Franchising

can be likened to a large family where the Franchisor is the parents and new “children” arrive on a regular basis, each one expanding the family group. As with all families, there will be harmony and conflict as time goes on. Some children will be diligent, obedient and hard working. Others will be … well, you get the picture.

Likewise, in an ideal family, the parents should be the reference point for what to do and what not to do. They should also set the rules and discipline those kids that step out of line or are mischievous.

But, unlike a domestic family, where children have no say in who their parents are, franchisees in a business family have the benefit of choice. There are always plenty of franchises on offer and so the person looking to purchase a business as a franchisee should carefully consider two things at the start.

Firstly, select a franchise that suits your interests, skills, background and desire to build something for yourself. Ask yourself, do you like working outdoors or indoors? Do you like meeting people? Are you a detailed person or mechanically minded? Asking these types of questions of yourself will very quickly head you in the right direction of a franchise suitable for your personality.

Secondly, weigh up your choice, or your short-list of possible franchises, by carefully and objectively investigating the credentials of the franchisor. Here are some essentials that you should consider before you make the commitment to join one franchise group over another.

This discussion could start by saying read the disclosure document. After all, it is supposed to provide you with facts and information about the franchisor, their background and the details of the Franchise Agreement. And whilst this is true, it is one small part of how you should conduct your investigation into a franchise opportunity. You could say the disclosure document gives you the ‘hard’ bits of necessary information. But it is in the ‘soft’ information that you will find whether this franchise business is right for you and whether this franchise company is capable of delivering the necessary cooperative success to its franchisees, including you if you decide to join this group. So, what are these soft attributes that are not found in the formal disclosure materials? Let’s start with what all franchise systems should be able to provide to their franchisees.

1. Better Buying

Whether your franchise sells products or services, your franchisor must be able to provide you with buying prices that are better than you could buy at as an independent. After all, a large and expanding network of outlets gives a franchisor considerable power in negotiating buy prices with their suppliers and they should therefore be able to pass on at least some of those saving to you, as their franchisee. This applies not only to stock-in-trade, but also with site fit-out, equipment, services of all sorts like insurance and accounting and marketing materials and media campaigns.

2. Effective Marketing

Ideally the franchisor you are investigating should have responsibility for group marketing on behalf of all its franchisees. There are several reasons why this should be the franchisor’s responsibility. Marketing, including advertising in a franchise group needs to have uniformity, consistency and cohesion. If individual franchisees are doing their own thing with marketing, its sends mixed and conflicting messages to consumers and ends up potentially damaging the brand to the detriment of all franchisees in the group. In addition, the franchisor will always be in the best position to create and maintain brand position, develop and implement media-wide campaigns, produce marketing collateral at best prices and generally manage and obtain best value from advertising budgets, whether contributed to by the franchisees or not. Finally on this topic, franchisees will always be better at focusing on their customers than trying to be expert at brand and campaign marketing. Isn’t it why you are joining a franchise group in the first place.

3. Operating System

Successful franchise networks are those that has a sound, proven business model, develop it into a set of operating systems that can be trained to others, then repeated uniformly across the group. If the franchise you are investigating does not have an operating system that is documented into manuals, training programs, and which forms an integral part of how you are going to run your business each day, then you should be wary of this particular franchise. Without detailed and documented operating systems the franchisor will not be able to demonstrate a proven and repeatable business model and you will be left to find it out for yourself. This is not how a franchise should be delivered to you and you should invest your capital in something else. Make sure you inspect their manuals before you sign up to become a franchisee.

is the Franchisor Well established

The next thing to consider is how long has the franchisor been in this particular business. The question here is not how long has it been granting franchises or been a franchisor. There are many good franchise opportunities available from companies that are just commencing their franchise expansion. Sometimes the best time to join a franchise group is at the beginning as franchisors are acutely aware of the need to fully support their first franchisees and will go out of their way to ensure the success of their initial franchisees and their first outlets.

Initial success with first franchisees will establish a critical reference point, or case studies, for the franchisor that it will need if it is going to continue to attract further new franchisees as the group expands.

On the other hand, your franchisor should not be a complete ‘newby’ just starting out in an industry in which it has little or no experience or track record. As a franchisee, you do not want to be the one to de-bug the operating system of a company that is so new in its business that it has yet to find out and prove up what works and what can be successfully transferred to its franchisees. Ideally, a franchisor should have been in this particular business for three-plus years and to have a proven record of sound financial management and be profitable and sustainable.

Who are the key People in this Franchise

The franchise you are investigating might have exciting leading-edge products or game-changing technologies, but these are not what will make or break this business as a franchise. You should look carefully at the people behind the company. Ask questions like: Who is the founder and principal? Do they display vision and confidence? Do they communicate well? Has the principal assembled a team of capable people in the company? People who can deliver the support services that will be needed by its franchisees, including you?

In the capital raising world, a key attribute that investors look for is the quality of the management team. People are way more important than mere products or ideas. People make things happen and good people give investors comfort and assurance.

It’s the same with franchising. As a prospective franchisee, make a point of asking about the franchisor’s key people. Who are they? And what will each be contributing to your start-up and ongoing success as a new franchisee? The disclosure document has background credentials on a franchisor’s management team.

Practical bits and Pieces

I’ve said that this essay would focus more on the soft attributes that you should look for in investigating a franchise opportunity. But that does not mean you should not also look at the practical things that will impact on your investment and the way you are going to operate your business daily, weekly and yearly.

Practical things that are important to investigate include:

• How long is the franchise Term? Does it coincide with the lease of your premises if this is a retail business?

• Will the franchisor provide you with a turn-key business on Day 1? Does the initial cost for this cover everything or are there any hidden or extra costs?

• Does the Franchise Royalty include a marketing component? Or is there a separate or additional advertising contribution? How does your total weekly or monthly payments to the franchisor compare with other similar franchises?

• What does the franchisor provide to you in the way of initial induction training? Does this seem like it will equip you to start your new business with confidence?

• Does the franchisor have a strategic plan for the expansion of its franchise network? Or are they taking a scattergun approach and appointed franchises randomly and without proper ability to follow through and support new franchisees.

Take The Time To Talk To O Thers

These and many other practical questions must form part of your investigation into your franchise opportunity of choice. But perhaps the most important piece of additional advice is that you must seek out and talk to existing franchisees who are already in this company’s ‘family’. The franchisor will make the names and contact details of these people available to you through the disclosure document, and possibly by other means, such as case studies of others in your location of interest. But taking the time to contact these people, with your pre-prepared list of questions and key points for discussion, is your best method of finding out if this franchise is a good fit for you.

A good question to ask an existing franchisee is; if you had your time over again would you join the group? Wait for the answer. The response is often very telling.

Finally, every business has its own internal culture, its way of communicating with its own family members, of resolving disputes and of rewarding good work or special efforts. Take the time to talk to others and don’t be afraid of digging deep into those aspects of the business that make it work and which make it a welcoming and satisfying place to be. After all, once you are a family member, it too late to say, “I think I made a mistake.” r o G er Di C keson | senior Franchise Consultant rdickeson@franchisedevelopments.com.au www.franchisedevelopments.com.au