Focus on franchising for SA’S young and previously disadvantaged

By on March 31, 2014

In order to stimulate job creation, Business Partners Limited has launched the Franchise Fund – an innovative platform backed by the Development Bank of Southern Africa (DBSA) – aimed at allowing young and previously disadvantaged entrepreneurs, with limited assets and access to capital, to qualify as franchisees.

The total Franchise Fund amounts to R107.03 million and consists of R48.65m from National Treasury’s Jobs Fund (R38.92m for financing and R9.73m for technical assistance), as well as R58.38m from Business Partners Limited.

Creating  jobs through entrepreneurship

According to Christo Botes, Executive Director at Business Partners Limited, a specialist risk finance company for formal small and medium enterprises (SMEs) in South Africa, the Franchise Fund aims to create jobs through entrepreneurship via franchised businesses. “Purchasing a franchise in South Africa can be quite onerous given that the franchisor normally requests a 50 percent own contribution. This fund will provide affordable franchising opportunities to those who would otherwise not have had the opportunity to acquire a business.”

Botes explains that the Franchise Fund is only open to franchisors who have been accredited by SA Franchise Warehouse and Business Partners and that comply with certain minimum requirements, such as proper founding documents, full Franchise Association South Africa (FASA) membership and accreditation, successful track record, and subscribing to jointly support the new franchisees.

He says that the Franchise Fund financing model also requires a minimum own contribution of 10 percent of total financing from the entrepreneur. “Government’s Jobs Fund finances 50 percent of the total financing requirement, less the own contribution, and Business Partners Limited finances the remaining 50 percent of the total financing requirement.”

The Franchise Fund has certain key deliverables over the next two and a half years, according to Botes. “Our key outcome is to provide funding, training, and mentorship to 125 viable and long term sustainable franchises, with most applications for finance ranging between R600 000 and R2 million, and in the process also facilitate the creation of more than 700 jobs. These newly employed individuals will not only be empowered as a result of the training they will receive, but also build a solid employment record.”

Technical assistance

Botes adds that the challenge with start-ups is the technical assistance required and the affordability of the costs related to the support required. As a result, a portion of the funds from Government’s Jobs Fund have been allocated specifically for technical assistance. The funds disbursed for technical assistance carries a zero percent interest rate for the entrepreneur and this funding is only payable upon completion of all other business financing debt being repaid.

“The applicants, or franchisees, are required to undergo a thorough screening process and formal training program facilitated by SA Franchise Warehouse. This includes ensuring that the entrepreneur is sure of the franchise brand he/she wants to pursue, as well as whether the sector is in fact best suited for him/her.

“The next phase involves a five day training course which allows the entrepreneur to become acquainted with what managing a franchise outlet entails. This phase includes an analysis of the entrepreneur and a tough psychological interview to ensure the entrepreneur is committed to the project. Upon successful completion of the course, the entrepreneur, assisted by the SA Franchise Warehouse, has to prepare a business plan and application for funding, which is then submitted to Business Partners for finance,” he explains.

The technical assistance programme continues after the funds have been disbursed, and includes daily analysis of key deliverables in the business, which will be monitored by a SA Franchise Warehouse specialist. This should assist in giving the entrepreneur and the business a reasonable chance of success.

The Franchise Fund, which officially began the process for applications at the beginning of 2014, has already completed its first few deals and drawn from the Franchise Fund. “To date, we have approved six deals and disbursed two deals.

Kobus Oosthuizen, managing director of SA Franchise Warehouse, adds that the existence of the fund allows potential entrepreneurs the opportunity to acquire larger franchises, based on the value of their own contribution, in relation to the type of business they would have qualified for using normal commercial funding.

“Franchising in South Africa represents a significantly smaller portion of the GDP (eight percent) in comparison to other first world counties, such as the UK and the USA, where franchising accounts for more than 50 percent of GDP. Taking into account that franchising directly employs around 300 000 people in South Africa, it shows the potential of effective funding and incubation models, such of the Franchise Fund,  can be devised,” concludes Oosthuizen.

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