The Benefits of Buying a Franchise

If you are considering buying a franchise, you have just made your first smart business decision, congratulations! You may or may not be aware that New Zealand and Australia are the most franchised countries in the world per-capita, we are an entrepreneurial bunch, and importantly, understand the inherent advantages that being part of a franchise system provides. Established and proven operating systems, training across all areas of business operations and marketing support are just some of the reasons that franchises have a significantly lower failure rate than independent businesses in their first 5 years. We have listed below some of the advantages you can expect as a franchisee as well as things you need to consider when choosing the right franchise system for you.

Strong Operational Systems

One of the core aspects of a successful franchise are the operational systems. These operating systems are the tried and tested structures that, if followed, will significantly increase the likelihood of success in your franchise. Franchisors develop operational systems that are unique to their business model and proven to be the most effective in the day to day and overall business operation within their particular market.

Ongoing Operational Support

Operational support means that even though you are starting in your own business, you are never alone. Franchisors will have an experienced team of people always on call for any questions or issues you may be having. Not only is this a huge advantage in the start-up stage of your business, but the ongoing support means that there is always someone to talk to and discuss ideas and strategies for the continued success of your business. 

Brand Strength

Starting a business from scratch means the long and arduous journey of building a brand that represents value and purpose as soon as the product name is mentioned, or the company logo is seen by potential consumers. Buying into a quality franchised company means two things:

- The brand name already has a presence in the market or community. Consumers are more likely to use a product or service that can demonstrate it is fit for purpose and is being utilised by others customers.

- Most franchisors’ top function is to ensure that the brand name is strong and continually growing on a local and national scale. Franchisees are also given strategies and ongoing support for advertising and marketing campaigns that have proven to be the most effective.

Marketing Assistance

Marketing strategies and budgets are a large part of business growth and if you are not familiar with this area, the marketing possibilities can seem quite daunting and mistakes can be costly. Franchisors will have a tried and tested marketing strategy and support in place for national and local marketing and are there to help you maximise opportunities for growth. Afterall, in a franchise system, the franchisor only succeeds when their franchisees do.

Training Programme

In a quality franchised company, there will always be formal and informal training available to you as a franchisee.

Initial training – When you come on board as a franchisee, this is the training that will provide you with the in-depth knowledge and skills required to run a successful business.

Site visits – Most franchisors will visit franchisees periodically to gauge how they are travelling, what is working, and what areas of further training may be needed. These are valuable opportunities and should be welcomed by franchisees.

Up-skilling – This type of training is usually designed to specifically target areas that an individual, group or all franchisees need to learn. This may be an aspect of the business that needs strengthening, or on something new that has been released by head office that requires specific training.

Risk Reduction

There is always risk in starting a new business, however, when looking at the options of starting your own business or buying a franchised business, the level of risk can be significantly reduced. The risk of buying a franchised business means that the product and service you will be providing is valued by consumers. It also means that the business model is already a proven success if systems are followed. 

Choosing The Right Franchise

What is your skill-set

    Investing in a business that holds a passion or interest to you is a big part of finding the right franchise. You may have a strong set of skills or experience in a particular industry that will be easily applicable in your own business. Trades are a great example of where a skill and experience is easily transferable into a small business. 

      What Are You Looking For In a Business

      This is an important question as it will help narrow down your choices depending on desired income and required time investment. 

      Some people look at purchasing a franchise as a career choice. This will mean that they have a significant amount of time available to run the business and will be looking at potential earnings high enough to rely on as a sole income. 

      Other franchises can be run as a small side business. These businesses can be run on a much smaller time investment requirement and are more flexible to suit the lifestyle of people with a primary occupation. The earning potential in these businesses can still be significant, but will depend more on the hours and time you would be willing to dedicate.

      How Much Can You Invest

      Franchised business can ask for anywhere from $5000 to above $1,000,000 as an initial buy in, so being realistic about the investment that you can afford to make will help narrow the field of choice. When looking at this factor, remember to research what the expected earning potential is in the first, second and third year etc. to help you gauge how long it will be before you have earned this initial cost back in your income. Whilst some people buy franchises to supplement their income, a lot of potential buyers are replacing an existing income with their new business so building income as quickly as possible is an important thing to consider. You should also consider that you may need to have adequate funds to support yourself for the first 5 - 12 months while the business builds.

      Owner Operator V Employees

      This question will help you decide whether you are looking at a business where you are the sole operator or if you are looking at starting a business that will need a number of staff on board on a regular basis. There are positives to both options but it is really a matter of where you are the most comfortable. If you are a social person and enjoy being in a dynamic workplace, then working as a sole operator may make you feel isolated and therefore not right for you. If you enjoy the independence and freedom that comes from owning and running your business without staff, then a work environment with a lot of people and no down time may be a business that you may not enjoy.

      How Much Time Do You Have To Invest

      This question is something that you need to be realistic and honest about from the beginning. If you have a lifestyle that leaves you with a couple of hours a day to invest in your business, then you should look at a business that can be run with those requirements. Making sure that you choose a franchise that fits your time investment requirements is very important. Underestimating the time required by you in the day-to-day running of your business will have serious consequences to your earning potential. Some franchisors require that you are employed full time in your business and this will be contractually covered in the franchise agreement.

      Risk & Reward

      Everyone gets into business with different objectives, whether it be as a long-term career choice, or as an investment with the intention of building an asset and selling within a certain number of years. Understanding what the end-goal is for your franchise journey is an important part of narrowing down which franchise opportunity is right for you. There will be franchisors that encourage building an asset for future sale, and there will be franchisors who are looking for a long-term relationship and may impose penalties for early sale within the Franchise Agreement. It will be important to discuss your ideas with any prospective franchisors.

      8 Steps to Buying a Franchise

      The process of evaluating the franchise opportunity can take up to 8 weeks and its important that you don't rush it. You must also take into account you will likely incur costs during the process for your travel and accommodation for the days and times that you’re required to visit the franchise head office for interviews and assessments. There is also the cost of your time in participating in the selection process as you may need to take time off work.

      It is also important to remember that both parties can decide not to proceed at any stage prior to signing the Franchise Agreement without having to give a reason. The process is designed to be thorough so that both parties can feel comfortable in entering a professional business relationship as franchisee and franchisor. 

      Step 1 - Inquire 

      Once you have found a franchise opportunity that interests you, contact the franchisor or franchise manager directly. There will usually be instructions on their website about the best way to do this. Let them know you are interested in learning more about the franchise opportunity. Make note of how long it takes for someone to respond to your enquiry. A prompt response within one working day will tell you that the franchisor values you as a prospective franchisee.

      Step 2 - Informal Chat

      Your first contact with the franchise head office will likely be an informal chat. This is an opportunity for both you and the franchisor to ask some basic questions. This is not a time to find out the specifics of running the business.

      The franchisor will ask about your work experience and what interests you in a franchise, you can use this opportunity to ask general questions about how the business operates, who their typical customer is and how are the territories are set out etc. Is what they are saying lining up with your expectations?

      Step 3 - Expression of Interest

      If the informal chat goes well and you would like to continue to explore the opportunity, the next step is usually that the franchisor will ask you to complete an Expression of Interest and request a copy of your CV. This is an application form that will usually include an array of questions, giving the Franchisor more of an insight into you, your background and whether you fit their ideal franchisee profile.  Answer the Expression of Interest as honestly as you can. Representing yourself inaccurately will only lead to possible misconceptions. Answering honestly starts the foundation of an open and honest franchisor/franchisee relationship. 

      Step 4 - First meeting

      This is the first formal interview between you and the Franchisor. The Franchisor is essentially finding any information about you that they need in order to determine your suitability to the franchise. It is also a time for the Franchisor to clarify any information from the Expression of Interest that you completed earlier in the process.

      In this meeting you will likely be provided with the Franchise Prospectus which will include general information about the franchise system as well as details of the initial and ongoing costs, including 1st, 2nd and 3rd year projections . You will be given the opportunity to have a look at the Operations Manual which encapsulates every aspect of the day to day operations and processes that you as a franchisee will be required to complete. The Operating Manuals will be your initial training resource as well as an ongoing reference tool.

      Step 5 - Think it Over

      Now it's time to consider all the information you have received and speak to friends and family about the opportunity, discuss what the challenges will be in the early stages when the business is just getting established. Do you have working capital to run the business until it can start to pay its way. There will be a lot to consider.

      Step 6 - Second Meeting

      This is usually the second formal interview with the Franchisor and it is typically in this meeting that you are provided with a copy of the franchisors current Disclosure Document, and a draft copy of the Franchise Agreement. The Disclosure Document provides information on the legal structure of the franchisor, and any other business interests, trademarks, financial information, past and current franchisees and any other relevant information. The sole purpose of the Disclosure Document is to ensure transparency and to help you make an informed decision. You are able to take both the Franchise Agreement and Disclosure Document away with you to read over and discuss with your legal and financial advisors. 

      Australia: You will have 14 days to go over the Franchise Agreement and Disclosure Document. 

      Step 7 - Seek Specialist Advice

      Having now been given all of the required information, it is time to seek professional advice in order to ensure that you are in a secure financial and legal position to proceed with investing in the franchise. You should engage the services of an accountant to assist you in understanding the numbers and if the business suits your needs, your accountant can also assist you with your franchise business structure and how to minimise your risk and protect your assets.  As franchising is a very specialised area we recommend you engage the services of a franchise lawyer. The role of your legal advisor is to make you aware of your contractual obligations and the consequences of breach. Franchise Agreements are not negotiable so it is important that you are comfortable with all of your obligations. 

      Step 8 - Sign the Franchise Agreement

      The final step in the process is to sign the Franchise Agreement, this means that you have considered all of the information you have been given, spoken to friends, family, legal and financial advisors and feel that this is 100% the right move for you, if you have any doubts at all you should not proceed. Once the agreement is signed and initial fee paid, you will begin the initial training and work with the franchisor to set-up of your franchise. 

      What do franchisors look for in a franchisee 

      Every franchisor is looking for the best fit for their company when bringing on new franchisees. Despite each industry and each business being different, there are vital characteristics that all franchisors are looking for when bringing on a new member to the franchise team. A franchisee should have:

      • Good communication skills
      • The ability to work both independently and as a part of a team
      • Values that align with the company’s values
      • A high level of comfort with selling
      • Strong organisational skills
      • Physical, mental and emotional resilience
      • An ability to and willingness to follow instruction
      • A support network outside of the business
      • A belief in the product or service being provided 
      • Adequate working capital for the initial start-up stage of the business
      • A willingness to learn
      • A desire to always grow and improve
      • Pride in their appearance
      • An honest and transparent work ethic