Benefits of franchising
What to consider before you buy
Buying into a franchise is becoming an increasingly popular choice for many Australians who wish to fulfil their dream of working for themselves. The flexibility of choosing what hours you work, seeing your company grow, and having the opportunity of potentially uncapped earnings is something that the majority of us would love to be doing! There are hundreds, if not thousands of franchise groups across Australia in pretty much all industry sectors, meaning there is probably a franchise opportunity that would suit most of us.
Sounds great, doesn’t it? Before you get too excited at the idea of buying into a franchise group, there are numerous considerations that your accountant would want you to weigh up.
Many people buy into a franchise with little to no business ownership experience, but instead sign up straight from working for an employer. Working for someone else, you typically have a specific role with a bunch of tasks that you’re responsible for but once you become a business owner, you will be wearing hundreds of hats! You’ll have to start thinking about sales, marketing, HR issues, profits and rent, just to name a few.
The list could be endless. So whilst the idea of joining that franchise group sounds like an opportunity not to be missed, we’ve highlighted a few areas to get you thinking before you embark on your business owner journey.
What can the franchise group do for you?
With an ever-growing list of franchise groups out there, it’s important to consider the benefits that each has to offer.
A simple point to start with is their brand name. How strong is it both locally and nationally? A strong brand will already have an established reputation, and should make launching your business easier; attracting customers straight away and kicking off sales to a good start. A less known brand may take more time to get noticed, and you may be left doing more work to chase customers.
What internal software does the group provide for running the business? Look out for fresh and new systems that make running your business more efficient, with minimal manual work required. If there are multiple systems, do they speak with each other and therefore remove the need for double data entry? For example, if the franchise is in the retail industry, ensure the POS system can be integrated with the accounting system to automatically import sales figures. In terms of the accounting software, ensure they are using a cloud-based system. Something like Xero or MYOB. As mentioned previously, one of the perks of owning your own business is flexibility. Cloud-based systems allow this, since they provide access to your accounts 24/7, from any location, and on any device, giving you the freedom to work at a time and location that suits you.
Avoid any system that requires an internal server to run it, as this generates higher IT costs. From an accountant’s perspective, the advantages of using a cloud-based accounting program goes above and beyond the flexibility of convenient accessibility.
You can provide your accountant with logins, which means they have access to realtime data at the touch of a button, removing any guess work associated with looking at historical data. This allows the accountant to provide you with accurate advice based on actual figures, meaning you can make better business decisions to help reach your goals.
How strong is the growth of the franchise? If growth is on the cards for you, which would be a no-brainer for a business owner, ask for historical evidence of the speed of growth of business turnover, especially if it’s a new franchise where this is not easily visible to the public. Can you run multiple sites if you wish to continue growing? What are the associated costs with running multiple sites? Do they offer a discount for each additional location? Is there a cap on how big one location can get, and if so, will that provide you with what you are looking to achieve financially? Do they offer a guarantee of income?
Look for a franchise group that will assist you with growth. There are many groups out there who cover the fixed costs whilst your business is growing and expanding. Choose a franchise group that thrives on growth and who will support you in building your business empire. If you are spending $1,000s on growing your business, it may be a good few years before you can sit back and enjoy the financial benefits of running your own business.
Hidden Fees and Costs
When weighing up the cost of a franchise, people often only consider the initial royalties and set up costs, such as shop fit-outs or the purchase of equipment. It’s important to note what these fees include, and what is expected to be paid going forward on top of this amount. If you’re just starting out, do they offer a first year discount to help get your business up and running?
Once your business is up and running, what are the ongoing costs? Do franchise fees range depending on your business performance and how much revenue you’re bringing in, or is it a fixed number regardless of sales? Similarly, if the group decides to increase the fees, how much notice do they give? These points impact your profits, so should be a question that you ask straight away.
As a new business, you need to get your business known in your local area. This is where marketing comes in. Usually, a franchise group will have a marketing team that works on a national level to promote the brand nationwide. They are there to provide marketing support to their franchisees, and often have brand style guides, templates and other resources that can be utilised. But if you’re looking to promote your business locally, that’s down to you, and it comes at a cost. Think local promotions, community events, and sponsorships. These are all great ways to promote your business, but you would be responsible for the cost.
You’re part of something bigger when you’re a franchisee in a franchise group so there are often strict guidelines for what can and can’t be done in terms of marketing. National marketing teams work hard to ensure brands remain strong and consistent to keep it recognisable, so if you have some crazy marketing ideas on the cards, it’s probably best to check how flexible the franchise is in terms of what they will allow. They may put barriers in place to protect the brand’s reputation that they have spent years building and maintaining. Although marketing is a tax deduction, it can be easy to rack-up big bills when you’re trying multiple avenues to promote your business.
There may come a time when you want to sell your business. How much do the franchises typically sell for? Have a look at other franchises in the group. Assess their average performance within the group, and see what that would equate to in a sale value. You want to feel assured that your years of hard work will be worth it financially.
Tax and Finance Considerations
Buying into a franchise group can have a big initial outlay that you may or may not have the funds readily available for. If you need to borrow finance, it’s worth checking to see if the franchise group has any agreements with existing banks or lenders to assist in funding the purchase. Some franchises have a connection to certain providers to provide funding for up to half of the upfront franchise costs, making funding easier to achieve. Otherwise, that’s another one of the business hats you need to wear; assessing interest rates and terms of getting the financial assistance you need.
What support is offered in terms of an accountant or bookkeeper? Are you able to source your own or is it a requirement to use an approved service provider? If you have existing connections with service providers, you may wish to use them, but some franchise groups prefer to use from their pool of suppliers. If this is the case, it may restrict the independent advice you are given if the group is already aligned with a service provider. The advice and service given from both accountants and bookkeepers is invaluable to business success, so it’s important that you’re comfortable with this.
Further, it’s a good idea to look for a service provider who can do both your day to day bookkeeping, as well as end of year accounting work, or at least someone who has a great partnership that can take care of the work between them. Without this, you or your management team end up being the middle-man providing information to each party as requested by the other. It makes it much easier if you can avoid this and trust that the accountant and bookkeeper can work together and simply provide you with the end result.
These days, accounting services go above and beyond basic services such as completing tax returns at the EOFY. When choosing an accountant to work with, look for someone who offers tax planning services. They will work with you to develop strategies and implement plans to minimise your tax and increase business returns. Proactive advice ensures that your business growth is phased for maximum benefits, while also reducing the likelihood of EOFY shocks. This will help put your franchise in a better financial position, whilst also reducing your stress!
Does your tax structure enable you to minimise tax amongst the family group? Some structures are better than others depending on the industry, so it’s important to seek advice before you jump into making any decisions.
If being your own boss is one of your goals, buying into a franchise group could be one of the quickest ways to do so. However, as with everything, it can come at a risk.
It’s important to consider all of the points outlined above, and ensure you have a full understanding of everything involved. Speaking with an accountant is an excellent place to start; seek one that offers more than just tax compliance because getting the advice you need at the early stages of your business life is the difference between a good business and a great business. Look for an accountant that has a proven track record of growing and expanding a business themselves and is willing to share their knowledge with you to build a long term relationship.
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