Entrepreneurship and the safety net of franchising

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As we celebrate Global Entrepreneurship Week, there are a number of great articles we will post of different thouRichard Mukheibirght leaders in business, this week Richard Mukheibir, CEO of Cash Converters discusses taking the step towards entrepreneurship

“In an economy where many people are either unemployed, underemployed or underpaid, entrepreneurship becomes increasingly important, with as many as 90 percent of new jobs expected to come from the SME sector in the next 20 years.

However, it can be daunting to take the leap from being employed to self-employed, from relative stability to a degree of uncertainty. “Many South Africans stay in jobs where they’re not stimulated simply because they’re too scared of taking the step towards entrepreneurship,” says Richard Mukheibir. Cash Converters is the largest second-hand goods franchise in the world.

“Starting a new business is a major career move so before you hand in your resignation, it’s important to ask yourself a few critical questions. You have to ask yourself honestly if going it on your own, as well as employing other people will make you happier. Is the timing right? Do you have the cash flow to sustain your business for at least the first year? Do you have a good support system? Are you disciplined enough to be your own boss?”

Mukheibir continues to explain that another important consideration is whether or not you want to start a business from scratch, buy an existing business or purchase a franchise and start off as part of an established business already. “A successful entrepreneur has a high risk tolerance, but it has been proven that franchising has less risk than running an independent business. Yes, with an independent small business you have complete freedom to run the business as you please, but with franchising you have a safety net and you’re buying into a proven business model. It’s advisable to thoroughly research the risks and rewards of both options before investing.”

Richard has walked this path, asking himself similar questions. Although he comes from a family that has always had small businesses he found himself working in an unfulfilling job in a large corporate in the mining industry. He and a friend decided to look into franchising, focusing on successful businesses overseas. “We had lots of excitement, lots of passion and no money!” laughs Mukheibir. “After lots of research, we decided to bring two businesses into the country: Postnet and Cash Converters. We started planning around 1992 but we only started the South African franchises in 1994.”

Another hurdle along the entrepreneurship route is the difficulty and expense around South African legislation when it comes to opening a small business. However, unlike standalone businesses, franchising offers an increased degree of security, with the failure rate for franchises at only 5% in South Africa, whereas the failure rate for small business is over 70%.

A 2013 survey by the Franchising Association of South Africa showed that the franchising sector in South Africa remains strong, generating R302-billion for the economy and employing over 300 000 people.

“The failure rate in franchising is lower because you have a support system and guidance, and you’re operating under a trademark that already has brand recognition,” explains Mukheibir.

With 800 or 900 franchising systems available in South Africa, it’s essential to do your homework properly before buying into a business – not all franchise opportunities are created equally. There is lots of information available online, with websites like www.whichfranchise.co.za as well as www.fasa.co.za as a guide.

“Make sure you have a good idea of the franchisor’s track record,” advises Mukheibir. “Go out and speak to existing franchisees, get an understanding of the relationship between the franchisor and the franchisee. Is the franchisor concerned with the franchisee’s profitability? You will invest in the purchase of the franchise and you will also pay a royalty fee, but sometimes these arrangements are not in favour of the franchisee.”

Most importantly – make sure you know your rights. The Consumer Protection Act makes it a legal requirement for franchisors to provide potential franchisees with access to financial projections and results, and a legal disclosure document outlining the opportunity. Also look at the state of the economy to assess whether or not there is an appetite for the franchise you’re considering. Are there multiple revenue streams within the franchise? Is it a brand you – and the public – can trust? Ultimately, the most important aspects of any franchise is its profitability and its success record.

“Cash Converters has a tried and tested global formula with intellectual capital from 21 countries,” says Mukheibir. “All retail businesses face cash flow risks, but the Cash Advance and PayDay Advance products act as a buffer if retail sales fluctuate. This means our franchisees are not simply selling second-hand goods – they also need to understand finance and the changing market dynamics, so we offer intense training and support to our franchisees.”

It is without a doubt that entrepreneurs are the lifeblood of South Africa’s pressurised economy. We can’t simply wait for the government to create the change we need. Those with an entrepreneurial spirit must take the initiative to create new opportunities, a chance to give their very best to the country. For many people, the best option is to take the leap into the safety net of franchising.”

www.nunnovation.com

2 COMMENTS

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