Is Franchising Right For You?
One of the main benefits of being a franchisee or a franchisor is the satisfaction of being your own boss. You make the decisions. The downside? You live with the consequences.
That’s why it’s important that the initial decisions you make are informed, strategic and based on robust and accurate information. Before you invest a lot of time and money into a franchise business, you need to know whether it’s viable option for you. Potential franchisees should assess the feasibility of the industry for their individual circumstances. Carefully reviewing and understanding all requirements are necessary to survive and thrive.
Checklist for buying a franchise
Buying a business is a substantial investment. Once you have decided on a franchise system and started the purchase process – you must ask the right questions. A careful, wellthought due diligence on the business is the key to a successful transaction. This checklist is designed to help guide you through this process:
1. Franchise background
First, you need to understand the franchise system and background information.
- How long has the business been franchised?
- How experienced is the franchisor’s team?
- How much do I need to invest?
- What is the vision for the business and brand?
- What are the plans for growth?
All franchises aren’t created equal. The good brands out there are constantly evolving, so it’s not just about understanding where they are today, but where are they headed in the future.
2. Current franchisee success
A full understanding of the franchise system, its success and current state should be factored into your review process. Get to know the business inside and out. Seek out a franchisor who is going to be honest and upfront from the start.
- What are the peaks and troughs of the business?
- What is the turnover of franchisees?
- How many multi-store franchisees are there?
- What is the typical make-up or characteristics of franchisees?
This is a really good indicator of how well a franchise is doing. If a franchisee isn’t willing to buy a second store, that’s a pretty good sign that there’s something wrong. If a franchisee owns multiple stores, he or she was obviously happy enough with the first one to buy a second. They were also able to fund it, which is important because they’ve either funded it through profits or the bank liked them enough to lend them the money.
3. Franchisee support
It is important to understand the support the franchisor offers the franchisee and how this relationship works.
- As part of your initial investment what training is provided?
- What ongoing support does the franchisor provide?
- How often will you be talking to the franchisor?
- How often will they visit the store?
- Do they review the performance of the stores regularly?
- How often are franchisee reviews conducted?
- Does the franchisor offer assistance to help you improve?
4. Franchise agreement
Many franchise groups want to sell you a store and that’s it. You need to clearly understand the franchise agreement and understand how the fees you are paying provide value to the business and what support you receive in return.
- What marketing support is available to help you succeed?
- Who is the main contact for you as a franchisee once you start?
- What support network do franchisees have with each other?
- How does the franchisor and franchisee collaborate and communicate?
- How is franchisee feedback captured and is it regularly addressed?
5. Get to know the franchisees
Consider meeting or speaking to other franchisees before you buy, particularly if you have any doubts or want to ‘try before you buy’. This will give you the opportunity to hear how the stores run on a daily basis and answer any operational questions you may have. Spending a day with a franchisee will give you hands-on experience and assist with your final decision. Drill down to industry and operation specifics.
- How are they doing?
- Are they happy?
- What’s the relationship like with the franchisor?
- Even just down to simple things - are they making money? Is it profitable for them? q If they had their time over, would they do it again?
Seek independent advice
The franchising industry is facing a unique set of challenges, including economic volatility, heightened competition, and legislative challenges. At any point in the due diligence process it is important to seek professional guidance or support if you are unsure of information or want a second opinion. If this checklist highlights more questions, or if you would like to find out more about how BDO can help you assess the viability of a franchise, contact Jason for a complimentary one hour consultation.
Jason Daniels is BDO’s national Franchise Partner within BDODrive. His expertise lies in all areas of financial management, especially mergers and acquisitions, business planning, forecasting, restructures, systems as well as process and operational improvement and software development. He holds a Bachelor of Commerce Degree, is a Member of Chartered Accountants Australia and New Zealand.
BDO offers a wide range of business and corporate advisory services to large corporate organisations, Government & Public Sector entities, private businesses, entrepreneurs, and individual clients across a wide range of industry sectors.
In Australia, BDO can offer the expertise of 162 partners, supported by 1,250 staff located in New South Wales, Northern Territory, Queensland, South Australia, Tasmania, Victoria and Western Australia.
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