Which kind of franchise is right for me?

Kevin Bugeja, Managing Director, Franchise Selection

This article appears in the September/October 2013 issue of Business Franchise Australia & New Zealand


Sounds like an easy question but finding the answer to this can be much harder than it may first appear. Going into business is one of the most important decisions most people will make in their lifetime, somewhere between buying a house and choosing their partner.

The cost of a franchise, including the franchise fee and set up costs can run into the hundreds of thousands or even millions of dollars. With so much at stake, it pays to do your homework. Investing time and patience in the beginning can save you
frustration and money in the future.

There are literally hundreds of franchise opportunities to choose from in nearly every imaginable category you can think of. So before we all get too fixed or excited about what type of franchise we are interested in, it is probably important to understand what your budget is and then only look at franchises that fall within 60-70 per cent of this budget. Most people tend to overstretch themselves and don’t leave enough for working capital and some emergency funds should the business end up costing more than first anticipated due to a cost blow out or just because the business is taking longer than expected to breakeven.

Once you calculate the initial investment for the franchises you are interested in then you will be able to determine which one best fits your financial situation. If you don’t have the capital for opening a particular franchise then you should find one more suited to your financial situation.

When it comes to franchising you will be expected to pay a one time franchise fee simply to have the rights to open that franchise. This one time non-refundable fee ranges depending on the franchise you are interested in but is usually around $50,000. There are also other fees associated with franchises like start-up expenses, training, insurance, inventory, royalties, and marketing fees. Different franchises have different fees so it is important to consider all the fees associated with each franchise you are interested in.

Once you have evaluated your liquidity, total investment, and personal business experience you are that much closer to finding the right franchise idea. Remember however, that while having the financing and experience down, there is still one very
important element. What’s left you might be wondering? The answer is personal interest. If you are not personally interested in selling muffins and coffee then you are going to have a tough time making your muffin franchise a success.

Personal interest before profit

Next choose a franchise that you can be proud to own. When considering franchise ideas keep these three key points in mind; investment, experience, and personal interest, to make sure you find the best franchise for you.

I cannot emphasise this enough as most of the people we meet didn’t choose their careers but somehow fell into them. Most of these people left school and got a full time job and stayed in the industry that they have now become accustomed to and  have attained knowledge and skills in. But if we think about this we made this decision after leaving school with no real life experience so it’s no wonder that people hate their jobs. One of the greatest advantages you have when buying a franchise is the freedom to choose an industry that you are interested in. The next is to choose a franchise that you will be happy to tell your best friend or someone you haven’t seen in years what it is you do for a living and choose to do as your own business. If the business you are interested doesn’t pass this test then chances are you will begin to hate this choice pretty soon too.

Get rich quick schemes don’t work!

All franchises have the possibility of being lucrative and they also have the possibility of failing, most of the time the success of a franchise is achieved by the franchise owner and not just by the franchise model they purchased. Even in successful brands franchisees can fail. The type of franchise you should pick is not one that has the supposed possibility of making you the most money because this simply won’t work. In business, challenges arise just like in everyday life but how quickly the  franchise owner is able to deal with these and overcome they can also make a difference to the results they achieve. The most lucrative franchise for anyone is the one they find enjoyable and won’t mind dedicating all their free time to making it a success.

Develop an exit plan before you start

We all catch planes not expecting them to crash but each time we fly they do a safety demonstration and tell you to ‘Locate the nearest exit’. You wouldn’t get on an airplane unless you were reasonably sure you were going to make it safely but you also need a plan in case something goes wrong. The same is true in business. No one likes to think that their new business might not succeed. You want things to work out. You also want to be able to survive in case they don’t.

Besides, there are many reasons for leaving a business other than business failure. You may wish to try something different or decide to retire and enjoy your fortunes. Either way, you need to know what you are going to do with the business. Can you sell some parts of the business and keep others? Can anyone run this business? Who might be interested in buying it? Finally, how can you recoup your investment? Focus on your entry strategy, but be aware of the exits.

Evaluate yourself

The most important ingredient to being a successful franchisee is passion. Before settling on a franchise, really give some thought to your passions in life. In business, passion brings success, and that rule applies equally to franchisees and independent business people.

You must be able to follow the rules of the franchise. The franchisor is going to prescribe the colours you use, the design of your space, personnel procedures and perhaps salary ranges, products, and pricing. If you are going into business to do  things creatively and differently, franchising may not be the best fit.

Ask yourself the following questions:

Am I willing to embrace someone else’s system without trying to do it my way or make it ‘better’?

Can I follow someone else’s lead and accept their advice and their criticism?

Am I willing to be part of a network of expert advice franchisees, realising that there may be times when what is the best course for the network as a whole is not what is best for me?

If you can honestly answer “yes” to each of these questions, then you should continue to explore franchise opportunities.

Franchising is very similar to starting and operating a non-franchise business. There are pluses and minuses, and the prospective franchisee must do their homework. So do your due diligence, think hard about what you hope to get out of it, reflect upon your passions in life, consider the risks, and if at the end of your analysis it adds up and makes sense to you, then put your best foot forward and strive for success.

Kevin Bugeja, Managing Director
Franchise Selection

Phone: 1300 FRANCHISE (372 624)
Email: kevin@franchiseselection.com.au
Web: www.franchiseselection.com.au