Ask John – Issue 3#2
This article appeared in Issue 3#2 (January/February 2009) of Business Franchise Australia & New Zealand
What are the relative advantages of investing in an existing franchise as distinct from starting from scratch?
In non-franchised terms, risk is a big factor in deciding whether to buy a business, or start your own. On one hand you have an existing operation that’s established in terms of cash flow, location, customer base etc and has a financial track record. On the other, you have some capital and an idea of your own that might or might not work.
Franchising is different, in that the element of risk is considerably less important in choosing the startup route. You have the comfort of knowing that the business model is proven, that you will have experienced help and resources at your disposal, and that your franchise should be capable of generating the same sort of growth and return as its fellows. Then:
- You are not paying for the work someone else has already done on set-up and creation of local goodwill;
- You have a ‘clean slate’. You are not inheriting the ‘personality’ that an individual will inevitably stamp on a business – even a franchised one. Sometimes a franchisee blots his or her copybook and the business carries some baggage in the eyes of consumers or suppliers;
- You don’t have to be asking yourself why the franchisee wants out, or whether the books are a true and accurate record of trading;
- You might be moving into a geographical area where the concept is novel and there is little established competition;
- Many people find it fun to develop a business from scratch – everything is fresh out of the box and it can be immensely satisfying to ‘do it your way’, within the boundaries of the system.
There are also advantages to buying an operational franchise:
- If a retail site is involved, you can get a feel for the location and presentation;
- ‘Growing pains’ will probably have been sorted out, brand awareness and a customer base have been established;
- Trained and experienced staff are already in place – making the transition more seamless and saving you both the cost and time of finding and training new staff;
- You gain a solid indication of how the business is performing under current management;
- Franchisees tend to stay in their businesses for around seven years and leave the system for no other reason than it’s time to move on;
- You may be able to buy an underperforming franchise at a good price and use your skills and enthusiasm to build the business rapidly.
In the end, it may come down to:
- whether you can afford the premium on an operational business;
- whether you want a particular location that is already occupied but for sale;
- whether you will enjoy the challenge of startup (or not);
- your own risk profile; and
- for that matter, the complexity of the business you are considering.
I am currently looking at four pet grooming franchises which seem much of a muchness. What are the specifics I should be looking for?
In the weigh up, you have to be careful that you are comparing apples with apples. Many systems that look very similar on the surface actually vary quite drastically in terms of the education and support provided, approach to fees, brand guardianship, networking opportunities provided, system stability, marketing systems etc. For example, the system that charges a seemingly attractive flat monthly fee might fall down badly when it comes to the ongoing support provided. This is why it’s so important to have the right questions at hand (see www.franchise.org.au for guidance) and seek the advice of franchise-savvy lawyers and accountants who know what to look for. There’s also the consideration of your preferred location.
Consider this too: a vibrant, happy and sharing culture – one that really appeals to you – can easily make up for a multitude of minor flaws or early hiccups typical in emerging systems.
If everything is still a dead heat, you can start asking yourself questions like ‘which of the brands appeals most to me personally’.