Advice and Opinion

The effects of unchanged interest rates on the Franchise Industry

Last week, the South African Reserve Bank’s (SARB) Monetary Policy Committee announced that the prime lending rate would remain unchanged at 9.25% through the festive season.

Consumers and businesses have been under a lot of pressure in recent months with the rising electricity rates and inflation in general. Morne Cronje, Head of FNB Franchise says, “Unchanged interest rates will give franchisees an opportunity to review, manage their cash flow and plan their business needs more effectively.”

He adds that “decreasing debts during the current economic climate should be a main aspect for both consumers and business.”

The SARB’s decision to keep rates on hold provides only a temporary reprieve for South African consumers and franchisees alike. The survival of the business sector largely depends on the strength of the economy, and factors like job growth and interest rates. With global influence, franchises have had to keep up with changing needs of the current market, not to mention the complexities of ensuring that the business is a success.

“The SARB has indicated that the trajectory for rates is upward, and it’s really just a matter of when. In the current environment, consumers, who remain under considerable pressure, modify their spending patterns in favour of value. They may for instance opt to spend more on home improvements and quick service restaurants (QSR) rather than holidays or casual dining, and franchise segments that cater to these changes are likely to outperform the broader market,” explains Jason Muscat, Senior Industry Analyst, FNB Economics.

Cronje urges “franchisors and franchisees to continue monitoring and managing their business by having a sound business plan on hand. This blueprint will help you identify the benefits and pitfalls of your business. Being an active participant in your business will not only have a direct impact on your economic future but also sustain your business in the future.”