This article appeared in Issue 4.1 of Business Franchise Australia and New Zealand.
If you are looking for a franchise opportunity, the choice is mind boggling. There are literally over a thousand different types of franchises available in Australia for you to choose from and there will probably be more than one or perhaps many in your chosen business area.
You obviously want to select a profitable business venture so it is important that you thoroughly research the opportunity. Once you have bought a business it is difficult to turn back; a wrong decision takes a few seconds to make, and for some, a lifetime to put right. So do your research. Look at the alternatives. Ask existing franchisees, customers, bank managers etc. Research franchise magazines, newspapers, websites, attend franchising exhibitions and seminars to obtain as much information about franchising as possible. Many of these seminars are provided free of charge by service providers or advisors in the industry, so do your homework and you will be surprised just how much information is out there.
Choose a franchise business that you’ll enjoy
Buying a franchise that you will enjoy is the most important factor of all. Most businesses – all types of businesses, not just franchises – succeed when the owner truly enjoys the products and/or services that the business supplies. If you really enjoy and are interested in the products and services, and the customers and markets, then you will learn and gather information and skills rapidly. If you enjoy the business it is likely that you will possess a good deal of knowledge about it already.
Being an expert and a specialist at what you do is essential to running any successful business – enjoyment and expertise naturally go hand-in-hand. You will find it easy to specialise and become an expert in an area that you enjoy, quite simply because it is a pleasure and a joy – not a chore. When you work in a service or product area that you love, you will be enthused about it, and your enthusiasm will be conveyed to your customers and everyone you meet. People like to deal with enthusiastic suppliers – people who love their work. When you enjoy the subject of your franchise business you will naturally put in more effort than if you worked in a field that fails to inspire and excite you. People who love their work always work hard and put in more hours. Their work becomes part of their life, rather than it being just a means to pay for their living costs.
Trust your instincts
When you buy a business franchise of any sort you are entering into a business partnership, in which your relationship with the franchisor, and their people, will be absolutely crucial to your success. You must be able to trust and work with the franchisor and the franchise company’s staff – especially the directors and senior managers. If you have the slightest doubt as to the integrity of any of the people within the franchising company, think extremely carefully before you go ahead with them.
Trust your instincts – if you feel uncomfortable during the selection and recruitment stage it is likely that there are grounds for concern. Feeling uncomfortable about trust and relationships may not necessarily mean that the franchisor is untrustworthy, but it does probably mean that the ‘fit’ may not be right for you. Relationships are personal things – some people you’ll get on with and see eye to eye with; others you may not. You will be more likely to succeed, and receive a good level of appropriate support, if there is a good emotional ‘fit’ with the franchisor.
Trust your instincts to tell you whether the franchising company has a similar value system and ethos to your own. If you value the customer above all else, do they too? If they do not then they may not be fully in tune with your style and business philosophy. Finding a good emotional and philosophical match with your chosen franchising company is almost as important as choosing the right sort of business. Given sympathetic and genuinely relevant support we can achieve almost anything – be sure that your franchise partner will be able to provide it.
Look for high integrity propositions and franchisors
High integrity is essential for two crucial reasons:
- You will keep your peace of mind, and be able to sleep at night. The world is full of miserable millionaires – people who have exploited others to make their money – don’t be seduced by this false dream. Always behaving and deciding with high integrity will keep you safe, well, and probably make you wealthier too.
- You will delight your customers and good word will spread, which is vital for local service businesses, which nearly all franchise businesses are. Local businesses live or die by their reputations. Behaving with high integrity will automatically ensure that your reputation shines and grows. Many well established successful franchisees never need to advertise or look for their next customers – their customers find them.
If you buy a franchise that lacks integrity, even with all the best will in the world, you will be pushing water uphill.
Understand the financials
You don’t need to be an accountant, but you do need to understand the essential things: What is the level of investment and what do you get for it? I Is it good value? Or is it all smoke and mirrors?
How long will it take you to recover your investment (ROI) – in other words what is the payback period and how quickly will the franchise realistically and reliably get into profit? This is a crucial indicator, and one which you must understand and be assured that it is acceptable and achievable before you buy any franchise.
What are the running costs of the franchise? Some will be fixed overheads (such as vehicle lease repayments, plant and tools, your wages, other staff wages, premises and heating, etc). Some will be variable ‘cost of sales’ dependent on your sales levels and volumes (such as materials and additional labor, possibly fuel etc); and some will be other variable costs necessary to promote and expand the business (such as advertising, printed materials, training, etc). Get a clear idea of what these costs are. Be able to see and understand them over a year, broken down month to month.
What working capital will you need? This is the amount of money required for the business’ running costs, including your own salary, before the business begins to make a profit necessary to fund itself and your wages.
What borrowing or loan arrangements are required, and can you afford the repayments, given the working capital requirements of the new business, and the rate of expected business and profit growth?
What alternative borrowing or loan arrangements are available – look around – negotiate hard. If you do not ask you will not get. No bank manager will offer you their best possible rate until or unless they feel they have to. Have an alternative – play one lender against the other. The most important rule of any negotiation is having an alternative. Again, if you don’t ask you won’t get.
Understanding the relative financials is an important aspect of comparing franchise opportunities. Work at using the key financial figures and indicators and you will quickly become accustomed to making these judgments, which in turn will make you stronger in your discussions and negotiating before buying your franchise.
Finally, get expert advice.
Buying a franchise business is a very serious step, but it never ceases to amaze me how few people considering taking this step seek out specialist help before they invest what is probably the best part of their hard earned savings. The majority of people who do buy a franchise have never been in their own business before, so sadly they just don’t know what they don’t know or where to go for advice.
These days information is easy to find – don’t be shy – look for it – ask and satisfy all of your concerns before you make your decision.
Also, ensure that the franchisor is interested in YOU! And not just another store or franchisee to grow their empire, as in my experience this can be fraught with danger for both parties and may have a greater risk of failure. At Franchise Selection we have for many years taken the approach that a franchise should not be sold to a franchisee but that the franchisee should be recruited because they fit the business and it fits them. If you adopt this philosophy too, then you will have a greater chance of success in choosing the right franchise opportunity for you.