Does franchising hold the answers for you?

June 7, 2012

Most people who inquire about franchise business opportunities are in a state of flux about their working life, career direction or business investment options. There are many that people consider, such as:

  • Lack of satisfaction or opportunity for growth in their current job versus security of employment
  • Is my current occupation/job fulfilling my needs for personal growth?
  • Does my current role offer the prospect for meeting my goals for income generation and security in the future to provide for me and my family’s needs long-term?
  • Do I want to be in business for myself and do I have the confidence to go it alone?
  • Do I have the ability to build a business concept from scratch?
  • What are the risks or benefits in buying an existing business?

In evaluating issues such as those above, many come to see the franchise sector as offering opportunities with proven business systems, defined investment, coupled with training, support and marketing. There are, however, over 1200 franchise systems operating in Australia, with varied levels of success and development. The quality of training, support from the franchisor, brand marketing, their unique selling proposition or intellectual property that provides any competitive advantage, and, critically, the satisfaction of the franchisees within the system – are all factors to be evaluated.

The Australian Franchise industry is one of the best regulated in the World. The Franchise Code of Conduct is designed to afford franchisees protection and redress. The prescribed disclosure obligations on franchisors are aimed at maximum transparency and informed decision-making for prospective franchisees.

A recent Pricewaterhouse Cooper Survey, completed in collaboration with the Franchise Council of Australia, has shown that for the third year running Australia’s leading franchise businesses have shown good sales and profit results for 2011. The most recent figures from the Australian Bureau of Statistics revealed that among non-franchise business about 45% cease trading within their first two years – rising to 70% over five years. In contrast, 95% of franchisees succeed in completing the average five-year term of a franchise agreement.

If you are considering purchasing a franchise business then there are many things to consider and actions to take to ensure that you go into the business fully aware and informed.

Here a few tips to consider before taking the step:

The process starts with YOU

  • What are your strengths & weaknesses?
  • Do you want to use familiar skills or try something totally new?

What are you looking for?

  • Job satisfaction
  • Independence
  • Money
  • Lifestyle
  • Necessity
  • To provide jobs for the family
  • Security

Basic questions to ask yourself

  • Does self-employment suit you?
  • What are your strongest skills?
  • What hours are you prepared to work?
  • What is the extent of investment you are prepared to make?
  • To what extent are you prepared to risk your assets?
  • What skills and experience do you have in selling or marketing?
  • Do you have business acumen?
  • Are you a team player?
  • Can you manage people?
  • Will this allow you the lifestyle you desire?
  • Will your family give you their support?

Basic questions to ask the Franchisor

  • How long has the franchisor been in business?
  • How much is the up-front fee?
  • How much is the ongoing fee?
  • Is the brand trade-marked and protected?
  • What will be my competitive advantage?
  • What training is given to franchisees?
  • What is the scope of ongoing franchisee support?
  • How is advertising and marketing support for the brand managed?
  • Is there an operation’s manual?

Check out the fine print

  • Contents of Franchise Agreement
  • Key terms
    • Cost
    • Length of tenure & renewals
    • Exclusivity or non exclusivity
    • Obligations of both franchisor and franchisee
  • Termination & post termination conditions

Advice and consultation

  • Prospective franchisees should obtain
    • Independent legal advice
    • Independent business advice
    • Independent accounting advice
  • Interview existing franchisees
    • Ascertain their level of satisfaction with support and lifestyle
    • The brand passion and network spirit and motivation

Cost of the Franchise

  • Consider the total cost of your investment
  • Franchise Fee
  • Fit-out or equipment
  • Working capital
  • Training
  • Opening Promotion
  • Legal Fees
  • Rental bonds
  • Stock
  • Office supplies/computers
  • How will I finance the above?

What’s in it for me?

  • Undertake critical review of operating costs (and profitability scenarios if provided)
    • Prepare your own business plan
    • Prepare a worst case scenario
    • Assess the real rate of return on your investment
    • Does your partner and family support your decision?

Understand the restrictions on Franchisees

  • The franchisor has ultimate control
  • The need to abide by the franchisor’s rules and corporate policies
  • The need to be a team player
  • You can only sell to a buyer approved by the franchisor
  • Ongoing commitment to pay royalties, service fees or suppliers
  • Relationships with franchisor and their staff

Franchising is not a guarantee of success but finding the right company and style of business that suits you, can be a better choice than going it alone.

Joining a franchise concept can provide you with the support, training, marketing and systems to help you run a successful franchised business, however, it will still be your own business and the ultimate success will depend upon you to make it happen.