The decision to buy or start a franchise, or in fact any business, is a significant one. Sometimes that decision may seem simpler when you are dealing with a franchise because the information can be more polished and the roadmap easier to follow.
It pays to remember however that the objectives and motivations of all the transaction parties are different. Understanding who the different players are, what they bring to the transaction (and what they take from it) can help you navigate the process with confidence.
Franchisors
In general, franchisors want to build their network and grow their brand, increasing their revenue and reach by bringing in good franchisees that will gel with the franchise values and run their businesses in-line with franchise standards. That said, the franchisor is still trying to ‘sell’ you a franchise; to convince you to invest your capital and energy into their franchise brand. Whenever anybody is trying to sell you something it would be a rare thing for them to be putting your interests ahead of their own. This doesn’t make them bad or unscrupulous of course, but it is something that’s important to keep in mind no matter what you’re buying.
Accountants
Analysing the financials of an existing business, or preparing quality financial forecasts, can be time-consuming and exhausting. It can also be easy to miss things if you don’t know to look for them. When people avoid using an accountant for professional advice and services, it’s often due to cost, or because they think they don’t need an accountant until they’ve got their business up and running. The truth is probably the complete opposite. Accountants can not only assist with things like company setup and trust structures to help with tax efficiency, but a good accountant will save you time and money just by knowing what they’re looking for and being a trusted ‘second pair of eyes’. In fact, an accountant may well be your cheapest insurance against making some potentially expensive mistakes.
Lawyers
Lawyers are perhaps the most tightly regulated of the parties involved in any transaction, having to adhere to a broad range of regulations and codes of practice. I’ve often heard customers think they’re in a better position because a lawyer is involved in the transaction, only to have them later say that the lawyer is being paid for by some other party (the business seller, the franchisor, etc). Don’t fall into this trap. Involving a lawyer in a major transaction is generally a good idea, so long as they’re experienced in the type of work you’re asking them for, and so long as they’re working for you! Remember, lawyers are creatures of specific expertise, so make sure that you choose one that’s experienced in business sales and commercial contracts!
Business Brokers
If you’re purchasing a franchise through a business broker, it’s easy to feel that they might be a neutral party, simply sharing information between the parties and facilitating a transaction. In practice however, most business brokers only get paid when they sell a business, to put it simply a business broker’s primary objective is to secure the sale. This doesn’t always mean that they are siding with the vendor; indeed, there may be situations where the business broker helps the vendor to temper unrealistic expectations or tries to guide the parties to a compromise on critical sticking points. Remember, a broker may have many potential purchasers for each business seller, so if they’re forced to choose you should expect the business broker to put the seller’s needs first.
Finance Brokers
A finance broker’s role is to match your requirements to the right lender (or lenders). This generally means obtaining the finance you need, with market competitive terms and rates. Most finance brokers get paid by the lender when you take out a loan, with the costs of paying the broker included in your loan repayments in some way (this doesn’t necessarily mean you pay any more for using a broker, as lenders tend to reduce their rates for broker introduced deals to balance this out). Brokers are incentivised to ensure you get an approval, but make sure you use a reputable broker that specialises in commercial lending, and that you clearly understand any finance the broker arranges. You may also want to get an indication from the broker as to which lender/s they intend to submit the deal to, as credit enquiries from multiple lenders may have a negative impact on your credit score.
Lenders
The role of the lender is to lend money of course, but unlike a broker, a lender’s primary motivation is to ensure that you can and will repay your loan. This means the lender needs to get a good understanding of who you are as an applicant, as well as assuring themselves that your business venture has a reasonable chance of success. When it comes to lenders you should look for one that understands franchising, or even better the particular franchise network you’re looking at.
Your Role
As you may have already realised, your role in the transaction is far from a passive one. I say ‘the transaction’ as the setup or purchase of your business is a project distinct from your role running your new business. This is the mountain you need to climb to get to the green pastures that lay beyond. So, what’s your job?
- It’s up to you to identify a franchise that aligns to your skills, interests, financial capacity, and lifestyle goals. You motivation may be ROI, it may be work-life balance, or it may be something else entirely, but getting clear on your own motivation is a great place to start.
- It’s up to you to seek professional advice (particularly in areas that are not your core skillset), and to pay attention to what those advisors tell you. It’s also on you to not blindly follow advice, and to consider it critically as one part of the overall picture.
- It’s up to you to do your homework. Doing the bare minimum when it comes to your new business is not in the recipe book for success. Ask questions of everybody, and if you’re unsure or don’t understand something, ask again or ask someone else.
Success in franchising depends not only on choosing the right business but also on understanding the key players involved in the transaction. By recognising their roles, and motivations, you can make informed decisions and avoid potential pitfalls. Whether you’re securing finance, negotiating contracts, or assessing financial risks, surrounding yourself with the right team of professionals will give you the best chance of success. With the right knowledge and support, you can confidently embark on your franchise journey and build a thriving franchise business.
About the Author
Phil Chaplin the Chief Executive Officer of the CFI Finance Group, a specialist finance company servicing the franchise, accommodation, and fitness sectors as well as small businesses more broadly cross Australia and New Zealand.
Phil has over 20 years’ experience in providing finance to businesses across Australia and New Zealand and has managed finance companies in the private and banking sectors, he is a former chair of the Equipment Finance division of AFIA.