Why franchising is the answer to job creation

 

 

 

There are thousands of successful small independent businesses trading in the formal and informal retail sectors who, because the businesses themselves are viable, are able to provide job opportunities in a sustainable manner.

By Kobus Oosthuizen

Small businesses and particularly those delivering essential goods and services in an emerging market environment are not hugely affected by high interest rates, fuel prices or a recessionary climate and as such their employment base is largely sustainable and stable.

What makes a business sustainable? While there is no quick answer to this question, the following key success factors all contribute to the sustained success of an enterprise:

• The nature of and a sustainable demand for its goods and/or services
• Its number of years in existence
• A suitable location
• Access to operating capital
•  The abilities of the operator and his presence within the business
• The ability of the operator to attract, recruit and manage staff
• Effective administrative and accounting control
• Compliance to all statutory requirements
• Brand reputation and marketing
• Merchandising and presentation of goods
• Reliability of the supply chain

A business does not necessarily require that ‘buzz’ or in-store queues to be classified a success. Most of the factors that impact the success and profitability of a business are not visible, yet their impact cannot be denied. The only true indicator of the sustainability of a business is the numbers. The absence of properly maintained operational and financial management accounts would ultimately promote the closure of the business or in the very least limit its growth.

When a viable business exists, founded on and supported by the principles illustrated above, chances are that such a business can be replicated successfully. While there is a certain science to creating a successful operation and a myriad of factors to consider, the reality is that a recipe for a successful business has been established and if all of the ingredients could be made available at a different location, then franchising is a real opportunity.

As entrepreneurs, the owners and operators of most successful businesses have probably considered expanding their existing operations, but they may not have considered that replicating their business on the existing scale at other locations and by utilising third party collateral and operating skill, is an alternative means of expansion. If they have considered franchising, the uncertainty of how to go about it and/or the cost related to packaging the opportunity may have been a deterrent. The principle of sharing business secrets may also have been a stumbling block. These are amongst the many reasons why seemingly ‘replicatable’ businesses have never progressed towards replication and these barriers we have to identify and unpack.  The fact is that all of the aforementioned considerations were challenges faced by every successful franchisor in business today.

Where does job creation come in?

In order to create employment, we need to first create employers. If such employers can be created off the back of existing sustainable business systems, especially in rural environments, not only do we have a cost-effective model for job creation, we are also promoting black economic empowerment, rural wealth retention and social upliftment.

Small business by its very nature offers significantly more sustainable job opportunities than large employers simply because they typically run on a minimal staff complement anyway. Typically the shareholders and management of small businesses would rather tolerate lower returns than jeopardize the existence of the business by retrenching staff.

This principle is not always true with listed conglomerates as shareholders demand a certain level of return and would require management to cut staff costs in case of economic downturn or any other macro event putting profitability under pressure.

By utilising the business format of franchising coupled with a mechanism to ensure that qualifying enterprises are developed into ‘replicatable’ business systems, we have a powerful job creation mechanism at our disposal.

www.safw.co.za             

kobus@safw.co.za

+27 12 460 2345