Is franchising for you?

By Kevin Bugeja, Managing Director, Franchise Selection

This article appeared in Issue 3#2 (January/February 2009) of Business Franchise Australia & New Zealand

Have you always wanted to own your own business? Have you felt overwhelmed by the prospect of drawing up a business plan, convincing banks you have a sound idea, figuring out what advertising approaches you can afford to use?

Each year, thousands of potential entrepreneurs face this difficult decision: Whether or not to go into business for themselves or buy a franchise. Because of the risk and the amount of work involved in starting a new business, many prospective small business owners choose franchising as an alternative to starting an untested independent business.

Although the success rate for franchise-owned businesses is significantly better than many independent businesses, there is no formula to guarantee success. One of the biggest mistakes you can make is to be in a hurry to get into business. That’s why it’s important to understand your reasons for going into business, and to determine if owning a business is right for you.

If you are concerned about the risk involved in a new, independent business venture, then franchising may be a better option. Remember however, that hard work, dedication and sacrifice are key elements in the success of any business venture, franchising included.

There are many advantages to owning a franchise versus starting your own business. These include:

  • Brand Name Recognition: Building a brand name reputation requires a substantial financial investment, in addition to a considerable investment of time. Buying a franchise insures your product already comes with this very valuable resource.
  • Lowered Risk: Investing your money into an already established business greatly lessens the risk of failure when compared to starting a business from the ground floor.
  • Training and Support: While you will need to bring some general business knowledge to the table, the franchisor will supply all the training needed to get you started on the path to business ownership. Support is ongoing for management, usually for the life of the business.
  • Advertising: This is probably one of the biggest benefits of owning a franchise - the ability to take part in affordable national advertising. Having an entire marketing team working on promoting your business’ products or services is a valuable resource.
  • Financing: Some franchisors will assist you in gaining financing or their system may even be bank accredited so that you can lend a percentage against the business. Even if neither of these scenarios is true for the franchise you are considering, it will be much easier to approach a bank for a loan for what is, in essence, an already established business system.
  • Site Selection and Design: Often the franchisor will help you with the process of selecting a site for your new business along with the design and construction.

Identify Your Reasons

As with any business, the first step in determining whether or not to enter into the venture is to assess your reasons for going into business. If you feel you need a change, or you’re tired of having other people tell you what to do, then you should reassess your decision before investing your time, money and energy – because operating a business requires more than a need for change or the desire to do as you please. Ask yourself, do you have a franchise personality? A future franchisee should be able to say a resounding yes to the following questions about their personal characteristics and conditions: 

  • Are you bored of your 9-5 daily work routine and being someone’s employee?
  • Do you have leadership qualities and do you like to make your own decisions?
  • Can you see yourself listening to managerial suggestions, and sometimes, directives from a franchisor?
  • Are you willing to work 10-12 hours a day, six days a week and probably Sundays and public holidays - at least in the early stages?
  • Are you prepared to invest and possibly lose your savings?
  • Is your family supportive of your decision to become a franchisee?

Purchasing a franchise, like any other business, requires a total commitment of your time, energy and financial resources. If you are not prepared to invest yourself and your resources fully into a franchise, then this type of venture is not for you.

As a first and often overlooked step, ask yourself why you want to purchase a franchise. This question, although basic, is an excellent way of evaluating your reasons for going into business. List every reason you can think of, no matter how far-fetched it may seem. It isn’t unusual for reasons to range from the desire to be your own boss to the hope of becoming a millionaire.

Divide your list into two separate categories: viable reasons and trivial ones. Then ask yourself if the viable reasons are compelling enough to warrant the full-time commitment that buying a franchise will entail. Remember, being candid with yourself now can either motivate your success or spare you unnecessary grief later on.

Will you enjoy the franchise? 

Sometimes people buy a franchise they think will make them a lot of money, only to find later they do not enjoy the business. The adage, “know thyself,” certainly applies here. You should buy a franchise that centres in an area that you will enjoy for the next 10-15 years. 

Are you willing to completely follow the franchise system? 

The very key to franchising success is the consistency of product and service customers find from one franchise to another. When you display the sign and logo of a franchise, you are indicating to customers that you follow a particular system. People who are extremely entrepreneurial in the sense that they do not like to conform to a predetermined formula should be very careful about buying a franchise. 

Do you have a history of success in dealing and interacting with people? 

Many franchised businesses are based on people relations. Your ability to interact well with your franchisor, other franchisees, your employees and your customers cannot be emphasised enough. A negative, critical franchise owner can be a detriment to the entire franchise system. You must have a track record of good relationships with employers, supervisors and fellow employees. 

Do you have family support? 

Managing a franchise is a full time job. It requires great sacrifices of personal and family time. For this reason, your family should understand that you will have tremendous demands on your time. Husband, wife and children need to be supportive of your decision to buy a franchise. 

Yet, buying a franchise is not a 100% guarantee of success. By carefully evaluating yourself and the franchise you desire to purchase, the chances of success become greater. 

After you are certain that your reasons for buying a franchise are realistic, and that you have the financial and emotional ability to do so, make sure you get expert advice.  A prospective franchisee should meet with a solicitor, an accountant and current franchisees before they sign the franchise agreement, to ensure they are comfortable with their decision to proceed.

Kevin Bugeja, Managing Director
Franchise Selection
Suite 201, Level 2, 566 St Kilda Rd
Melbourne, Vic 3004
PH: 1300 FRANCHISE (372 624)
Mobile: 0412 511 630