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Five key challenges facing new franchisees

New franchisees are navigating the knock-on effect the current economic conditions create in the South African market.

Morne Cronje
Morne Cronje
Morne Cronje, head of franchising at FNB Business says, “Despite the resilience of the franchising sector, which contributes almost 12% to South Africa’s GDP and generated a projected R493 billion turnover in 2016, new franchisees are cautiously observing the economic headwinds and their anticipated impact on profit margins.”

Major challenges

1. Managing cash flow: The slowdown of the economy makes it challenging for new franchisees to remain profitable - this means they need to adapt to this tough economic climate by managing their cash flow efficiently, because it plays a critical part on the health of a business. Furthermore, they also need to build a closer relationship with their financial institutions; this will improve their working capital and carry them through the tough economic times.

2. Electricity costs: Prioritise and invest in electricity efficient products and machinery early on in the businesses; this will save you a lot of time and money in the end.

3. The rising cost of rental space: Always keep in mind that rental costs go up on a yearly basis, when doing budgets factor in the probabilities that the rent will increase.

4. Staff costs: Having less money coming into a business simply means little profit margins, which implies keeping fewer employees in the business to sustain it. Hire fewer employees in tough times and increase your staff compliment as the business grows and economy improves.

5. Not having suitable skills: New franchisees often get anxious that they do not have the necessary skills to operate the business successfully. They can eradicate this anxiety by looking for mentorship and guidance from an experienced franchisee.

“Given the unpredictability of the current economic climate, the sector still has room to grow despite the shrinking of disposable income for many consumers. Franchising has a wide range of supporting structures that can be used by new franchisees. Use these structures effectively and there will be no need to stay awake at night,” concludes Morne.

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