– which you pay for the rights to use the
franchise. This usually includes training and
set-up assistance.
Capital expenditure
– which covers the infrastructural costs like
equipment, shop fitting and in many cases,
start-up stock.
Working capital
– this is to cover general monthly operating
costs like salaries, rent, deposits, etc, as it
is likely that it will take a number of months
before the cash flow of the business can cover
these costs.
Management fees
– your franchise agreement usually requires you
to pay management fees monthly, sometimes even
weekly. This is normally a percentage of your
turnover, pays for ongoing services, and enables
the franchisor to make a profit.
Marketing fund fees
– most franchisors also request contributions
towards a marketing fund which pays for overall
marketing of the brand and products.
Product purchases
– in some instances, the franchisor acts as a
supplier, and franchisees are usually expected
to settle their accounts within 30 days.
The relevant disclosure document that the
franchisor supplies will detail all payments you
are expected to make, both upfront and on an
ongoing basis.
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