Are you suited to franchising?

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As with any new business venture, you need to carefully consider whether you have got the right

skills and attitude to run a successful franchise.  

Analysing your own temperament can also help you decide which type of franchise would be right for

you.

The place to start is you.

Evaluate yourself

You must be prepared to sell.    A franchise gives you a business blueprint  ‐  but it won’t give you

customers.   You will need to work hard, and most likely, for long hours. Do you have the necessary

stamina?  Running your own business can be stressful.  Think how you react to pressure.  You may be

starting up in business because you want to be your own boss.   If so, would you be happy with the

restrictions imposed by a franchise arrangement? 

On the other hand, you may want to limit your risk.    You might be much more comfortable with a

franchise than starting a new business from scratch. 

Choose the right franchise for you

Do you like office work?  Or would you prefer a business that involves physical labour? 

Are you happy working on your own?   Or would you be good at recruiting, training and managing

employees?  

Do you like dealing with members of the public?  Or would you prefer a franchise where you sell to

business customers?  

Are you weak in any particular business skills such as cash flow management?  Can you find a franchise

that offers the support you need in those areas?

Choose a franchise business that you’ll enjoy

You have to do the work that the franchise entails, so buying a franchise that you will enjoy is the most

important factor of all.  Most businesses, regardless of the industry, and not just franchises ‐ succeed

when the owner truly enjoys the products and/or services that the business supplies.    If you really

enjoy and are genuinely interested in the products and services, together with the customers and

markets, then you will gather information and gain 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 not a chore.  When you work in a service or product area that you love, you will be

motivated 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.

Research the best franchises

There are hundreds of different business franchises in Australia today, and there will be more than one,

and perhaps many, in your chosen business field.  Once you have made the decision to buy a franchise

business it is difficult to turn back.  A wrong decision takes a few seconds to make, and for some, a

lifetime to rectify.    So do your research.    Look at the alternatives.    Ask existing franchisees.    Ask

customers.    Ask bank managers.    Read the relevant franchise trade magazines, newspapers and

websites.    Attend franchising exhibitions.    Seek the advice and opinions of friends.    Do some local

market research to gauge demand for the products and services, in order to test the reputation of the

franchising companies, and to test their claims about pricing and any other relevant business claims or

information you have been given.  Become an expert before you sign the contracts ‐ don’t wait to learn

about the ‘unknowns’ after signing the contract and parting with your cash.

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.

Trust your gut instincts

When you buy a business franchise of any sort you are entering into a business partnership, in which

your relationship with the Franchisor (or ‘principal’), 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 – there are some people you will get along well with and see eye to eye with; and

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 ethics to your own. 

If you value the customer above all else, do they as well?  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 a good business profit model

Successful businesses (not just franchises) are always based on a sound and healthy business and profit

model.   Most franchises tend to have this, otherwise they cannot operate.   Make sure to check the

extent and sustainability of the financial model.  The better the profit model, then generally the easier

it is to start up, run and maintain a successful business.

Businesses with strong brand names and reputations also tend to have stronger financial models.  This

is because customers are prepared to pay a higher price, and will more often say yes, to receive a

trusted product or service.

Seek out franchises with modern technology, innovative and protected products and services, a strong

brand and reputation, combined with growing markets where the route to market favours the

franchising business model.    These opportunities will almost certainly be the ones which offer the

strongest and best profitability.  Avoid buying a 20th century idea in the 21st century.

Look for high integrity propositions and Franchisors

High integrity is essential for two crucial reasons:

1. 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.  To always behave ethically and make decisions with high integrity, will keep you safe,

and probably make you wealthier too. 

2. 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, undoubtedly with all the best will in the world, you will be

pushing water uphill. 

Look for and buy a franchise which has high integrity at the centre of its products, services and business

ethics, and you are half way to running a high integrity franchise business.  All that remains is for you to

ensure that your own input and activity focuses on high integrity too.

Understand the financials

You do not need to be Gordon Gekko, but you do need to understand the essentials:

• What is the level of investment and what do you get for it ‐ is it good value?  Or is it all smoke

and mirrors? 

• How long will it take you to recover your investment?

• What is the payback period  ‐  how quickly will the franchise realistically and reliably acquire

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, franchise fixed repeating fees, 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 labour, 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 and broken down month to month.

What working capital will you need? 

This is the amount of money required for the business as 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?    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 and negotiate hard.  If

you do not ask you will not receive.  No bank manager will offer you their best possible rate until or

unless they feel they need to.   Have an alternative  ‐  play one lender against the other.    The most

important rule of any negotiation is having an alternative ‐ being able to walk away.  This applies also to

when you come to buy the franchise itself  ‐ sometimes there is room for negotiation.   Again, if you

don’t ask you will not receive.   Buying a franchise can become like buying a house  ‐  if you get your

heart too set on one single option then you have exactly that  ‐  just one option; and no room to

negotiate. 

If you find two options, you immediately increase your power in the discussions, and you will feel more

liberated in your decision making too.  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 judgements, which in turn will make you stronger in your

discussions and negotiating before buying your franchise.

Understand the meaning of the contracts and franchise agreements

In Australia we have the benefit and protection of the Federal Governments Franchise Code of Practice

which is compulsory for all Franchisors under the Trade Practices Act.  However, its existence does not

exempt you from reading and understanding your franchise contract.   Get a Solicitor to explain the

contract to you.

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