Your parents started a small business whilst you were still at school. During the start-up years, you and your siblings worked over weekends and holidays in the business. During these times, your parents taught you valuable business skills that would eventually see you finishing a Bachelor of Commerce degree before returning to the business. You are the last of the three siblings to return to the business and thus have the most junior role within the business. The small business that your parents established is called Family DIY. Family DIY is a hardware store that is 17 years old and has a good reputation within the local community with the supply of building materials for major construction projects as well as supporting the local handyman with equipment and services to attempt small DIY projects at home. As the last member of the family to join Family DIY and the only one with a Bachelor of Commerce degree, you are thrown into the deep-end at the annual strategic meeting. The strategic committee decides that the business must establish itself as a franchise and open more stores across the province with a focus on developing and increasing small family-owned business.

c) As part of the franchise concept, you need to advocate why this franchise, Family DIY, would work. Discuss the advantages and disadvantages of the Family DIY franchisee model.

cessful than The idea for ChesaNyama came about after Nathanael ning a business, loving the passion to make visited a township and saw that chesa nyama was loved people it's a money-making scheme, have to love your business enough to see it work and eaten by almost everyone. He also realised that and see yourself working hard for it. You also have to despite its popularity, the dish was not easily available out- have a good product or your business will never last. If you are looking at selling stores then neglecting your side the township. existing stores without having a good structure, then you According to Nathanael, the concept for ChesaNyama are going to fail." Nathanael stays involved in all parts of was to sell meat on the braai at an affordable cost and in his franchises, even after they are sold. He believes that a convenient enough way. Nathanael says they were totally buying a franchise is less risky than starting a new busi- surprised by the positive results. ness as the support structure and market already exist. "Having a unique offering makes us stand out from But that doesn't mean one should not constantly seek everyone," he says. They plan to open 300 more restau- new opportunities, he says, quoting Richard Branson- rants in the next three years. They are even looking into "business opportunities are like buses, there's always another one coming' Texas in the USA as a potential market. He confirms that they had a good reception in Zimbabwe, Lesotho and Bot Sources: Cadine Pillay, 'The secrets to franchising success from one of SA's swana, and this has become the drive to expand further 2016. best', SME South Africa, 13 June 2014, http://www.smesouthafrica.co.za/ The-secrets-to-franchising-success-from-one-of-SAs-best/, accessed 4 February into Africa. a few days 4-2 The Pros and Cons of Franchising bob agroban, sabin 'Look before you leap' is an old adage that should be heeded by entrepreneurs who are considering franchising. Weighing the purchase of a franchise against alternative paths S to starting a business is an important task, and it deserves careful consideration. 4-2A THE PROS reinbris Buying a franchise can be attractive for a variety of reasons. The greatest advantage is Understand the pros the probability of success. Franchisors offer a business model with a proven track record. and cons of franchising. A reputable franchisor has been through the trials and errors that an entrepreneur might face when starting a business independently. One explanation for the low failure rate of franchises is how selective many franchisors are when granting them; even potential franchisees who qualify financially are sometimes rejected. Exhibit 4.1 lists some of the major advantages you can gain through franchising Franchised outlets also have a higher survival rate than independent ventures. Attractive franchises have names that are well known to prospective customers, such as Mugg & Bean, Debonairs, Curves and Supa Quick. When a new franchisee comes on board, franchisors provide detailed operations manuals, so the hard work of blaz- ing a trail has already been done. And they support their franchisees by providing training, reducing purchasing costs, designing promotional campaigns, and assisting in obtaining capital. Naturally, individual franchisors vary in the depth of support they provide. Franchising can also be a way for existing businesses to diversify. Owners of a small business who have achieved success may find themselves in mature industries withwith 4-2 The Pros and Cons of Franchising ow- wish a contractual arrangement with the franchisor that stipulates various conditions, and 105 who that contract may specify the products you carry, the services you offer, your hours of and operation and other aspects of how you run your company. The contract was drafted by, and most likely favours, the franchisor. Many prospective franchisees fail to recognise ari- that many franchisors are willing to negotiate some portions of the contract. In any case, ons you should always have an attorney review the contract before you sign it. Some of the ing most common restrictions imposed on franchisees fall into the following categories: ves. . Limiting sales territories laud detrashingaquacaldonimb ordtill joyswold . Requiring site approval for the retail outlet di slaindam bas fun of vag asseldonsil . Imposing requirements regarding outlet appearance hises, ng . Limiting goods and services offered for sale tance. Also, si- Limiting advertising and hours of operation. res re- A frequently heard complaint from franchisees is that when their contract expires, they at are required to accept new and often costly provisions. Franchisees suspect that this is OJ an effort to extract more revenues and/or concessions from them, to force them out in order to sell the franchise to someone else, or to take their business over as a com- pany store. Of course, the franchisor may have another explanation. During the years in which the contract was in force, the franchisor may have discovered ways to improve the system that were incorporated into more recent franchise contracts. Additionally, fran- saifionsit s gnusuisvo rot chisors may find that some long-time franchisees have not maintained their facilities or .dinthoggo have failed to adapt to new marketing and operating procedures. From the franchisor's point of view, these franchisees need to improve their businesses so that they will not harm the entire network. 191285 smooed and of atureogys diw aged your eaststews to 4-2C THE COSTS OF BEING A FRANCHISEEsnasal ardi no to shins If you choose to become a franchisee, you pay for the privilege. You are buying what should be a proven model, and the franchisor will charge you for the benefits being offered. Generally speaking, higher costs characterise the better-known and more suc- cessful franchises. Franchise costs have several components, all of which need to be rec- ognised and considered. They include the initial franchise fee, investment costs, royalty payments and advertising costs. 1 Initial franchise fee. The total cost of a franchise begins with an initial franchise fee, which may range from several hundred to many thousands of rands. Nando's esti- mates a total investment in the region of R4 500 000, ChesaNyama R500 000 and Mcdonald's R6 000 000."1 2 Investment costs. Significant costs may be involved in renting or building an outlet and stocking it with inventory and equipment. Certain insurance premiums, legal fees and other start-up expenses must also be paid, and it is often recommended that funds be available to cover personal expenses and emergencies for at least six months. 3 Royalty payments. A royalty is a fee charged to the franchisee by the franchisor. It is calculated as a percentage of the gross income that the franchisee receives from customers for selling the franchised products and services. Nando's, Chicken Licken and Debonairs charge a royalty of 12 per cent, whereas Mcdonald's charges 4 per cent of gross sales. 12 4 Advertising costs. Many franchisors require that franchisees contribute to an adver- tising fund to promote the franchise. These fees are generally 1 to 2 per cent of