Some things all prospective Franchisees should consider
Q: How do I choose the right franchise for me?
A: The key is to set your criteria before you start looking at specific franchise opportunities. You and your spouse/family should decide on key issues such as:
1. How much capital am I prepared to commit to a franchise venture?
2. What geographical area is the business to be located in? (no more than 30 minutes from home is a good benchmark)
3. What hours and on what days am I prepared to work?
4. How many people do I want to employ?
5. How much income in wages and profit do I want to draw from the business in year 1, year 2 and year 3?
Note that none of the criteria are about the type of business as this is more an emotional discriminator.
Once you have this template of the ideal criteria you can then compare it to all the opportunities that attract your attention and see if they fit your specific needs. Avoid changing your criteria to fit the opportunity so emotional decisions don’t lead you down the wrong path.
Q: How do I tell if a franchise system is really successful (or not so successful)?
A: Look beyond the brand and the advertising and marketing material to the substance of the success or otherwise of existing franchisees.
The best way to do this is to meet a good cross-section of franchisees and ask them a few simple questions such as:
* Are you making the return on your money and time that you expected to when you started the franchise?
* How has it affected your family life?
* Are the majority of franchisees doing well?
* If you had your time over again, would you still buy this franchise?
* Are you interested in selling – and how much?
Consider their answers and also the presentation and type of people who you have met. They often reflect the quality of the franchise system and ask yourself, “Do I want to work with this group of people as a colleague?”
Q: Should I buy a new (Greenfield) franchise and start from scratch, or buy an existing franchise that is already established?
A: Often this is a question of your tolerance for risk, confidence in yourself and the franchise system, and of course, price.
In an ideal world all new franchises would cost less than existing franchises and all franchise owners would be successful.
The reality is that commercial opportunities emerge because the big variable is people.
Ask the franchisor which existing franchises or company owned locations are for sale, and compare these prices with the costs of opening and establishing a new franchise.
In any large network there will be a few franchises for sale that can be bought for less than the cost of establishing a new franchise. These may be “renovator specials” (poor operators in good locations) just waiting for the right franchisee to operate the business properly. Alternatively the location or demographic may be poor and a good operator is selling out or trading up because the locality has little potential for growth.
Often paying top price for a great profit history will add to your debt burden and assumes that you can operate the business as well as the vendor franchisee, so determine how much of the profit is attributed to a good operator and how much is contributed by the location.
Cheap franchises may offer great value and paying top dollar may diminish risk, but consider where you want to operate your franchise. The new locat9on may better suit your needs.
Q: How should I handle a dispute with my franchisor?
A: The first step is to look in the mirror and have a reality check. Ask the question, “Is it just me or do many of the franchisees have similar issues?”
A fully independent business person has only himself to blame, but in a franchise relationship the franchisor or their staff are often a convenient crutch to shore up a disgruntled franchisees ego.
The Franchising Code of Conduct, to which every franchisee and franchisor is bound, has an excellent dispute resolution process that is a legal requirement in any franchise agreement.
Disputes often arise out of poor communication and/or letting the matter fester. The first step is to raise your concern with the franchisor or your field representative so they understand your position. If the matter is not resolved, put your position in writing and forward it to the franchisor requesting that the matter be mediated.
Under the Franchising Code of Conduct a third party mediator is appointed to facilitate a resolution to the dispute.
Each party pays half of the cost of the mediation expenses. The mediator cannot dictate an outcome but the vast majority of franchisee/franchisor disputes are settled by this mandatory mediation process.
Q: How do I finance the purchase of a franchise?
A: Franchising in Australia is in a very favourable position in comparison with independent businesses.
The vast majority of new business start-ups use personal savings and loans from friends and family to finance a new business.
Generally the banks will not finance new business start-ups during their high risk establishment period. As a result most new business start-ups use a first or second mortgage on their home to raise the capital to start a business.
Franchising, however, enjoys a unique space in the small business sector of the big banks, with ANZ, Westpac, CBA, NAB and BankWest all having dedicated franchise teams who are trained specifically in franchise lending.
Many of the established franchise systems (those that have been franchising for 3-5 years and have over 15 franchises) have “approved” status with some or all of these banks, which means that, depending upon the franchise system and which bank, between 20 per cent and 70 per cent of the total establishment cost is finance by the banks and secured by a charge on debenture (a kind of mortgage) over the franchise and its assets.
Always keep in mind that you will need to accumulate some cash and assets from hard work and hard saving to finance you franchise. So stay close to your friends and family to get started.
(Acknowledgement to Rod Young - DC Strategy)
10 Important Questions for would be Franchisees
Having the backing of a proven business system and an experienced Franchisor takes a lot of fear out of becoming a small business owner. However, not everyone is suited to franchising, and even the best Franchisor can only do so much to help.
Think about the following statements and respond to them honestly.
1. I have the motivation and drive to build and run my own business
2. I am physically fit enough to run my own business
3. I have skills and experience that I believe could contribute to running my own business
4. I would find it easy to stick to a franchise system even if I thought I knew better
5. I enjoy being part of a team
6. I am good at motivating other people
7. I enjoy ongoing learning
8. I am good at marketing and promotion
9. I understand the importance of customer service
10. I have access to enough money to buy a business and cover running costs for
the first three months
(Acknowledgement to Franchise Developments)
More questions?
To enquire about an Advanced Franchise, please contact us on 1300 66 2345
or an email enquiry here.
Alternatively you can contact us by:
Facsimile: 07 5597 3588 or
Post: PO Box 2345, Southport QLD 4215.
