Retiring, or not, with a franchise
RISKY, HARD WORK - NOT FOR EVERYONE Should you cash in your pension to invest in a franchise? It depends. Do you have the stomach for the risk and long hours?
Buying a franchise means having the weight of a bigger brand behind your business, but should you cash in your pension to buy a franchise? Will Keevy, head financial advisor at DebtBusters, says the risk seems just too high in terms of investment. “By putting your nest egg into a business, you risk cutting off your cash flow, which means you could end up taking cash from the business to support your lifestyle.” John Nicolakakis, CEO of Roman’s Pizza, says one way to minimise this risk is to find an operator who can run the business for you. “If the franchise has success, a proven track record, all systems in place and there’s an owner/operator, it can work. Find a physical partner with some experience in the game with at least a minimum of a 30% equity stake who can manage your business on your behalf.”
What do you look for in a partner? “First, they have to have capital.” Nikolakakis says this has to be capital that they’ve earned themselves, not inherited, so you know they can handle cash flow.
If you’re going to take on a franchise after retirement, assuming 65, Nicolakakis says stamina and dedication are the biggest factors.
“Don’t put all of your eggs in one basket, just in case you have other assets that you might need.” He also advises potential franchisees not to rely on dividends in the first 12 months.
Eric Parker, from the WhichFranchise.co.za expert team, recommends intense research before investing in a franchise.
While people approaching retirement are looking to supplement or grow their retirement income, franchising is not for everyone. “Franchisees should consider whether the type of business suits their field of expertise and interest, and whether they are buying the business because they are passionate about it or because they want a way out of their current dilemma,” says John Baladakis, The Franchising Association of South Africa’s chairperson for 2015 and a franchise owner himself.