Inside Franchise Business - May/Jun 2017 by Octomedia Pty Ltd

YOUR ESSENTIAL GUIDE TO BUYING A FRANCHISE WWW.FRANCHISEBUSINESS.COM.AU

MAY/JUNE 2017

ISSUE 30 VOL 3

MONEY MATTERS

SMOOTH OPERATORS: TROPHY-WINNING BOOST JUICE FRANCHISEES PR I N T P O S T A PPR OV E D 10 0 0 0 8121

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Working out the finances for your future

TOP TIPS FROM A MILLION-DOLLAR FRANCHISEE

BE YOUR OWN BOSS

AND OWN A SUCCESSFUL MASSAGE FRANCHISE BUSINESS Massage Envy is a new franchise business concept in the Australian health and wellness industry. Offering membership based massage and beauty services at affordable prices. Having experienced phenomenal success and growth in the USA, the market is ripe in Australia for this new massage business model. With its expanding member-base, recurring revenue model and impressive average studio volume, Massage Envy provides unlimited growth for franchisees through its professional, convenient and affordable massage and facial services.

Find out more at:

MassageEnvyFranchise.com.au

CONTENTS

REGULARS

LEADERSHIP

5 6 10 126 128 129

14 FABULOUS FRANCHISOR MUMS

EDITORIAL GLOBAL EYE INSIGHTS GLOSSARY CHECKLIST

Find out how 12 women have built and sustained their franchises

18 COVER STORY

Showcasing award-winning franchisees

32 FLYING HIGH WITH CHICKEN

A new boss is helping Australia’s quick service chicken restaurants spread their wings.

36 FUELLING INNOVATION

Caltex is taking convenience concepts to the next level.

RESOURCES

24 STARTING EARLY

40 BRAVE NEW WORLD

26 MAKE A SPLASH

42 PURSUING A PASSION

Sally Illingworth is just 20 and already a seasoned franchisee How Swimart is modelling a mobile option

28 NO BEEF HERE...

INDUSTRIES 46 HEALTHY BUSINESS

The fast-food industry is continually evolving to meet changing consumer preferences.

Meaty business Fogo Brazilia Churrasco is “steaking” out its future

30 TASTE OF SUCCESS

MONEY MATTERS

85 PLAN YOUR EXIT EARLY

108 BE WARY OF BARGAINS

Why seeking expert financial advice makes sense.

What competitive advantage can franchises offer in the bedding sector?

89 UNDERSTANDING THE NUMBERS

62 MORE THAN JUST THE MONEY...

92 MAKING MONEY

Convenience with street cred - what’s happening in drive-through.

Q&A with Soul Origin’s training and recruitment manager

106 WEIGHING THE OPTIONS

86 A MEASURE OF SUCCESS

72 DRIVING SALES

44 FIVE MINUTES WITH…

80 HOW MUCH DO YOU NEED?

Before you enter into a franchise business, be sure you have an exit strategy in mind.

Buying into the children’s services sector means you need to be dedicated and driven.

How a physiotherapist found a new life in a franchise.

A new business is snapping up young food and coffee franchise brands.

What to consider when you do your budget to buy a franchise.

54 BOUNCING BACK

Howards’ Storage World is bouncing back under new leadership.

How to get to grips with the franchiser’s financial figures . Profit is fundamental to a successful franchise

96 BLUEPRINT FOR SUCCESS

Formulate a solid business plan that will help you gain the best from your franchise.

102 SETTING TARGETS

Achieve the right level of sales for retail or mobile success. MAY/JUNE 2017 | 3 | WWW.FRANCHISEBUSINESS.COM.AU

Should you choose an existing business or a set up in a brand-new site? The discounted business with potential could just be a lemon.

111 WHERE TO FIND FINANCE

Different loan options are available to research to ensure you get the best deal.

114 FUNDING FUNDAMENTALS

Top tips to help you get the banks on side when you need finance to buy your franchise.

119 HOW TO BE ON THE MONEY

What you need to ask the franchisor

124 5 REASONS

Why it pays to analyse the numbers before you buy

r o F f n o o i d ? s a P START YOUR BRILLIANT FUTURE NOW AND BUY A BUSINESS WITH HEART

“MY DAUGHTER & I BOUGHT INTO A HEALTHY RELATED FRANCHISE LIKE SUMO BECAUSE WE LOVE THE IDEA OF BEING ABLE TO OFFER PEOPLE HEALTHY DELICIOUS FOOD AND WE SAY ‘YOU CAN MAKE FRIENDS WITH SALAD’ ” ~ Mother & Daughter, Sandy & Sarah

VISIT www . ALL THE IN sumosaladfranch FORMATION ise.com FOR Y O U NE HEALTHY B USINESS CHED TO MAKE A OICE

EDITORIAL

Funding your franchise dream Inside Franchise Business is the must-read guide to buying a franchise in Australia. What’s driving your mission to find out more about buying and running a franchise? Is it the dream of achieving your personal and career goals, pushing yourself to the limits? Perhaps the vision of multi-unit success is in your sights? For our cover stars, Anthony Stahl and Daniel Mesiti, turning to franchising was simply a way to boost their skills and their growth potential in the hospitality sector they were already operating in. And as you’ll find out when you read their story on page 18, they have achieved so much in the years they have been Boost franchisees. Young, enthusiastic franchisee Sally Illingworth reveals what it takes to operate well in another food franchise, Crust Gourmet Pizza. Take a look at some of the innovations and developments across the food and retail sector that are highlighted in this edition, and you’ll see how vibrant franchise brands can be. This energy and the resulting competitive edge of a brand is what you’ll be buying into. You can discover what’s happening in the healthy food arena, which is increasing its hold on the fast food and casual dining sector week by week. Maybe the seven day a week trading requirements of food retail isn’t for you but the idea of working with kids really inspires you. Check out what the players in this industry are doing to make their mark. If you’ve been following our series of Franchise Basics, you’ll know in part one we introduced you to the franchising concept and then got you thinking about whether or not you’re truly suited to a franchise investment and what to look for in a franchise partner. Now in part three of this series, we take you a step closer to making this dream a reality with our focus on the funding and financial aspects of buying and running a franchise. Turn to page 79 and Money Matters to find out more about working out your initial budget, why expert advice is valuable, how to make money in the business, how to become bank friendly and some easy mistakes to avoid. In addition to this easy to access information, you can check online for regular updates about new opportunities and business developments. Just visit www.franchisebusiness.com.au. Happy franchise hunting!

EDITOR

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JOURNALIST

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SUB-EDITOR

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GLOBAL EYE

Benefits to

BUSINESS BEING THE BOSS Working for yourself offers more than financial benefits - primarily, it is likely to increase your job satisfaction, according to a new report, Happy Workers: How Satisfied are Australians at Work?. “Australians who work for themselves or in small businesses, in the not-forprofit or government sector and workers who can do some of their work from home each week are more likely to be satisfied in their jobs,” says report author associate Professor Rebecca Cassells from the Curtin Business School. Her report highlights the working conditions most likely to bring Australians a high level of job satisfaction. “The trade-off between happiness with certain aspects of a job and dissatisfaction with others is evident. It is unlikely that any job will deliver everything that is needed for someone to be happy at work, but certain things can help.” While pay, job security and hours of work count, it is the job itself that matters most, says the research, in which the university collaborated with online knowledge base Making Work Absolutely Human (Mwah). CEO Rhonda Brighton-Hall says the report draws attention to the fact that pay

matters, but is not everything. “More importantly, it’s what you do, how you are able to go about your work and who is alongside you that matters the most when it comes to job satisfaction,” says Brighton-Hall. “Work is a core component of our existence, our identity, our financial independence, and ultimately our overall well-being.” “A happy workplace where people feel valued can increase productivity and innovation and reduce unwanted outcomes like employee absenteeism, workplace grievances and staff turnover.” The collaborative report, Happy Workers: How Satisfied are Australians at Work?, also links higher job satisfaction with older workers and living further away from major cities. More than 60 per cent of workers in their 70s report feeling very satisfied with their job overall, compared with only 24 per cent of Gen Y, 28 per cent of Gen X and 33 per cent of Baby Boomers. Pay is associated with higher job satisfaction, but only to a point. Those who report being “very satisfied” with their job overall earn a lower average amount each week than those who report being “satisfied” – $1182 compared with $1267.

POOLING THEIR EFFORTS Franchise retail and pool services business Poolwerx has initiated a community safety campaign, April Pools Day, aimed at arming people with lifesaving CPR skills. This follows a study of parents across Australia showing that 75 per cent believe they do not have the necessary CPR skills to save a life. The campaign is the culmination of a partnership between Poolwerx, the Australian Red Cross and Laurie Lawrence’s Kids Alive program. Poolwerx CEO/founder John O’Brien says people are being offered access to hands-on 20-minute CPR demonstrations from training partner Australian Red Cross at 106 Poolwerx sites across Australia. “We are in backyards every day, so our aim with April Pools Day is to provide everyone an opportunity to refresh their basic CPR skills and hopefully remind them what a vital, lifesaving skill it is to rely on in an emergency,” says O’Brien.

GROCERY WARS Amazon has launched a pick-up service at grocery stores in Seattle. Customers can order online then drive to an AmazonFresh

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GLOBAL EYE

store to pick up their purchases. This follows the online giant testing a convenience store model that lets customers shop without queueing at the checkout with their purchases - they can just walk out while their shopping is automatically charged to them online. Back in Australia on the supermarket front, German retailer Kaufland is reportedly seeking locations in Australia. This hypermarket model trades on a scale similar to Costco, but without membership requirements. Aldi’s direct competitor Lidl is also expected to turn up in Australia, as well as Amazon. This means a challenge for convenience stores, groceries and bulk retailers.

FAST DIVERSIONS Fast-food franchises are dipping into new markets to boost their business. Domino’s and Australian start-up Nexba have launched a range of natural, sugar-free soft drinks. Initially available from nearly 200 Domino’s outlets throughout New South Wales, the Next Gen drinks are free of preservatives, artificial colours and artificial flavours. Over at Oporto, a partnership with SnackBrands Australia has introduced a limited edition of Oporto Original Chilli Sauce flavoured Thins to Oporto stores and Coles supermarkets.

BRAVE NEW WORLD Baby boomers and their younger counterparts will continue to redefine

ageing over the next decade, suggests research firm Euromonitor. Its latest report on how ageing consumers are changing the landscape indicates that today’s mature consumers are less conservative than their predecessors - they want to stay stylish, active and youthful looking well into old age. The desire to keep age at bay feeds the potential for anti-ageing products and an opportunity for manufacturers to adapt and segment their products to meet differing anti-ageing needs and expectations. But while holding back time, consumers also want to grow old gracefully, with a holistic approach to wellness of mind and body likely to appeal. However, businesses need to be wary of treating mature consumers as one homogeneous group - and be aware of the challenges of finding the right language to speak to these customers. US studies show that words like “senior”, “ageing” and “retiree” often receive a strong negative response.

marketing Anne Fiedel. "We found a consumer group of more than 100 million people who are working out more than twice a week. This audience cannot be defined by traditional demographics like age and gender. It is instead defined by what they do, and the experiences they share. We call this Generation Active." Meanwhile, the number of people with health-club memberships continues to grow steadily. Around the world, 151 million people belonged to health clubs, according to the International Health, Racquet & Sportsclub Association (IHRSA), the industry’s trade association. Health clubs are starting to incorporate digital platforms and products, such as wearable devices, tracking programs and gamification strategies, into their program offerings, the IHRSA reports. The Consumer Electronics Show last year featured a whole area of new tech for the active lifestyle space. 

NEW FACE OF FITNESS

A happy workplace where people feel valued can increase productivity and innovation and reduce unwanted outcomes like employee absenteeism, workplace grievances and staff turnover.

Fitness is now all about intuitive movement, with people exercising because it makes them feel good, rather than to lose weight. This is the main trend in the fitness market, according to US business Zoom Active Lifestyle Marketing. "After observing both the membership growth of our health-club partners and the number of brands wanting to reach an 'active lifestyle consumer', we decided to take a closer look at the consumers driving this movement," says Zoom director of MAY/JUNE 2017 | 8 | WWW.FRANCHISEBUSINESS.COM.AU

Love your work! Make it a reality with The Cheesecake Shop.

Many people just dream about doing a job they love. Why not make those dreams come true by owning a franchise in The Cheesecake Shop. You can be your own boss! Bake tasty masterpieces all for the world to enjoy! And most of all you can enjoy your days working with those you love.

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INSIGHTS

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Welcome to

THE EVOLUTION Retail is under pressure, but there is nothing like a challenge to boost innovation and change.

ow can Australian retailers can regain their markets? Domestic retail sales remain sluggish, but the explosion of international tourism into Australia, led by China, is giving our retail sector a big boost, according to the latest Deloitte Access Economics’ report, Retail Forecasts. It is a bright spot in an environment of record low wage growth, high levels of household debt, uncertainty over interest rates and house prices keeping overall spend low. “Overall, real (inflation-adjusted) retail sales growth was 2 per cent for the year to December,” says Deloitte Access Economics partner David Rumbens. “We expect a steady improvement in retail sales this year, with growth forecast at 2.4 per cent, to be followed by 2.7 per cent for next year. “International tourism in Australia is at a record high, with spending by tourists exploding as well. The strong growth in tourism over recent years is expected to continue, adding a key supplementary market for Australian retailers.” Visitors from particular regions are having a big impact. “Tourist shopping expenditure from China alone is already around $1.4 billion a year, and is set to almost quadruple over the next decade,” says Rumbens. “Strong growth is also expected from India and the Middle East.”

MAJOR BENEFICIARY While travel and accommodation are considered the main beneficiaries of a strong tourist economy, retail is also a major sector. During the 2015-16 fiscal year, total tourist expenditure was about $130 billion. Retail spending accounted for about 40 per cent of this expenditure, including $36.1 billion (27.7 per cent) spent on food retailing and $15.6 billion (12 per cent) on non-food retailing. Of course, the inflow of tourists also appeals increasingly to overseas retailers. International tourism is luring global brands into the Australian retail market, the Deloitte report notes. As at the end of January, 39 of the top 250 retailers globally had a presence in Australia, with more to come.

As well as this, the online threat is growing, particularly in the clothing sector. Retail profits are under pressure. The latest six months of data for retail profits shows the lowest levels in almost five years. Intense competition mixed with slow spending growth are important contributors to this result, says Deloitte. The voluntary administration of such retailers as David Lawrence, Herringbone, Marcs, Payless Shoes and Rhodes & Beckett indicate that category growth is not the only precursor to retailer success. Part-time employment last year was boosted with more positions available. Consequently, over the year, the number of full-time jobs in Australia shrank by 56,100 while part-time jobs rose by 159,400. Continuing underemployment in Australia is keeping wage growth at record lows (1.9 per cent nominal growth over the year). However, the uplift in jobs expected this year should support retail spend growth over the year, Deloitte forecasts.

CONSUMERS CHANGING Meanwhile, the face of consumerism is changing at an extraordinary pace. The disruption is described as “tremendous winds of change” by Jim Fielding, Fox Television president of consumer products and innovation. “We are faced with a consumer who is different, who grew up differently,” he says. “Think about what iTunes has done to music, Amazon to books, streaming to media, Facebook and Twitter, and how people are consuming faster than ever before.” Retailers wanting to sell their products need to accept that the consumer is completely in charge, says Fielding. “Consumers are valuing experiences more than products. Why? Experiences have social effect, they have a social currency, they are sharable - you can take selfies at an Adele concert, and that's more exciting to you than a new handbag,” he told an audience at Australia’s major retailing event, InsideRetail Live 2017. So what connects retailers with consumers? Retailers need to make the purchasing experience as intuitive and as fast as possible, according to Net-A-Porter co-founder Megan Quinn, who is now

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INSIGHTS

9 TRENDS FOR

RETAIL 2020 What will the retail landscape look like in just three years time? Jim Fielding of Fox Television shares his predictions…

A RETURN TO SPECIALTY Expect a movement away from big-box retailing - people want to go back to niche stores.

BLENDING Retail is not about product any more. Customers want a blend of products and experiences.

360 LIFESTYLE BRAND It is all about the brand, not the product. Consumers invest in the name, so brand extensions are important (such as the Shinola brand, originally a watch and bicycle, and now extended into leather goods and clothing).

We are faced with a consumer who is different, who grew up differently.

MASS AND CLASS Blurring the lines between luxury and mainstream affordability, the Target and Tiffany effect is stronger than ever.

DISCOVERY Shopping should be fun. Retailers need to capture that spirit.

CURATION Customers want to see the retailer’s point of view, what makes them individual.

DISTINCTION There is room in retail for very edited, very specific stores with a distinctive presence. The one-off retailer has a firm place in tomorrow’s shopping line-up.

MASH-UP Perfect for the food retail scene: dishing up the unexpected, such as Starbucks serving wine in its cafes.

RETAILTAINMENT Shopping centres can bring recreational activities and a sense of play to the retail environment; retailers themselves can immerse the customer in the branded experience, and create interactive product showcases.

on the board of digital payment company ZipPay. “In 2025, 75 per cent of workers will be millennials. What do they think? What do they feel? It is crucial to be agile,” she says. Also speaking at the InsideRetail Live event, Quinn said she sees an exciting future - if retailers adapt. “Australians are early adopters, but we haven’t kept as adaptive in our businesses. Retailers need to understand how to benefit the customers. It’s been a bit me-too, a bit complacent, but now it’s time to celebrate. We have to be brave enough to embrace the future. We can’t beat [Amazon] on economics or speed, so celebrate being Australian.”

STAFF ARE AN ASSET The philosophy and actions of a retail business are now crucially important, says Toms Australia MD John Elliot. “Our customer doesn’t care whether we are profitable, but cares about what we do.” Toms Shoes is a company focussed on advancing health, education and economic opportunity for children and their communities around the world. It

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started as a “one for one” concept with a pair of shoes donated to a child in need for every pair of shoes bought. Elliot sees a retail future focussed on businesses providing a strong social purpose. Retail success will come if customers have a reason to choose your business, he says. The concept of social capitalism is becoming more widespread, and it is a philosophy that attracts younger consumers. Experience as well as purpose is an important trend - creating a comfortable environment for the customer to be in, to hang out. As this trend takes hold, the focus on sales becomes secondary. To achieve this, Quinn says business has to be much more strategic. “How can we, when we think about customers and the data, the powerful information, how can we make it better for the customer? Not the business, but them? Business will follow.” She agrees that shopping is experiential, about customers recognising their values in a brand. “The most robust and sustainable businesses get their bottom line through the hearts and minds of staff and customers.” 

BE IN BUSINESS WITH A CUT ABOVE THE REST

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THE LIST

FABULOUS FRANCHISOR MUMS It is not always easy being a mother, nor is it easy to launch a franchise, but the two can be combined successfully as these inspiring entrepreneurs show.

ranchising offers women opportunities for empowerment, freedom and achievement, and it starts at the top.

Inside Franchise Business presents insights and advice from inspirational women who are leading the charge to head up a franchise as well as manage a home life...

JANINE ALLIS, BOOST JUICE BARS

“Like many people who want to start their own business, I wanted to be in control of my own destiny. And like all new business ideas, they start with the one line: “It would be good if…’ “In my case it was if I could create something that could do retailing differently and make it easier to get your fruit and veggies. To achieve this, I had no idea I would have to sell my family home, live without a salary for three years and commit to millions of dollars of liabilities. “Business is like a roller coaster - it has massive highs and equally low lows. But give me the roller-coaster ride any day over the predictable merry-go-round.”

NINA ROSACE, HOME SORTED

“I began franchising in 2015 after 14 years of running my own professional organising business. I saw it as a chance to not only help busy families, but to encourage a unique professional business opportunity for women. We are the first and only company to offer a franchise business in our industry. “I am a very determined entrepreneur. I will study, attend seminars and educate myself about PR, marketing, advertising, website development, brand development and so on. I have explored all these areas of the business thoroughly to fully understand what makes a business successful. It also allows me to add my own personal touch along the way so that my business message is not lost in translation.”

CHRISTINE TAYLOR, AUSSIE POOCH MOBILES

“I’ve always had a passion for the care and wellbeing of dogs, and started the dog-wash business to care for the family dog. I researched the best way to expand the business, and that's when franchising began, allowing others to share in my dream. Aussie Pooch Mobile began in 1991 and now covers Australia, Malaysia, New Caledonia, New Zealand and the US. “It is essential to build a great support team around you. Appreciate that it may be your great idea, but to grow you need others to share in that dream. Listen and show you care.”

TINA TOWER, BEGIN BRIGHT

“I was tutoring children with a fabulous team of teachers, but I still wanted to reach more children. We started licensing our curriculum but then converted to a franchise system so we could offer the complete business package. We launched the company in 2008, licensing in 2009 and opened the first franchise in 2011. “Be enthusiastic and curious to always learn more and continually improve. If you’re looking to franchise your business, you need to have a huge belief in what you’re doing and trust in yourself. There is always so much to do and so much going on, so it is important to constantly find simplicity in complexity."

LESLEY GILLESPIE, BAKERS DELIGHT

“I went into business to make a living, then into franchising because this model enabled us to expand the business more quickly and maintain standards. We started our business in 1980 and began franchising eight years later. “Stay resilient, be passionate about your business and focus on constant improvement.”

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THE LIST

ANNA KASMAN, SUSHI SUSHI

“As a passionate foodie, I decided to start a business that would ensure high-quality Japanese cuisine was available to everyone, everywhere – not just those who could afford to go to an expensive restaurant. Thus Sushi Sushi was born. Our first store opened in 1998, in Box Hill, Melbourne. “Three core principles guide the way I run my business: believe in yourself, believe in your people and believe in your product. My obsession with health and freshness has been paramount to our success. My passion couldn’t be delivered without the right people around me. Our executive team is strong and experienced, and constantly seeking ways to improve the business.”

FRANCESCA WEBSTER, BRAZILIAN BEAUTY

“In 2004, my partner Andrew and I opened the first Brazilian Beauty as we wanted to create a business in which we could work together. We launched our first franchise in 2006. “I stay focussed on what makes me happy. I believe in adding a daily positive contribution to my family and work life. Every day I find challenges and problems to overcome, and in turn rewards to relish. “I regularly connect with people who both challenge and inspire me. I am passionate about empowering customers and team members to believe in their own style of beauty. I exercise most mornings to keep my head and body in tip-top shape.”

KARINA WOLFIN, DIRECT APPLIANCE RENTALS

“I started Direct Appliance Rentals in 2008. It gives low-income earners and those on government benefits the chance to rent new technology and white goods. We started franchising in 2013 and have sold more than 20 territories nationally. “As I aim to support and guide women in small business throughout Australia, a caring philosophy is one of the keys to my success as an entrepreneur. Balancing motherhood with the workload that comes along with being a franchisor, I appreciate the importance of flexibility and being organised. “To be successful in business takes determination and perseverance. Some days in the office are tough, particularly because of the exhaustion that comes with having small kids, while others are wonderful and uplifting.”

SARA PANTALEO, LA PORCHETTA

“When my family migrated to Australia, none of us spoke English. My mother was illiterate, but she instilled hard work and perseverance into us and supported us in all our endeavours. I worked for a bank for 13 years before my brother Rocky asked me to help him set up centralised warehousing for the Italian restaurant chain La Porchetta. “Being a mum in a growing business was challenging. Balancing everything was not always smooth. I’ve learned that being there for your family is the most important thing. I now lead a team of 19 people and do my very best to keep that sense of community with our team and our franchisees and suppliers, while ensuring integrity, care and respect.”

DEBBIE PHAM, CHERRY

BRIDGE STATION

“I opened my first Cherry Bridge Station earlylearning and childcare centre in Sydney’s Canley Heights in 2006. Four years and 12 centres later I decided I was ready to begin franchising my business. “I have been told I could put in less effort and make more money by continuing with corporate centres, but the truth is I’d rather have a franchisee with a vested interest in running a particular centre, someone who really cares about the children and who will take great pride in being in control of the business. “For me, it’s about taking our time, getting it right, and making sure we bring in the most suited people. I think that’s what makes the difference and is the key to our continuing success.”

SARAH ALLEN, ATS

“ATS began in 1989 as an electrical contracting firm. It branched into safety services, expanded rapidly, and we had to refine our service-delivery mode. Franchising was suggested, but I felt incredibly daunted by the prospect - we had two kids under two, it was a massive investment and I thought franchising was only for retail. After 18 months refining the model we granted our first franchise 2006. I guess you could say our franchise network was my third child... “Daily support doesn’t come from management – it comes from everyone in our office who interacts with our franchisees, and it’s vital we have that right. When it was wrong in the past, the ramifications were felt for a long time. It’s all about people.” 

MELANIE GLEESON, ENDOTA SPA

“I started Endota Spa 16 years ago with a school friend. Our vision and passion was and still is to help women be their best. Today, there are 100 day spas across Australia and we employ more than 1000 people, mostly women. “I try to practise mindfulness in all areas of my life. Most importantly, I try to do this at home when with my children. I also like to meditate or attend yoga. I find these practices help keep me grounded and centred. “My philosophy is to do more of what makes you happy and not feel obliged to say yes to things that don’t bring you joy. Once you do this, you find freedom in everyday life.”

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COVER STORY

A boost for

SUCCESS MAY/JUNE 2017 | 18 | WWW.FRANCHISEBUSINESS.COM.AU

If you’re aiming for success as a franchisee, you would do well to heed the hard-earned wisdom of these multiaward-winning Boost Juice franchisees.

hen Daniel Mesiti and Anthony Stahl won the Multi-Unit Franchisee of the Year title in last year’s Excellence in Franchising Awards, it took their trophy tally to around 27 or 28 - they’re not quite sure, but they do have a trophy cabinet. The two business partners have notched up more than a decade as franchisees in the Boost Juice network and have been recognised both within the franchise and externally for their strong performance. But that doesn’t mean it has been a trouble-free journey from university students to multi-unit franchisees with five stores. Mesiti explains how they got started in business: “Our journey started with our first cafe. We studied and travelled, and fell into hospitality. It was never a conscious decision.” Describing it as “a bit of trial and error”, Stahl says Dan was more involved in the kitchen. “I was more upfront on the service side. It just evolved, we knew our strengths and weaknesses.” The pair spent seven years as independent cafe owners in Sydney, but reached a point where they wanted to extend the business, and that meant a second cafe. “But we had no systems, and it was a real hurdle,” says Stahl. “We bought the cafe from an old Italian. He looked tired at 55 and couldn’t do more by himself,” says Mesiti. “That’s when I realised I didn’t want to be like that.”

‘OBVIOUS CHOICE’ To ensure they had a better income, they realised they needed a better framework. This made franchising an obvious choice and a good route to keep learning, Mesiti says. “When you buy a business, you buy a job. Franchising is a little bit better because you learn about finance, such as rostering hours.” Boost Juice was a five-year-old brand when the pair invested, and yet to achieve its present high profile. They liked the healthy produce,

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visited a store and thought they could run one. As Mesiti says, “It looked easy - there was no cooking!” But it took them nine months to ensure it was the right brand then find the right site. Their first investment in Boost Juice was a store near to their home suburbs. And despite their six years of hospitality experience, the pair admits they didn’t really know understand what they were doing when they first opened the doors. Luckily, the structure of a franchise really helped. “The network [of other franchisees] has been an upside,” says Stahl. And for previously independent business owners who had to strive and outlay huge expenses to put marketing campaigns together, the concept of having affordable marketing materials on hand was a substantial bonus. “If you come from a white-collar background where there are a plethora of tools to hand, you might expect this. But for us, it was incredible. “When we began, we were saving wages, and for six years worked a six-day week. We were two guys running up to four stores.” But when they reached their fifth store, change was forced upon them.

‘HAD TO ADAPT’ “Some of our results had slipped. Our mystery shopping reviews had dropped,” says Mesiti. “We had grown from two to four stores very quickly. We had to get a handle on the business and knuckle down. We had relied on our presence in the stores, and had to adapt and become leaders.” This can be a challenging step, says Stahl. “We learned some good lessons. Just because we like to do something a particular way, it doesn’t mean it’s the best way. Even now, some of our teams are teaching us a few things.” The two franchisees have also owned and run other brands within the Retail Zoo group. At one stage they were running five Boost outlets, one Salsa’s and a Hatch chicken shop (no longer part of the stable). But success is not about the number of outlets owned. “We had two stores and overpaid for them, so they were not so profitable. When you pay

COVER STORY

too much, you’re setting yourself up for failure. Now we have three outlets nearly in the top 10 of the network. We don’t want to grow for the sake of it. It’s more about quality. With five stores now we are in a better position that when we had seven. “The Salsa’s store was in Chatswood, where we have two Boost Juice bars, so it was an easy fit. However, the store closed when lease negotiations with the landlord became too difficult,” says Stahl. With the development of their business and their increasing confidence, the two have taken over their own lease negotiations from the franchisor. “We are straightforward with the landlords and transparent in our dealings and our finances. When we come to lease, we tell them this is what we’re turning over, we can afford this percentage.”

DUD DEALS Their business acumen has improved through experience and the franchise model, and it has meant they can more easily spot dud deals. One of these was the chance to open a Boost Juice in the coastal suburb of Manly. While it seemed a perfect fit, the occupancy costs were nearly a third of the revenue. “It just wasn’t sustainable,” says Stahl. Their big change came when they stepped back from the frontline of the business to take more of an overview and to drive the stores from a strategic perspective. “Anthony took over doing the rosters, and we felt like slackers. We had been in store for six days a week for years, but realised we were being hard on ourselves. Now we can choose where to be and our staff costs haven’t gone up,” says Mesiti. Stahl does the bookkeeping, but the division of labour at store level is based on “divide and conquer”, he says. Each of them takes responsibility for stores nearest their homes. When it comes to talking to the business managers though, this is a joint process. And they have found that the managers also add value to their business. Stahl says they adopted the 80/20 rule, where 80 per cent of the results are achieved through 20 per cent of activity. They realised their best returns would come from delegating tasks such as food storage and placing orders, and focussing on the 20 per cent only they could complete, such as rosters and working on key performance indicators. The pair keeps tight control on rostering: they need to approve all changes. Stahl explains why: “We create a certain dynamic. We ensure we are putting the best people in the best position in the store, that’s a higher function. If we put the wrong person in the

wrong spot, business suffers. It’s the heart of our business, and business managers understand the ethos.”

‘MAJOR HURDLE’ Despite concerns across the industry that rostering can be a maze to navigate, Mesiti and Stahl believe they have the right approach. “It’s pretty easy. We try to make sure the team is good. If the team is good, the sales are good, so labour costs fall into place.” This means understanding who is best placed to start sampling products on a slow day, who will be the best team member to generate sales. But they accept the wages awards system has been a minefield, and that this could be a major hurdle for any incoming franchisee. Stahl and Mesiti took practical steps

to combat this, joining both the Australian Retail Association and the National Retailers Association. They are also receiving help from the franchisor, with Boost Juice publishing plenty of information to keep them up to date. “We have our own award, which is quite simple,” says Stahl. “When we had the Hatch store we had to use the Modern Award, and that was a nightmare. We switched to our own roster system and had that put on to an online system. If you set yourself on the right path, you’ll be fine.” When it comes to sustaining their motivation and keeping consistency in business, they both agree the key is passion, as well as being part of a brand they like with a strong relationship with head office. They work with new franchises and have spent time at company stores sharing their ideas and learning from the corporate approach.

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COVER STORY

WORK ETHIC There is also a strong work ethic, says Mesiti. “We seek constant improvement. We are accepting of our faults - always blame yourself first, and live by this rule.” They have a clear measure of accountability for employees as well. In the first month for new employees, if there are problems they put it down to poor hiring; in the second month, the business manager takes the rap for inadequate training; by the third month, the employee has to be accountable for errors. “We can’t just have knee-jerk reactions,” says Mesiti. “We have to improve our skills as leaders.” “We know that to have great people we have to be a step ahead,” says Stahl. Watching team members improve and develop gives them both great satisfaction, he says. They also spend time working on their own development, and find that exposure to other people helps them learn. “It’s attitude,” says Mesiti. “If you want to be better, you will be. It sounds a bit cheesy, but ask questions and look at how other brands run their business. What’s better? What’s worse? You can’t stand still in business - you’re either moving forward or backward. “Everyone is trying to get better, to improve sales, find a new concept. This is very prevalent in the food space, where there is more pressure than ever.” Their answer is to try to channel positive energy, to lift each other if need be. And to recognise that poor sales are not because they are doing something wrong but might be caused by the weather or changed

We are accepting of our faults - always blame yourself first, and live by this rule. consumer shopping trends. This is one of the benefits of being in a franchised network as franchisee sales figures are shared.

RIGHT ATTITUDE Bringing the right attitude to problems has also marked out the two men for success. “We often do have difficult conversations with our franchisor, but we always try and come up with a solution,” says Stahl. When it comes to staffing and developing great relationships, he says the framework is set from the start, with expectations outlined at the induction he and Mesiti conduct, with the boundaries and pay processes clearly set out. “We’re here to give them the tools. If we’re providing a great environment, we expect the best. When you come to work, you choose your attitude, and making people feel good is in the role.” Mesiti says a big predictor of success is the ability to lead your team. Within the network he has noticed that some of the best franchisees have been former school teachers, who are not easily overruled by an exuberant and youthful team. A little like parenting, he says, these franchisees

set boundaries, discipline staff, and set out the negative and positive consequences of behaviour. “Systems and processes are critical to the team. We’re still learning about leading to outcomes. We have to translate this to our heads. The systems need to reflect our vision.” That means that if mystery shopping is important to the business, then manager and staff KPIs need to reflect that. “If our team is hitting its KPIs, our business is being run well,” says Stahl. If you have a good work ethic, franchising can be very rewarding, but he says it does depend on your level of risk tolerance. “When you come into a franchise, you’re in business for yourself,” says Mesiti, while Stahl describes it as “really renting the brand”. However, they have a word of caution for cashed-up potential franchisees. “Just because you have money, it doesn’t mean that you can run a franchise,” says Mesiti. “Respect the rules and the business.” It has been the mantra for this duo, which has more Boost Juice stores in its sights (two are under negotiation right now). “It’s quite exciting,” says Stahl. “The brand is in quite a good place.” 

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LEADERSHIP

STARTING

EARLY

As well as making a crust, 20-year-old Sally Illingworth finds herself continually inspired after two years of running a pizza franchise.

s a finalist in the Northern Territory Young Achiever Awards, Crust Gourmet Pizza Bar franchisee Sally Illingworth is living proof that age is no barrier to business. At 18 years old, she was given the opportunity to move from Sydney to lead the franchise’s expansion into the Northern Territory. Two years later, Inside Franchise Business discovers she has gained more from business life than just financial success...

1. What does being nominated for an award mean to you? Being chosen as a finalist for this award means more to me than the financial performance of my business. It is a true honour in terms of being considered a leader within the community as a result of

the company’s ongoing commitment and support.

2. Was it always your dream to buy a franchise? At the age of 18, I was given the opportunity to relocate and lead Crust’s expansion into the Northern Territory. As I had been working at a Sydney store from the age of 16, I have had a hunger to grow within the brand. So yes, in a sense it was a dream. Not once have I had second thoughts, despite the challenges.

3. What are the benefits of being a Crust franchisee? It continues to be a rewarding experience and I absolutely appreciate the brand’s culture and passion in exploring flavour

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profiles, such as the Herb-Crusted Vegan Al Funghi pizza that was a result of our desire to cater to the growing vegan consumer base by providing a 100 per cent vegan pizza. The calibre of the network within Crust and the broader group [the business is owned by Retail Food Group] with its diversity are real assets to the business. RFG positions us as a competitive unit, and with continuing mergers and acquisitions there are even more opportunities.

4. What is the best lesson you have learned from RFG? The organisation and particularly its key personnel such as Crust GM Renee North and RGF CEO Gary Alford continually inspire me to think bigger. Adopting and developing a growth mindset, and combining vision with execution are among the greatest and most valuable habits any individual can acquire.

amount of focus I afford to my career...

6. Buying a franchise is a risk at any age. What are some challenges you have faced? Every business venture is a risk at any age, and franchising is essentially no different. I would argue that franchising, however, offers a special level of risk aversion, enabling people to buy into a proven business model. All businesses are subject to, for example, the ramifications of inflation, and in that respect franchising does not offer any protection; it is more about competitive entry into a market. Franchising counters business establishment-associated risks by providing franchisees with processes and structure to better equip them to run their business, and in that respect is a great channel for emerging business people to enter the market and develop their skills.

7. Was it hard at your young age to finance the franchise?

5. Are you are financially better off than other 20-year-olds who are at uni or working as employees? No two individuals’ positions are identical so it is difficult to determine whether or not one person is better off than another in all areas of life. I would suspect I am in a more advantageous financial position than most other 20-year-olds, and I also most probably feel more emotionally and professionally fulfilled and in control, which is directly proportionate to the

Considering I was 18 at the time, obtaining the funds was extremely challenging. I didn’t have any appreciating assets and I didn’t believe it was conscionable to ask my parents to mortgage their house. I am fortunate to have had two parties invest in me, and for that I will be forever grateful. Generating a return on our investment is always my priority and extends far beyond monetary returns. Often financial help can be perceived as out of reach, particularly for young

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entrepreneurs, and an important aspect of overcoming that mindset is to have ambition. A dream without a plan is just hope, and no trustworthy investor or individual will invest solely in hope. Positioning yourself so that people or organisations will invest in you is not easy, and in no way should be expected. However, it is possible.

8. What advice do you have for young, potential franchisees? Commonly, opportunity seekers incorrectly perceive franchise systems as an easy way to quickly generate wealth. I highly encourage prospective franchisees to think more broadly, particularly those who are younger and easily swayed by those “get rich quick on Instagram” schemes. Being a franchisee, akin to any independent small business owner, is essentially a 24-hour-a-day commitment. The benefit of a franchise system is buying into a proven business model, but this should not lead to an attitude of “all the hard work is done”. For young prospective franchisees, investing in yourself via a franchise system is a great opportunity for learning and can often be more accessible than establishing an independent business. A further benefit is the ability to leverage industry experts within your respective franchise system, which enables you to propel your personal and professional development. 

LEADERSHIP

MAKE A

SPLASH Servicing swimming pools is a growing business that offers a range of opportunities in the franchise sector, both in metro and regional areas.

pportunities are available for potential franchisees to dive into the swimming pool business as mobile sales and service providers in both metro and regional areas.

Franchised pool and spa specialist Swimart is offering a new sales and service model, with its first two mobile franchisees launching in Byron Bay on the New South Wales north coast and in the Queensland city of Mackay. The franchises service both residential and commercial pools, providing a suite of 21 care and maintenance services. Swimart Australasian manager Chris Fitzmaurice says the service packages include the brand’s most popular home and commercial pool services including the Lifestyle Service, the Care Service and the Home Pool Health Check. Its new mobile arm boosts the network of 73 franchise outlets, which run more than 250 service vans across Australia and New Zealand. “Although we are firmly committed to the bricks-and-mortar business model, we believe there is a market for mobile franchisees as well,” says Fitzmaurice. The business model was created in 2013 but launched prematurely, he says, with the concept not being heavily promoted. Today’s option provides an affordable alternative to opening a retail business, and offers a personalised service to consumers. “Our service sector is growing. More and more customers want other people to look after their pool,” he says. “We are becoming a more service-based society. We like to spend our free time doing things we like.”

KEEN RESPONSE While designed for regional areas where a retail outlet is not viable, the mobile option has attracted a keen response from metrobased franchise buyers. "We decided to extend the offer to metro areas, particularly Melbourne and Sydney where our footprint doesn't cover," says Fitzmaurice. Before assigning a territory, Swimart does a SWOT analysis of the area and researches elements such as the number of pools, as well as any existing competition, to ensure it will be a viable and profitable business. The franchisee is then given exclusive marketing rights to the area to maximise business returns. “We are not interested in growing the Swimart network just for the sake of it,” Fitzmaurice says. “We base our business-growth strategy around the financial viability of each territory. We want strong businesses, and we are proud that so many of our franchisees have been with us for so long – a testament, we believe, to getting the mix right. Our franchisees enjoy a good balance between profits and lifestyle, which we know holds a big appeal.” Although Swimart offers information and e-commerce on its website, the need for specialist product knowledge and expertise means customers are directed to their nearest store for more technical items such as pumps, filters and pool heaters. “This means we can compete with purely online competitors as we provide a premium service, thanks to our ongoing face-to-face and online staff training programs,” says Fitzmaurice. “Not all

online providers have the specialised knowledge base to offer the right advice … we are often asked to help ‘fix’ the mess customers have got into because of ill-informed online purchases. “We like to think of ourselves as a face-to-face Dr Google for anything and everything you need to know about pools and spas.” Swimart’s franchisor is a public company, Waterco, established in 1981 and listed on the ASX in 1989. Waterco makes and distributes a range of products for the international swimming-pool and water-treatment markets. “We also have a range of other premium suppliers,” says Fitzmaurice. “Any successful business is ultimately about people and relationships, and we understand that businesses and individuals like to deal with people they like and trust, so we are careful about whom we employ.” 

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We like to think of ourselves as a face-to-face Dr Google for anything and everything you need to know about pools and spas.

LEADERSHIP

NO BEEF HERE... Fogo Brazilia Churrasco franchisees have as much support as they need from the owners, with the benefits of economical entry and reasonable working hours, but for a “steak” in the business you need to “meat” strict criteria...

hile Fogo Brazilia Churrasco is a growing food-court and casualdining franchise, its owners have had extensive experience in both retail and restaurants - they founded Rebel Sport in 1985. They also launched Wildfire Restaurant at the Overseas Passenger Terminal at Circular Quay in Sydney, which was Australia’s first restaurant to introduce the Brazilian churrasco concept. This was taken a step further with the founding of Fogo Brazilia Churrasco in 2008, and now Ian Dresner, Hilton Seskin and Michael James have six outlets in Sydney. Romeo Rodriguez became a partner late last year and manages the franchise operations. The business is based upon Brazilianinspired meals, ranging from the traditional marinated meats through to salmon, burgers, rolls and wraps. “The franchisees in our business enjoy the benefits of working in a food court/centre, giving them a typical nine-to-five day,” says Rodriguez. “This enables them to go home to family in the evening, providing a great work/ life balance. Franchisees need to work in the business a minimum 45 hours a week which, in turn, lowers the staff wage bill and enables them to monitor day-to-day work and promote sales growth. He says Fogo is a great brand for anyone seeking to buy into a franchise, especially as it stands out from other typical food-court

accept anyone who flashes cash - we recruit with a lot of things in mind”. The hard questions are…

We don't just accept anyone who flashes cash - we recruit with a lot of things in mind.

outlets. “Our year-on-year growth for the brand has been 40 per cent, and our entry point is perhaps the cheapest in the quickservice restaurant space at about $275,000 for a brand-new store.” Ongoing expense include a “relatively cheap” 5 per cent royalty and 2 per cent marketing fee. “Training is essential, but there is no further cost to the franchisee. We require a minimum of four weeks’ training, not 10 weeks like some competitors.” Owners/stakeholders regularly visit franchisees to support them, which makes for a much closer relationship between franchisee and franchisor.

HARD QUESTIONS However, says Rodriguez, “we don't just

• Will they be active in the business? • Do they have some customer-service background (food experience preferred, but not essential)? • Have they previously worked in a fastpaced environment? • Are they familiar with how franchises work, with their compliance requirements and brand expectations? • Have they experienced our food? “We understand that our franchisees are the heart and soul of our business, and aim to recruit high-quality candidates, which will ultimately result in brand longevity and growth.” Ian Dresner says the food sector is a good market in which to invest, with the challenge being its sheer abundance. “In a food court, your competitor is literally attached to you. We have a point of difference to attract customers. Our store designs, restaurant-quality healthyfood offerings, Brazilian atmosphere and competitive price points have led to our success. We are also a unique offering, with barriers to entry relatively high. “Our directors are in stores daily offering support, ideas, a set of hands if necessary for franchisees, and that helps overcome any obstacles.” 

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LEADERSHIP

f o e t s A T

S S E C SUC

Snapping up young franchise brands in the coffee and food space, new player Franchise Retail Brands sees back-end synergies as the path to profitability.

ranchise Retail Brands (FRB) may be a new name in the coffee and food space, but already it has put together a solid stable of young brands and plans to keep expanding. Its portfolio includes Hombre Street Food Cafe & Bar, New York Slice, coffee business 1582, cafe chain Sabatini’s and the new concepts, Crave Ice Creamery and The Dessert House. And, says Franchise Retail Brands MD Sean Corbin, the group has its eye on more fledgling brands. Headed up by passionate franchisors, the group comprises emerging brands with proof of concept in quick-service

restaurants (QSR) or coffee. FRB joins other groups in the franchise food space with multiple household brands in their portfolios... • Retail Food Group (including Brumby’s, Donut King, Michel’s Patisserie) • Retail Zoo (Boost Juice, Cibo, Salsas) • FoodCo (Jamaica Blue, Muffin Break) • Franchised Food Company (including Cold Rock Ice Cream, Pretzel World) • Minor DKL (Ribs and Rumps, The Coffee Club, The Groove Train) • QSR Restaurants (Chicken Treat, Oporto, Red Rooster) Corbin says FRB is focussed on picking brands with “a strong runway”, that have

some “uplift, and a fair amount of growth in front of them”. Profitability is important, and the brands need to have commonalities so FRB can add benefits, he says. “Many of our brands can use synergies from marketing, finance, and legal, to the supply chain.” The business has its own roasting plant, and centralised kitchens and a bakery will supply the whole group. “The success of a group of multi-brands depends on the level of synergy across the business,” says Corbin. “Marketing, instant legal advice ... franchisors are doing everything in-house, so their cost structures are increasing. What we are

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looking for is a concept that is proven, where the supply chain and the back end are in reasonable shape.”

marketing messages, no synergies and there were supply-chain issues.”

NICHE FOCUS

DUE DILIGENCE FRB could support 15 disparate brands in the sector, with the right direction and an awareness of the space, he says. Considerable due diligence is undertaken in the search for the next hot-shot brand. “Some of them [the networks] have only one thing in common: the name on the door. We’ve tried to look at franchisors who put a lot of effort into the structure of the brand, the structure of the menu, and who know where they are going. “It is crucial for franchisors to ensure sufficient time is given to each brand. In a niche market, keeping on the franchisor is an advantage - they drive the brand,” says Corbin. “Their passion is the brand. We will be helping them.” That multi-brands success is dependent on synergy is something Corbin can talk about with experience. He saw the downfall of Allied Brands at close quarters when, as CFO, he became responsible for seeing through the group’s closure, with its disparate brands Awesome Water, Cookie Man and Kenny’s Cardiology. “The issues were about discrepancies at the back end,” he says. “Nothing talked to anything else, there were no congruent

He says it is imperative the team is drilled to understand all the brands within its portfolio. But overall, sticking to a niche market is crucial. “We will not go past coffee and food,” he says. “As the team grows, there will be greater knowledge and expertise - why waste that by moving into another retail space?” He says the QSR sector remains focussed on three core menu items chicken, burgers and pizza - despite the incursion of other cuisines and healthier choices driven by consumer tastes. Taking a portfolio approach ensures the business has brands in peaks and troughs at different times, which helps profitability. For franchisees, profits are also a key concern. “The marketing fund is going to help them. It’s not covering costs that should be worn by the franchisor. Nothing is being charged back. It’s about delivering for the franchisee, spending every cent we get from them.” He says clear communications between franchisee and franchisor are vital, and, “at the end of the day, franchisees have to be profitable.” 

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GOING

TO MARKET Franchise Retail Brands MD Sean Corbin has “considerable investment” in the business, having raised further capital since its launch. There are more than 50 shareholders. Corbin expects to float the business later this year, with between six and 10 brands. “It was always our design to go to IPO,” says Corbin, who has had a decade of experience in franchising. Others on his team include legal counsel/company secretary Juliette Wright, who has worked with franchised brands such as Crust, Guzman Y Gomez, Price Attack and Top Juice, board member Robert Clark, founder/CEO of Crazy Clark’s discount stores, and chief marketing officer Rodica Titeica, whose experience includes Ardent Leisure’s Goodlife Healthclubs.

LEADERSHIP

FLYING HIGH WITH

CHICKEN A new boss is helping Australia’s quick-service chicken restaurants spread their wings, which is promising for the franchising sector.

ou have probably eaten in one of the 560-plus restaurants of Chicken Treat, Oporto and Red Rooster, and been served by a few of their more than 12,000 employees, but not realised these three household brands share three things in common: they feature chicken, they are homegrown fast-food concepts, and they are owned and run by a single Australian company. National chains Oporto and Red Rooster, along with Western Australian stalwart Chicken Treat, are all franchises under the umbrella of Quick Service Restaurant Holdings (QSRH), and they dish up snacks and meals to more than 150,000 customers on any one day. With Chicken Treat and Red Rooster

in the Australian consciousness for more than 40 years, and Oporto celebrating its 30th birthday last year, there is more than enough history and tradition to go around. But that’s not enough for the team at QSRH, which has been refreshing and revitalising the brands for the past couple of years to keep them forging ahead. Now there is a fresh face heading up the management team, and he’s ready to kick more goals. New CEO Brett Houldin is not new to the business - he has been with QSRH for nearly three years, in the roles of COO and CFO. Before that he was GM of Sydney’s hotel and entertainment complex The Star, where the overriding concern was hospitality. Encouraging return customers was a particular strength at The Star, he says. “We had half a million people [on

the loyalty program] who were coming twice as often and spending 20 per cent more than other customers.”

ON POINT He believes that what he learned in food, beverage, hotels, entertainment and gaming are right on point for the fast-food marketplace. “What I saw in the strategy at QSRH was clear focus, digital technology and a great loyalty program.” For this enthusiastic, customer-driven executive, digital is key - he undertook an e-commerce degree when it was still a new concept. “I have a passion for digital. I led the introduction of online ordering at Red Rooster. I was able to understand the landscape, how

MAY/JUNE 2017 | 32 | WWW.FRANCHISEBUSINESS.COM.AU

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LEADERSHIP

GOING

GLOBAL

I like to make sure we have the right people on the journey to get to the milestones.

the customer engages on that level. “We’ve had some good momentum,” he says. That has been focussed on home delivery with a Red Rooster rollout that has extended to trials in the Chicken Treat and Oporto chains. Time and investment was ploughed into building the right platform, so getting it right for Red Rooster would benefit the other brands as well. “Chicken is the most-favoured protein but the least delivered,” says Houldin. “We’re coming third in deliveries after Domino’s and Pizza Hut, and our objective is to be number two. The customer wants fast, fresh and real value. Our products do that.” Technology is, of course, standard across the restaurants, and he says it has been important to drive suppliers and vendors to ensure a seamless and intuitive customer experience.

STILL EXPANDING So, is a slice of chicken pie available for potential franchisees? The good news is that the brands are still expanding. Oporto and Red Rooster are concentrating on new concept stores offering smaller footprints. “Our brand is well known in Sydney, but we have two million people who can’t access it,” says Houldin. “Smaller stores in highly urbanised areas do well.” Expect to see more of the mini-me outlets (Oporto’s Pequino and Red Rooster’s Reggies) dotting city centres. For Chicken Treat, a new menu with product innovation is being rolled out. “We think we have WA’s best fried chicken,” says Houldin, “but the market is a bit of a challenge. Home delivery is in demand in our pilot there because customers are looking for convenience. If you can deliver in 30 minutes, you’ll keep the customer.” Convenience has traditionally been the drive-through model and was the foundation on which Red Rooster built its brand. There are now 350 such stores across Oporto and Red Rooster. “We have an amazing portfolio,” says Houldin, “with drive-through, counters and home delivery.” And across the two brands,

Chicken Treat, Oporto and Red Rooster are spreading their wings internationally. QSRH has had an office in Singapore for a year, and expects to launch into two Asian markets by the end of the 2016 financial year.

another 20 drive-throughs are slated for opening next year. “We have a target of 30 stores in the business next year. We’re almost fully franchised, with about 10 company-owned stores trading. All the new stores will be franchised.”

“Chicken is a protein that is widely consumed, and we expect in particular the flavours and spices of Oporto to do well,” says QSRH CEO Brett Houldin. “We want strong partners with retail, food or property experience.”

GOOD NEWS That is good news for both existing franchisees and newbies. The highly engaged franchisees already in the network are keen to expand, while the company’s new strategies are exciting new franchisees, says Houldin. Franchises are available across its three brands in Australia, New Zealand, Asia and the Middle East (see box). While the three brands have been united under the umbrella group since 2007, some additions are coming up for the portfolio. ”We’re a house of brands,” says Houldin. It is a trend across Australian franchising bringing in complementary brands that can benefit from shared resources and supply chains. Australian companies will be targets for acquisition. “We own all our brands, and that gives us a lot of flexibility,” he says. “There are different segments within the chicken market, there are complementary products, segments and synergies that will add value to the portfolio.” Houldin is confident that once QSRH re-capitalises - private-equity owner Archer Capital has the company up for sale - it will be able to launch the acquisition process. Meanwhile, Houldin holds true to his belief of growing the business “in real ways” with a customer approach. “I put a huge focus on people, and seeing them develop and grow,” he says. “My leadership style is very open and collaborative. I like to make sure we have the right people on the journey to get to the milestones. That’s how I operate and engage with franchisees, crew and head office.” He says he started his tenure on the road, meeting with franchisees. “I’ll be taking all the time I need - we’re in this together. It’s a strong partnership.”  MAY/JUNE 2017 | 34 | WWW.FRANCHISEBUSINESS.COM.AU

IS COMPLIANCE

A HURDLE?

While franchising is a great model to support small business, franchisees need to abide by QSRH programs and national compliance laws, says CEO Brett Houldin. “We do internal and external audits. There are five metric log-ins to monitor staffing, and we get the metrics. We also have a whistleblower hotline,” he says. “We’re on the front foot, we’re proactive. We’ve been running this successfully for 18 months. “The franchisor needs to be always on the right side of compliance, ensuring franchisees are administering the stores as they should. We are running a robust program that satisfies us we’re in good shape.” Steps are already being taken in respect of proposed amendments to the Fair Work Act that could make the franchisor liable for franchisee breaches of workplace law. “We already benchmark to Fair Work expectations of franchisors,” says Houldin, noting that the top franchisees “are really engaged”. When it comes to labour laws, the company wants to do the right thing, he says. “When you get into a franchise, you have to do what’s right for the customer, the employees and the systems.”

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LEADERSHIP

MAY/JUNE 2017 | 36 | WWW.FRANCHISEBUSINESS.COM.AU

FUELLING

INNOVATION As well as filling their cars, Caltex wants to make life easier for its customers by fulfilling their needs with convenience concepts that take its model to the next level.

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LEADERSHIP

etroleum company Caltex has an Australian network of about 1900 franchised, company owned and affiliate stores. The business banks on convenience to satisfy its customers, and this year is introducing some fresh thinking into the petrol/convenience store format. Inside Franchise Business speaks with Caltex GM of convenience development Helen Moore about what lies ahead…

WHAT IS THE BIG CHALLENGE FOR THE CONVENIENCE MARKETPLACE? The Australian convenience industry is rapidly evolving, and our goal is to meet the changing needs of consumers, wherever they are. Consumers are looking to save time, shop more often and eat healthier, fresher food. They are also looking for an easy way to run errands, such as parcel pick-up and laundry. Caltex has a huge network of stores in convenient locations right around Australia. We believe we can use this network to offer motorists the convenient products and services they want. Changing people’s perception of what

they normally expect from a traditional petrol station will be a challenge, but with this challenge comes great opportunity.

WHAT IS THE THINKING BEHIND THE FOODARY CONCEPT? The first thing you’ll notice about The Foodary is that it doesn’t look or feel like the usual petrol station food outlet. We wanted to create an environment that is inviting, and one that excites all five senses - we want people to see, hear, taste, smell and feel the difference. The whole concept of The Foodary was driven by our customers. They told us they want fresh, easy food and coffee on-the-go. The Foodary still has traditional food like the humble sausage roll, but it’s about giving customers choice. We also saw the opportunity to make life more convenient and easier for our customers. As part of The Foodary, we are trialling some special digital experiences. For example, an app lets busy motorists pay for their fuel on-the-go, directly from their vehicle. It also gives them the option to pre-order food or coffee before re-fuelling, or even before they arrive at the

Changing people’s perception of what they normally expect from a traditional petrol station will be a challenge, but with this challenge comes great opportunity.

store, so they can easily and quickly collect food at the counter. There are also touch screens at the pump so people can pre-order food while refuelling. For Caltex, The Foodary is part of our evolving retail strategy and our plans to reinvent the local convenience retailing industry.

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ARE THERE SIMILAR CONCEPTS OVERSEAS? As part of our research for The Foodary, we did a global search to understand what convenience retailing could look like. Through our research we’ve picked up ideas and inspiration overseas, and from local cafes and food stores, but ultimately we are designing our offer for the Australian consumer.

WHERE WILL THE CONCEPT BE ROLLED OUT? We are looking to pilot around 10 sites in the next 12 months, plus some new sites will be launched as The Foodary. We will be trialling partnerships with the likes of Boost Juice, Guzman Y Gomez and Sumo Salad, as well as improving our product offer across key fresh categories such as sandwiches and salads, bakery and meals. These are established and trusted brands, so we are really interested in seeing our customers’ reactions to these quick-service restaurants within our stores. We plan to open more concept stores in New South Wales and Victoria first, with

other states later in the year. We hope to make some of these products and services available to our broader network once they have been tested.

ARE THERE OPPORTUNITIES FOR FRANCHISEES? The first step is to get our products and services right. This is critical to ensure The Foodary is a success for Caltex and our franchisees. Right now, the convenience retailing space in Australia is very exciting. There is room to offer our customers so much more, and that’s what they’re looking for: healthy, easy food to-go and services that give them the freedom of convenience. But it is early days. We’ve been officially opened for about a month, and will continue to evolve by listening to customer feedback.

WHAT IS THE ULTIMATE GOAL FOR THIS CONCEPT? The Foodary is part of Caltex’s overall vision to offer freedom of convenience to our customers. It is part of our evolving retail strategy, where our aim is to reinvent the

local convenience retailing industry. We want to give our customers the choice to eat quick, healthy food on the go, and offer them convenient services like parcel pick-up or laundry. This is about anticipating and delivering on our customers’ needs so they can spend less time on the things they have to do and more time on the things they want to do – that’s convenience.

WHAT OTHER SERVICES ARE BOOSTING CONVENIENCE FOR CUSTOMERS? As part of our pilot trials at Concord (Sydney), customers can collect parcels and use a laundry service. As The Foodary is open 24 hours, seven days a week, as a parcel pick-up spot it is much easier for people to access than, say, a post office. And through the Washem laundry service, customers can drop off their laundry and have it cleaned, dried and ironed for same-day pick-up. We’ll continue to keep testing new products and services so we can better understand what our customers want. We are open to adding more services over time as customer demand grows. 

LEADERSHIP

BRAVE

NEW WORLD

Howards’ Storage World is bouncing back with a new owner and a franchisee executive who is on call 24/7 for fellow franchisees.

fter years as a Howards Storage World franchisee in Melbourne, Ron Pugsley has been appointed chief operating officer of the group following its change of ownership.

“It is exciting to be able to bring a perspective to the role that will help everyone in the business,” he says. “I bring to the group office a checking ability that everything we do is focussed on a great customer experience.” He says each store in the franchise offers features such as free measure and quote, assembly and free home delivery, which customers really value. In view of this, what went wrong to cause the chain to go into voluntary administration? Pugsley believes it was a case of overpricing. “The previous administration destroyed the overall value proposition one of the key concerns for customers is competitive prices. In the value chain they were taking over-exercised margins and passing that through to the stores. “We have to be price competitive. We lost focus.” This is where new owner Enayat Ghiasi offers particular value to the business, says Pugsley. Ghiasi brings extensive retail experience from running 85 stores in the United Arab Emirates. “I bumped into him through a mutual friend, and spoke passionately about the brand and what it offers,” says Pugsley. “He obviously remembered this, and when the opportunity to buy the business came up, he jumped at it.”

agreement. But following the voluntary administration, this year he was able to complete the purchase, partly funded by connections in the UAE. Two businesses now own the group. One holds the assets while the other is the trading company. Ghiasi immediately identified the key issues, says Pugsley, including under-performing stores in poor locations. Of the 59 stores in the chain when it went into administration, all 29 franchised outlets remain. The company has closed 12 of its 30 corporate stores. Ghiasi will be a hands-on chief executive, and has spent the first days of ownership working on the financials while Pugsley has focussed on communicating with franchisees, suppliers and store managers. Pugsley has a vested interest in the chain’s success above and beyond his COO role - he is continuing as a franchisee, with a manager in control of day-to-day issues. “I’m very enthusiastic about the future,” he says. “The franchisee support for me taking on this role has been fantastic. They appreciate that I’m one of them, and although some decisions may appear to be in conflict, I know how they think and what needs doing.” He says the first job of management is to repair the business model. “The environment is very challenging, and the previous owners didn’t listen to franchisee experience - they didn’t value us.” As a starting point, Pugsley has asked franchisees for the top five issues that concern them. That is his checklist. “None are a surprise.”

TWO BUSINESSES

ON CALL 24/7

In fact, Ghiasi approached Howards Storage World last year with an offer to buy, but was not able to reach an

He has made a stand on franchisee access to his time - it is 24/7, and they all have his mobile number. “We want to pull down

barriers and get an even flow of communication and ideas from them. We need to mine this knowledge. We’re going to capitalise on it.” The system he and Ghiasi have inherited is one that directly sourced product, but the wrong product at the wrong price, says Pugsley. Instead, there will be a return to the original business model. Keen to build brand exclusivity, the refreshed business will rely on suppliers sourcing competitive products that can be delivered for no more than it would cost to bring them in directly. Another mistake of the previous management was that it regarded customers as homogenous, says Pugsley. “That’s why a core range of merchandise will be developed, then an approved supplier list franchisees can draw from to ensure a demographic-relevant product offer. “If franchisees bring a product to us, and it has potential, we will evaluate if for the core product range.” Most stores have had a refit in the past two years, so the stores will not be taking on a fresh look as yet. “Most of our target customers tell us we are their favourite store. We merchandise well, and there’s a lot of experience at store level, plus skill,” says Pugsley, who believes the broad offering of products from budget upward is right. “The target market is women aged 20 plus. They are often working and want to be organised. They want to feel in control, and want to make their home presentable.”

FOCUS ON FRANCHISING Meanwhile, Pugsley says a busy 18 months lies ahead as everything gets back on track. “After that, we’ll look at opportunities to expand.”

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While some corporate outlets are staying, such as the company’s training store at Warringah Mall in Sydney, the focus is on franchising. As the business footprint expands, if the right franchisee matches the right location, company-owned stores will be franchised. Pugsley has had conversations with franchisees keen to open more stores, which he

says is a great affirmation. “They’re saying they trust what they see and think there is a great future.” But he says store opening targets will not be driving the business. “That was one of the problems with the previous administration.” He says the perfect combination that delivers franchisee profit is the driving force. “With the right location and the right

price to offer tremendous service to a large catchment, a franchisee can make a profit. We’ll benefit from franchise fees coming into the business at the same percentage, and they’re building their businesses.” 

LEADERSHIP

PURSUING A

PASSION Inside Franchise Business looks at a selfemployed physiotherapist who sharpened his business skills with a manufacturer before finding a franchise in a field he enjoys.

re you looking for a career change, but not sure if it will pay off? Perhaps you’ve been working in the corporate world and want a more rewarding role, or maybe you have previously owned a business but want more support.

Tim Courtney ran his own physiotherapy business, then worked for a global manufacturer for six years before buying the Geelong Diaco’s Garden Nursery franchise in Victoria. “I had run my own business for nine years, so I had experience being my own boss and I enjoyed the freedom and the responsibility,” he says. “I found the work side of being a physio came naturally, as this is what the university degree had taught me, but my business knowledge was lacking. I found I was working harder, not smarter, and eventually decided I needed a change.” But he doesn’t discount his experience and studies before becoming a franchisee. “Working with a global manufacturer, in addition to great management experience, gave me fantastic opportunities for leadership development and personal development training. These experiences have combined to give me great general business experience, and the opportunity to better know myself, what I like, what I don't like and what I am suited to.”

BACK TO STUDY Over the following seven to eight years, in addition to his work, Courtney went back to study for his MBA, which he has almost finished. He says the experience has given him a greater set of skills to run a business. “I was always looking for a new opportunity to work for myself again, but it took time to find the right opportunity, with something I was passionate about. It doesn't seem so much like hard work when it's something you enjoy.” When he found the Diaco's franchise, he immediately knew it was something he could really enjoy. But why buy a franchise? Courtney says the franchise model offers great support and systems to help with the aspects of running a business he is not so good at. “Additionally, the Diaco business model as a whole made sense financially, so it seemed a good fit all round.”

LONG HOURS But running a franchise is not without challenges, especially at the start. “Initially it involves long hours and being away from the family,” says Courtney. “We have set up the business in a new location and had to move house, so that along with four kids has been a big challenge for my

I found I was working harder, not smarter, and eventually decided I needed a change.

wife and me. We are all set up now though and getting back into a routine, so things are a little less hectic.” He says the advantages of a franchise system include access to industry knowledge and partnerships, as well as ongoing support from the franchisor. His advice for others looking to make a career shift into franchising? “Always make sure whatever you do you are passionate about it, as it is so much easier to do the hard yards when you enjoy what you are doing. “Also, be sure you investigate the opportunity thoroughly, and take time getting to know the business and the franchisor you are going to be working with. It's important to know what you are getting involved in up front. That way there are fewer surprises down the track.” 

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Following its launch in August 2016, Franchise Retail Brands has acquired New York Slice and Hombre Mexican and has launched four concept brands - 1582, Sabatini’s, Crave and Dessert House to its portfolio – with more to come as the group moves to raise $20M to float on the stock market in the first quarter of FY 17/18. As Franchise Retail Brands looks to expand both concept and existing brands across the Eastern seaboard of Australia, the group has focused its efforts on the QSR sector where food and coffee provide significant room for growth. For Mr Corbin, successful expansion depends on a streamlined and organised franchise model with support offered to franchisees in all areas of business ownership. “We have designed our model specifically to leverage supply-chain operations in all our Franchise Retail Brands franchises through synergies in the purchase of goods, which includes coffee from our 1582 brand coffee roaster - set to lower costs for all brands and to improve profitability.” Mr Corbin said that franchisee expenses will also be reduced with Franchise Retail Brands infrastructure across administration, staff training and marketing. “With added support across general operations including stock ordering, staff management, OH&S and customer service – we hope to equip franchisees with the tools they need to successfully run their business.” Those interested in learning more about Franchise Retail Brands or joining our growing network can visit: http://frb.com.au/ or contact Sean on 07 3999 8950

FRB.COM.AU

07 3999 8950 info@frb.com.au

LEADERSHIP

FIVE MINUTES

WITH SOUL ORIGIN’S

HARRY YIANNIKAS

This healthy food group’s head of training has operations and recruitment as part of his role. Here he answers our 10 questions about franchising. 1. What is your personal strength in business? My personal strength lies in creating strong relationships with our team at the support centre and also our franchisees. This allows for a great opportunity to achieve our goals within the business and also personally . Since coming on board two and a half years ago, I have been involved in the business from the ground up. This includes core areas such as operations, training, company store and interstate management, store openings and recruitment. Such a broad involvement has allowed me to add value to the internal departments as well as to our franchisees.

2. What have you learned about franchising? • Culture is very important to grow a brand • Teamwork and strong work ethic filter down to store level, which is a positive direction.

3. What makes an efficient franchise model? • A clear company structure and brand vision • Clarity in individual roles to ensure tasks are completed in a professional manner.

4. What do franchisees want from their franchisor support team? • To listen

• To have involvement in the brand direction • To ensure the brand is innovative and current in the retail environment • To implement best industry practice • To help maximise profits • To add value to each meeting.

culture and is willing to work hard when necessary • A candidate who is energetic • A good communicator.

5. How does a franchisor foster trust in the relationship with a franchisee?

Strong and clear leadership.

• Once again, culture • It is important to understand our franchisees’ purpose and help them along the journey • Relaying key information clearly and in a timely manner.

10. What does it take for a franchisee to be a star performer?

6. What can franchisees do to ensure a good relationship with the franchisor team?

9. What do you think is the most important quality a franchisee needs?

• Engagement – our best-performing franchisees have the highest level of engagement with their customers • The star performers also have a love for the brand • It is their life and their calling. 

• Understand that management will always need to protect brand values first • Comply with direction • Communicate any issues early and find a resolution together.

7. In your experience, what is the most common mistake franchisees make? They are in it only for the money.

8. What do you look for when interviewing a prospective franchisee? • A candidate who will fit the brand

MAY/JUNE 2017 | 44 | WWW.FRANCHISEBUSINESS.COM.AU

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INDUSTRY SPOTLIGHT

Not only has Australia’s fast-food industry transformed with a fresh focus on healthy eating, but it is continually evolving to meet changing consumer preferences, writes Noha Shaheed.

onsumers have five top priorities when it comes to eating, according to market research company Ipsos’ report last year Food Facts, Fiction and Fads – How Australia Eats, Thinks About and Shops for Food. These priorities are: • eating more fresh fruit and vegetables (40 per cent) • smaller portion sizes (31 per cent) • reducing sugar intake from food (24 per cent) • eating healthier snacks (23 per cent) • cutting down on fat (23 per cent). However, the report also says that

many people regard being healthy as expensive and time consuming. Taste and price top the list of purchase decision drivers in-store, at 72 and 63 per cent respectively, followed by discounts. “Our study shows that while making healthier food choices is a key priority for Australians, the typical, everyday shopper is still struggling to balance healthiness against convenience and their budget,” says Ipsos strategy and research director Kathy Benson. Looking forward, the study shows that Australians would like more natural substitutes for sugar, beef free of hormones, organic meats, stall-free pork, plant-based milk alternatives and food

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HEALTHY BUSINESS

Credits: Soul Origin

with fewer artificial sweeteners. Which health priorities apply for franchise businesses? What is the role of cost, convenience and meeting consumer demands in an ever-changing industry? How will franchise businesses stay profitable? Here are some responses from the industry...

‘ABSOLUTE PRIORITY’ “Fresh fruit and vegetables are absolutely a priority,” says Robbie Damjanovic, master franchisee for Canadian fastcasual restaurant brand Freshii in Australia. “All our menu items, from salads

to bowls to wraps, incorporate a variety of both. Healthy drives everything we do, which is why sugar and transfats (we love our good fats) are two things we reduce in every way we can.“ Meanwhile, fresh vegetables and low levels of sodium, sugar and fat are central to the Subway fast-food franchise model, which offers one and a half serves of vegetables in its six-inch sub, and three serves in the foot-long sub. Spokesman Ben Miles says there is a perception that fast food is full of sugar. “A lot of businesses jump on to shortterm fads. We try to look at broad trends,” he says. “You can’t argue with eating fresh bread, vegetables and sources of protein.”

MAY/JUNE 2017 | 47 | WWW.FRANCHISEBUSINESS.COM.AU

The typical, everyday shopper is still struggling to balance healthiness against convenience and their budget.

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At Top Juice, GM Barry Barber says the group has developed a strong following with customers seeking healthier options. It offers fruit and vegetable juices, smoothies and shakes all made on the spot from fresh produce and natural ingredients “We also carry fresh-cut fruit and fruit salads as well as vegetarian and some meat salads, and we have seen these categories become an important part of our business.” Soul Origin has an in-house dietitian and nutritionist, the “Nude Nutritionist”

Lyndi Cohen, and prides itself on menu items that focus on dietary fibre, reduced sodium, protein and managed fat content. “We don’t feel the need to count kilojoules, but to be more mindful of the nutrition we’re eating, which includes the benefits of high fruit and vegetable intake,” says GM Chris Mavris.

GLUTEN-FREE MENU SpudBar sales and operations manager Matt Jones says the wonderful thing about potatoes is that they come fresh from the

ground, are trucked to the group’s stores and go straight into the oven. Its outlets offer a variety of vegetable toppings on a hot baked potato. “Most of our meals are loaded with fresh serves of vegetables, and of course they can be topped with cheese and sour cream, or with avocado and salsa,” says Jones. “Fast food doesn't have to be junk food. We offer a 100 per cent gluten-free menu, which is carefully managed and maintained.” Raw Energy operations manager Jay Giles believes the cafe franchise is one of a kind. “There is really no-one doing what we are do at Raw. Competitors are either expensive with targeted options like paleo or organic, or stock-standard processed-food cafes,” he says. “Our wholesome approach to food gives our franchisees a sense of pride to know they are making a difference and delivering something the market needs and wants - tasty, healthy food they can feel good about eating and afford. “Raw Energy aims to have a wellrounded food offering that ultimately transforms traditional cafe fare into more nutritious options, while still catering to a wide variety of tastes. Bringing this to life means a good proportion of our menu is based around maximising the intake of fresh fruit and vegetables and reducing fat and processed sugar.”

HEALTHY OPTION LeWrap franchise development manager Bob Ozdemir says the brand aims to provide consumers with a healthy option

Credits: Raw Energy

Credits: Liv-Eat

Credits: SpudBar

INDUSTRY SPOTLIGHT in food courts across Australia. “Our wraps feature fresh produce, low-fat, clean meats and healthy sauce options,” he says. “LeWrap’s salad bar features a cornucopia of daily prepared produce including carrot, cabbage, capsicum and jalapenos. The menu choices also feature healthy, gourmet salads and open plates with nutrient-packed brown rice as an option. We offer low-calorie alternatives and pride ourselves on serving free-range chicken.” Healthy Habits offers a range of healthy salads, sandwiches, wraps, juices and other meal and snack items. Stan Gordon, CEO of parent group Franchised Food Company, says the bulk of Healthy Habits products are made in-store daily, using only fresh (where available) ingredients with a seasonal spin. With so many health trends emerging, such as low sugar, low fat, low carb, how do franchise businesses respond?

‘CRITICAL PATH’ “Increasing vegetable intake with balanced protein, less sugar and reduced saturated fats is a critical path to a healthy diet,” says Liv-eat Fresh Eating franchisor Chris Button. “Portion sizes are also vital.” Giles says Raw Energy’s priority is to make wholesome food available to everyone. “Wholesome cafe food has been our focus since the start, and in retrospect we were ahead of our time with our thinking, especially regarding sugar alternatives. The market is really just catching up with us. We also steer clear of processed sugar in most of our foods, relying on natural sweetening options such as fruit and maple syrup, or natural alternatives like stevia.” Subway also abides by a low-sugar, low-sodium, low-sugar and low-fat approach, but does offer more indulgent items. “Everything in our menu is low in sugar as per the Food Standards Code,” says Miles.

Healthy Habits also watches nutrient levels. “We also keep a close eye on sugar and fat levels and, where possible, reduce these,” says Gordon. “We’re committed globally to no artificial colours or flavours. We are aware of trends, but we ground our approach on data.” Top Juice has kilojoule information displayed on all its menus so customers can make informed decisions. “Fruit and vegetables do contain some naturally occurring sugars to varying degrees, and we have developed our menu to include a good balance of moderate and lower kilojoule options,” says Barber. “We provide customers with a lot of choice with everything from super-healthy veggie juices through to

higher-kilojoule shakes with nuts and protein designed for gym-goers. In our natural yoghurt range we have introduced a ‘no added sugar’ variant alongside our regular lightly sweetened variety with a selection of natural toppings.”

SMALLER SERVES With many people being more concerned with portion sizes, Top Juice offers smaller serve options. This includes a range of fresh juices served in 230ml “mini-cups” made from single fruits. Across the menu there are three size options. Chris Mavris says all Soul Origin stores will soon have an allergens brochure and

Credits: Subway

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nutritional guides to inform customers on the breakdowns of their choices, including dairy-free and gluten-free options to sugars, fats and sodium content. “As our brand name suggests, Healthy Habits offers fresh, healthy, quality food choices for people who have busy lifestyles,” says Gordon. “Many customers just don’t have the time to prepare this healthier type of food for themselves, so our range is really designed to cut out the preparation time involved for customers with ‘grab and go’ options.” He says the group is undertaking a full brand repositioning and doing a lot of work around developing its “grab and go” range. Liv-eat’s franchise model is built around convenient healthy eating at an affordable price. “When we started in the mid-2000s, the healthy quickservice-restaurant industry was faced with educating customers that healthy eating was not cheap. We worked hard to establish a profitable price point with happy customers,” says Button. “Our mission at Freshii is to make healthy food convenient and accessible to every citizen, no matter their lifestyle or dietary preference,” says Damjanovic. “That’s why our menu is nutrition-led and completely customisable. We meet the ever-changing needs of today’s consumer.

GOING MOBILE “Mobile ordering is incredibly significant and a priority for us this year. With words like ‘accessible’ and ‘convenient’ in our mission, mobile is a platform we need to be on, especially with such a large millennial guest base. “A large part of accessibility is affordability. In every decision we make, from our suppliers to new ingredients, we consider the end ticket price. We’re proud to say our average ticket comes out to about $8 before the addition of proteins and extra superfoods.” At Top Juice, the offering is positioned to represent value and to be accessible to the broadest market. “To achieve this balance of quality, convenience and value, Top Juice has an integrated supply chain from our central kitchen and warehouse in Sydney, sourcing fresh produce all year around from across Australia, and managing the variabilities of seasonal supply and pricing to ensure a degree of price certainty for our franchisees and customers,” says Barber. Like Freshii, tech is also a priority for achieving convenience at SpudBar. Jones says a phone app will be launched soon. “SpudBar is covering the cost of app development and software support, while our franchisees have the ongoing cost rolled into their in-store POS packages from

our provider. “We trade in a competitive environment, both out of street trading sites and shoppingcentre food courts. Customers have a wide array of options, and our substantial full meal is priced carefully to provide value for regular patronage from a wide customer demographic while balancing the needs for franchisees to flourish in their business.” For Soul Origin, Mavris says options have been kept to around $10 to make the offer affordable. “We know our average customer is returning about once a week, which is higher than all our competitors. By offering a nutritious, quick meal option we can appeal to a wide demographic of busy Australians trying to eat more mindfully.”

CONSTANT EVOLUTION With the ever-changing nature of health trends, which models will stay profitable? “Our in-house nutritionist is constantly evolving our menu and incorporating the latest health trends,” says Freshii’s Damjanovic. “Yesterday it was kale and quinoa; today it’s turmeric and coconut milk, and we’re excited for what’s next. We like to think of ourselves as the healthy fast-food version of Zara’s fast-fashion retail concept. “We know that consumers are more

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INDUSTRY SPOTLIGHT aware than ever about what they eat. This awareness will only continue to grow, as will the demand for restaurants that deliver not just healthy options, but menus driven by health and nutrition.” Meanwhile, Healthy Habits is completely revamping its business model and menu offer to address healthier alternatives. “We follow international trends and ‘localise’ them so as to ensure we are always evolving and amplifying our menu,” says Gordon. “As such, our ‘grab and go’ range will feature nutritional panels outlining exactly what is in the products, alongside key benefits such as being gluten free, vegan or paleo.” Spud Bar’s Jones says healthy food is not a fad but will continue to grow in popularity throughout Australia. “This in turn provides trade opportunities for franchisees in our expanding brand. Profitability is improved as we work with new supply-chain partners and increase our buying power in the markets with our growing network of store locations.” 

Brand

Subway

Fruit and vegetable

Top Juice

SpudBar

Liv-Eat

Soul Origin

Raw Energy

Le Wrap

Low sugar

Initial Investment

Support

(salad range)

$200,000 to $380,000

Ongoing support: training, operations, marketing, public relations, customer service, leasing, legal and R&D.

$360,000 to $600,000

Training, ongoing operational support, marketing and admin support.

$230,000 to

"Three weeks' training, ongoing support."

4 to 6 stores across WA,

$290,000

$250,000 to $550,000

Fitout, training, marketing.

Five stores this year, another 10 next year.

$350,000+

Training and ongoing support.

To reach 100 stores by 2018, focus: VIC, SA and WA.

$350,000

Ongoing operations, HR, marketing and finance.

Eight stores each year for next three years.

$245,000 to $320,000 + GST

Training, marketing, product development.

Five stores this year.

Fitout, training, marketing, business development, ongoing support.

10 stores across Australia.

Training and set-up support.

20 stores throughout Australia this year and next

Low fat

Gluten-free options

Healthy Habits

$150,000 to 250,000

Freshii

$280,000 to $350,000

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Expansion

New franchisees enter the system via an existing location.

Store openings this year are planned for NSW (5), ACT (1), VIC (3) and QLD (2)

ACT, QLD in 2017

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INDUSTRY SPOTLIGHT

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As online retail giant Amazon moves closer to Australia’s shores, we explore the profitability of the bedding sector and the competitive advantage franchises can offer.

ncreasing external competition, particularly from department stores and pure-play online retailers, has challenged the bedding industry’s revenue growth and lowered profit margins over the past five years, says business intelligence company IbisWorld’s Mattress and Bedroom Furniture Retailing in Australia 2016 report. Domestic economic uncertainty has also negatively affected consumer sentiment, but despite this challenge household discretionary income is expected to keep growing this year, supporting the industry. Industry revenue is expected to increase by an annualised 1.7 per cent over the five years through to 2016-17, to reach $2.2 billion. Inside Franchise Business has discussed the market with bedding retailers Bedshed and Snooze...

1. HOW HAS COMPETITION FROM DEPARTMENT STORES AND ONLINE RETAILERS AFFECTED YOUR BUSINESS? B: Looking at mattresses online means you can’t lie down and feel their comfort and support, and one size certainly doesn’t fit all in bedding. At Bedshed, we have been investing in refitting our stores to really engage with our customers. The internet and department stores cannot offer the specialist service to match that of a bedding store. S: A bed is used on average for seven years, so consumers need to try it before buying. However, Snooze is in the process of developing online purchasing for customers to complement the in-store experience.

2. WHO IS YOUR TARGET MARKET? B: With people needing to change their mattress every seven years, we find there is always a demand for mattresses and bedroom furniture. This is just one reason why Bedshed franchisees have busy stores and succeed. We have found that women 25 years and

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INDUSTRY SPOTLIGHT

older often have the most influence over purchase decisions. S: Our target market is busy mums in areas with new homes.

3. HOW DO YOU MAINTAIN A CUSTOMER BASE AND ENCOURAGE LOYALTY? B: People skills are vital in our industry. Our most successful franchisees are exceptional at building trust and loyalty, both the people around them and customers. They really invest in getting to know their locality and what it is their customers want. We offer bespoke training to ensure our franchisees have the best possible chance of maintaining customer loyalty and trust .

4. DOES YOUR BRAND OFFER EXCLUSIVE MERCHANDISE? B: Bedshed certainly offers exclusive merchandise. We have a new relationship with luxury bedding manufacturer Kingsdown, with Bedshed starting to sell its full range of ultra-luxurious mattresses from May. This new supplier relationship is exclusive to Bedshed.

Looking at mattresses online means you can’t lie down and feel their comfort and support, and one size certainly doesn’t fit all in bedding.

S: Many of the products in stores, including beds, mattresses, bedroom furniture, children’s beds and bedding, are exclusive to Snooze.

5. HOW IMPORTANT ARE VALUE-ADD SERVICES SUCH AS WARRANTY, INSTALLATION AND DELIVERY? B: We believe that value-add services are extremely important to the network’s success. We hold regular training and development programs with our delivery teams to ensure the process is as smooth as possible.

6. HOW DO YOU DIFFERENTIATE YOUR SERVICE IN THE MARKET? B: We aspire to differentiate ourselves by fostering an open, two-way healthy relationship between the Bedshed central office and our franchisees. Our franchisees are very much aligned with where the network is heading, meaning everyone is successful. This is not the case in many franchise networks – either franchisees are not aligned, or they don’t know what is happening. We also invest a lot of time and energy into research. We’re constantly looking at consumer trends and how we can adapt and expand our strategies in response. Whether it is introducing new suppliers or revamping our marketing strategy, we’re continuously looking for innovative ways to improve.

7. WHAT SORT OF OVERHEADS CAN A FRANCHISEE EXPECT? B: We have a franchise investment calculator that helps potential franchisees compare royalty and marketing fees as well as estimate profit projection for up to 10 years. Any franchisor should give a potential franchisee the numbers they need. S: Key overheads include wages, rent and of course stock.

8. HOW IMPORTANT ARE GOOD QUALITY STAFF MEMBERS? B: Customer service in our industry is everything, so having quality people who understand this is integral. This is why we invest heavily in offering bespoke training to ensure our specialist sales teams can perform to the best of their ability ... and give our customers a great night’s sleep. S: The quality of staff in each Snooze store is imperative to the success of the business. They must be dedicated to our sales process so they can deliver the most value possible to our customers. They need to understand that everyone is different and has varying needs when it comes to sleep. Because of this, Snooze makes it a priority to research bedroom trends and introduce more innovative and technologically advanced products.

9. HOW MANY STAFF MEMBERS DOES AN OUTLET NEED? B: About four to eight staff members are needed for each outlet.

10. ARE FRANCHISEES USUALLY INVESTORS OR OWNER OPERATORS? B: More often than not franchisees are owner operators. Passionate about delivering the best possible results, most are very involved in running their store. That said, many of our franchisees report flexible working arrangements and a healthy work/life balance.

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INDUSTRY SPOTLIGHT

S: Snooze highly encourages its franchisees to work in their stores, as their involvement and commitment can contribute to success. The leading Snooze outlets are often those where the franchisee is actively involved in the day-to-day running of the business.

11. WHAT ARE THE PARTICULAR CHALLENGES OF THE BUSINESS? B: The challenges are the same most retailers face. Attracting and retaining the best people is one of the biggest challenges. We encourage our franchisees to invest in their people, as we do as well. We invite the best performers to our annual national members meeting so we can give them the recognition they deserve and show our appreciation. S: The disadvantages include not having total control of the business, brand and system, restrictions on what you can sell and how you work, and the set-up and ongoing fees to the franchisor.

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Call Patrick on 0413 649 450 or franchisedevelopment@shingleinn.com shingleinn.com MAY/JUNE 2017 | 58 | WWW.FRANCHISEBUSINESS.COM.AU

BEING BETTER

IN BEDS There are four factors that make a great bedding retailer, according to IbisWorld...

RETAILING GOODS FAVOURED BY THE MARKET Store owners who stock products that align with interior design trends are more able to stay competitive.

HAVING A CLEAR MARKET POSITION 12. WHAT ARE SOME BENEFITS OF THE MODEL? B: One of the benefits of joining a franchise like Bedshed is that you have a whole network of experienced professionals dedicated to helping ensure your store is a success. Bedshed has a proven track record and longevity in the market, with more than 35 years of franchising. We are therefore confident we’re in the best position possible to set up our franchisees for success, whether it be by helping with site selection and development, or marketing and advertising tactics. Another significant benefit of our model is that we can expand across the eastern seaboard without cannibalising our existing stores. This is extremely important, as you don’t want to be joining a network where you are constantly in competition with each other. S: Snooze has proven itself a retail success story for more than 40 years. The advantages include buying into a brand with a tried-and-tested business model and ongoing training and support. Snooze provides the store layout and design, fixtures and fittings, visual merchandising support and in-store point of sale. This ensures a consistent shopping experience across Australia.

13. WHAT WOULD YOU ADVISE POTENTIAL FRANCHISEES? B: We have three key tips: • Do your due diligence: you have

•

a wealth of information at your fingertips, so there is no excuse to not do your homework. Industry publications and social media are a great place to start. You can scrutinize any potential networks, so red flags should come up pretty quickly. Talk to existing franchisees: while you’ll never know exactly what a franchise network is like until you join, talking to existing franchisees should give you a pretty clear idea. Whether you reach out via social media or pick up the phone, try to gauge their level of satisfaction within the network. Look for a proven track record: one of the benefits of joining a franchise is that you are buying into something with a history of proven success. Look for networks with longevity in the market – you want to be putting your money in a tried-and-tested model.

S: It is important to make a measured and informed decision about franchise opportunities. Potential franchisees should educate themselves thoroughly on franchising as a business model, alongside their normal due-diligence process. There are excellent websites for franchise education, such as www.franchise.edu. au/home/topics or www.accc.gov.au/ business/franchising. It is also important to understand that becoming a franchisee entails commitment, a positive attitude, adhering to a business model, an excellent work ethic and a passion for working with people (staff and customers).

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Retailers who project a clear and consistent image of their merchandise will be more able to establish themselves as key players.

BEING CLOSE TO KEY MARKETS Stores near key target markets and associated goods retailers such as housewares and lighting are likely to have a competitive advantage.

PRESENTING PRODUCTS ATTRACTIVELY Product presentation should incentivise customers to buy, allowing them to test items for quality and comfort. 

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MAY/JUNE 2017 | 60 | WWW.FRANCHISEBUSINESS.COM.AU

Do you want to be your own boss in a business with a strong support network? Why not take control of your life and have your own business. Now’s your chance to do just that, while being part of an experienced franchise that Australian’s know and love. LeWrap specialises in fresh tasty fast food and we are spearheading the franchising sector! Jump on board with us as we grow our already established, Aussie owned brand. FRESH FOOD: Fresh food is what we’re in the business of and consumers are loving it! We specialise in freshly made gourmet wraps, plates and salads.

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INDUSTRY SPOTLIGHT

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MORE THAN JUST

THE MONEY... Buying a franchise business in the children’s services sector means you need to be dedicated and driven by a passion to make a difference.

he children's services market is quite diverse, including child care, tutoring, sports, leisure and entertainment. It is also a highly regulated industry, which brings its own challenges, writes Noha Shaheed. Parents invest in businesses they trust and tell their friends about it. To buy into the children’s services industry, you need to be engaged in the community and looking beyond the cash return the rewards of the job are more than monetary. Commonly, brands in the sector find the work rewarding, often offering work/ life balance. Many franchises can be run from home. However, most children’s services franchises must be state or territory mandated, with Working with Children or police checks to approve candidates. Considering the importance of referrals and police checking, can these franchise businesses be profitable? What kind of overheads and challenges can a buyer expect? As an insight, here is an overview of various businesses in the sector...

GOODS AND SERVICE PROVIDERS SWEET DREAMS AND GOODNIGHT A children’s services business that specialises in the organising sleepover party experiences, Sweet Dreams and Goodnight is headed up by Mel Jacobs. “Client referrals have been extremely important in the growth and success of the business,” says Jacobs. “Quite simply, mum’s talk to one another and pass on anything that makes their life easier. If something is good, they will tell everyone they know and you reap the rewards,

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especially on social media. “But if something is overpriced and/ or under-delivered, you can almost guarantee your phone will stop ringing.” Customer growth in the model depends on: • Prompt and regular communication with customers • Attention to detail during the set-up • Local area marketing • Staying abreast of trends in the community so they can be included in packages. Overheads include a reliable vehicle to carry the equipment, as well as equipment wear and tear. Jacobs says the maintenance is minimal, however, with replacements inexpensive and easy. “At the moment, the main challenge is not being able to meet demand,” she says. “Like all child-service businesses, dealing with an over-anxious parent can sometimes be interesting, but communication is key. Once you speak to them and explain how it works, reassure them that you know what you are doing, keep in regular contact and show up on time, everything usually works out well. “The only other challenge would be keeping up with the latest trends that kids are interested in, and seeing how they can be incorporated into the parties,” says Jacobs. Initial investment starts from $40,000, including initial franchise fee. The franchisor provides ongoing regular support (online and face-to-face). “You have to be prepared to put the effort in at the beginning to build your reputation as a great party provider,” says Jacobs. “The model allows you to embrace your creativity and have some fun … in somebody else’s house!” ROCK-A-BYE BABY HIRE The Rock-a-Bye Baby Hire franchise

INDUSTRY SPOTLIGHT offers hire and professional installation of baby capsules. Franchisor Danni Guerreiro says franchisees do not need any certification as full training is provided. In terms of overheads, she says that initially franchisees will be able to run their business single handedly, “though with time and organic growth of their territory, we would presume that some will need staff as well as suitable premises to warehouse their stock fleet”. Guerreiro says a benefit of the model is that margins are significantly higher than retail as franchisees can achieve good return on investment on all their stock items. “Franchisees can also easily run their business from home, eliminating the need for high rent and the accompanying wages and utility costs that come with having commercial premises.” However, buyers need to keep in mind that as the baby equipment is designed to save a baby’s life in the event of a car accident, items must be clean and safe to meet customer expectations. The initial investment is $14,990, including training, new equipment for hire, marketing (no fund), accreditation as a restraint fitter, and an exclusive territory. Rock-a-bye offers a range of inclusions in such as brand new equipment for hire,

marketing collateral for first campaigns, business cards, custom uniforms and the full support of head office and the network. Franchisees do not pay a marketing fund and are provided an exclusive territory.

LEISURE/AFTER-SCHOOL CARE CROC’S PLAYCENTRE Croc’s Playcentre, an indoor children’s play centre, has an exclusive licence with cafe franchise Muffin Break. Director Brett Aldons says Croc’s Playcentre defines its sites, either regional or metropolitan, through demographic analysis to gauge target market numbers. “Regional sites are a target at present, where occupancy costs can be a lot lower than major cities, and competition not as strong as in major cities. The key for our franchisees to succeed is having a local area marketing (LAM) plan.” As the target market is children up to nine years old, places such as schools, community centres and sporting clubs are ideal for advertising. “We also believe that exceptional customer service within the business is a major driver in traffic from year two onward. “Our most successful franchisees set

LAM targets and regularly discuss new ideas with our consultants.” Aldons says wage costs are a challenge. Other overheads include occupancy costs (rent) and COGS (cost of goods). In order to achieve profit, consultants meet regularly with the franchisees to look at profit-andloss statements and customer feedback, benchmark KPIs against group averages and discuss each store’s business plan, which is provided annually. “The key focus of the business plan is to understand the franchisee’s targets in terms of sales, COGS, wages (as a percentage of sales) and birthday-party numbers,” he says. “We have recently introduced a costed rostering system into the business as we have seen wages vary greatly among franchisees, and see this as a massive opportunity for our partners to improve profitability. “We have also launched a website with a cloud-based booking system that lets customers devise their own party and pay the deposit, which goes directly into our franchisee’s account. This saves a lot of time in store trying to sell parties, and also takes away the complication of having some franchisees that are not confident in selling.” Croc’s Playland is also moving toward having a 1800 number and employing staff

members who can be trained to upsell and service customers. “The partnership with Foodco allows our franchisees to effectively own and run two brands (Croc’s Playcentre and Muffin Break) in one system,” says Aldons. “We have one franchise agreement, one set of royalties and a team to help our franchisees grow and succeed.” Depending on landlord incentives, a franchisee’s typical investment is between $650,000 and $750,000, plus GST. This includes total set-up costs, five weeks’ training, complete turnkey set-up, opening support and ongoing business and marketing support. SHERPA KIDS Sherpa Kids is an out-of-school-hours (OOSH) care business that offers beforeand after-school care as well as holiday care. The services are run directly on school properties. MD Vicki Prout says there is a huge demand for such services. “Commonwealth reports show that in 2013 there were 100,000 more children in OOSH care (335,000) than in 2004,” she says. “Aussie mums and dads are desperate for good-quality, affordable OOSH care, so customer growth is not an issue.”

Hello Harry The Burger Joint is a funky eatery serving up generous size burgers! It's a Burger Joint, it's people’s food using best regional produce to create delicious burgers at a great price. No no nonsense fluff, just delicious burgers, icy cold craft beer served in a grungy, funky, fun branded environment.

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INDUSTRY SPOTLIGHT Word of mouth between school principals is significant for Sherpa Kids. “Volunteer-managed OOSH or outsideschool-hours care (OSHC) committees are struggling in the face of regulatory reforms that increase quality expectations but also increase administrative burdens,” says Prout. “As a result, senior educators are looking for a better way, and OOSH service providers are often an attractive option. Do a good job and solve a headache for a principal, and the word spreads pretty quickly.” As the model is syllabus-led and offers structured care provided by local communities, franchisees must plan for such running costs as wages, resources and IT platforms. “The focus is on independent local ownership, backed by central quality control and guidance. Services are provided by the franchisees but delivered by fully trained and qualified staff,” says Prout. “Activities are highly structured and aligned to complement what the children are being taught in school. “ The initial investment is $35,000, which covers ongoing training, opening support, business, admin and marketing support, set programs and the Child Care Management System software, linked to government rebates. “Understand the work involved,” says Prout, “and make sure it is something you want to do and would be good at doing. A little bit of passion will go a long way.” OLD MACDONALD’S TRAVELLING FARMS Established in 1989, the mobile Old Macdonald’s Travelling Farms franchise brings an experience of country life to

the city in an educational way. Ann Richardson, who heads up the franchise, says franchisees drive client growth through marketing, which includes electronic and social media. In terms of referrals, she says repeat business averages 88 per cent. As well as state-required police checks, franchises may need a Certificate III in Animal Care and first-aid certification. Richardson says about 40 per cent of overheads go toward such items as animal feed, fuel and vehicle expenses, electricity, wages and insurance. The concept requires that franchisees have land available for the animals. “Franchisees need to be constantly aware of a very fluid market, combined with the ability to market nostalgia with education,” says Richardson. Initial investment starts at $88,000 to $120,000, where goodwill is included. Franchisees receive 24-hour support in husbandry, administration and marketing. Richardson says franchisees need to be clear about whether an Old Macdonald’s Travelling Farms franchise suits their family dynamics.

EDUCATION BRICKS 4 KIDZ Bricks 4 Kidz offers educational programs to families and schools using Lego products and based on STEM (science, technology, engineering and maths) concepts. “The business can be profitable in regional areas, however it certainly must be managed differently to a metropolitan business,” says director Steve Bealing. “Our regional owners cover territories that can be hundreds of kilometres wide.

This means they need to be excellent people managers, and hire good people to deliver their services on a casual or part-time basis in the towns within their territory.” He says customer growth is achieved through head-office research and development designed to continually stay at the forefront of children’s interests. Staff retention is critical as well as delivering great experiences for families, he says. “Because we work with children, our business fundamentally depends on winning parents' trust. Our research confirms that up to 58 per cent of our business comes through word of mouth.” The three major overheads for franchisees are labour, advertising and venue hire, plus there are three main challenges for people considering joining the group staff retention, building a sales engine, and navigating decision-making structures in schools. The franchise fee for one territory is $27,500, excluding GST. The extra investment to launch a Bricks 4 Kidz mobile business is a further $20,000, including incorporation costs, advertising, venue hire, set-up expenses and working capital. The total initial investment to start up a Bricks 4 Kidz business is about $45,000 to $50,000. There are no training fees, and franchisees have access to administrative support, professional development and ongoing support. “We never rush candidates,” says Bealing. “It is important they steadily work their way through the decision to come on board, so they are completely committed and ready when they do so. They should take their time when considering the opportunities available so they make the

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right decision for their own circumstances.” SERIOUSLY ADDICTIVE MATHEMATICS Seriously Addictive Mathematics (SAM) is a mathematics learning and enrichment program. Director Sonja Oosthuizen says franchisees are expected to allocate a percentage of their revenue toward local marketing to drive customer growth. “Client referrals is the most effective way to the business,” she says. “We believe that one good referral is better than 10 chest-thumping advertisements.” As franchisees run their own centres, overheads include rent, utilities and other outgoings. Franchisees can work alone or employ training and administration staff. Franchisees should allow extra funds to invest in fit-out, marketing and working capital. “Other than the competitive market forces, one of the major challenges is to be able to maintain the quality of teaching,” says Oosthuizen. “This means we need franchisees who are not only passionate about teaching but also suitably qualified to deliver course content.” On top of a Working with Children check, franchisees are expected to become certified SAM trainers. Oosthuizen says profitability is maintained by meeting a critical number of enrolments. “Low royalties and contributions toward the franchisor maximise potential profitability for each franchisee. “As a business owner, you have the flexibility to work around personal circumstances and lifestyle. You can scale up the business to the point you want it to be.” Depending on location, the initial cost of a franchise is $10,000 and includes continuous development, training and support. “We urge potential buyers to do their research well,” says Oosthuizen. “They should not only ensure they are buying into a potentially profitable business, but that they believe in the product/service and that they will have the conviction to put their name and reputation behind the brand.” KUMON Kumon is an after-school learning program in 48 countries and regions. “The most successful Kumon franchisees are those who are seen as part of their community,” says spokesperson Tegan Nicholls. “A Kumon instructor works directly with the families within their community, thus positive stories of student progress play an important role in customer referrals,” she says. Overheads depend on location, venue type and staffing requirements. “Kumon also takes measures to keep costs down through the supply of free and subsidised materials,” says Nicholls. “Worksheets, which make up the prime learning materials of the programs, are supplied by Kumon free of cost. This ensures that franchisees always have the essential learning

tools needed to deliver their service. We also cover the freight of these worksheets and other materials from our warehouse. “Additionally, various subsidies are offered from time to time to support franchisees in a range of areas.” Potential franchisees must meet certain minimum requirements including a Bachelor’s degree, permanent resident status in Australia or New Zealand, a valid driving licence and their own transport. E² YOUNG ENGINEERS Enrichment programs from E² Young Engineers (ESYE) Australia combine education and entertainment to create edutainment. “The territories franchisees are responsible for are all contiguous regions with populations of 250,000, and have been researched by the franchisee and headquarters as having a significant population of children to support an after-school STEM education,” says Young Engineers sales and marketing manager Natalie Kohanpour. To expand their customer base, franchisees need to reach out to schools, religious institutions, girl/boy scout troops, community centres, summer camps and other groups involving children from four to 15 years old. Franchise marketing developers from headquarters also help drive traffic to region-specific websites using targeted social-media campaigns. Kohanpour says overheads include rent for classroom/community centre space, training, insurance, licences, legal and accounting, plus shipping costs. The franchisee pays to use the branding and materials developed by the headquarters, as well as paying royalties, depending on

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the number of programs being run. “We also dedicate a large part of our company to research and development, so programs are being developed and clients can expand their repertoire by buying these new products,” she says. “We provide franchisees with the tools and resources to grow and expand their business.” While finding quality teaching staff is a challenge, a franchisee does not need to develop their own educational products, says Kohanpour. They simply organise and lead the lessons as trained by the company. “There is a fast ROI with a relatively modest investment because there is no need to open a brick-and-mortar storefront and other costs. Hours are flexible and most work can be done from home,” says Kohanpour. Depending on the locality, the initial investment ranges from US$15,000 to US$30,000 (about A$19,572-A$39,144) for the franchise fee plus equipment. Franchisees have access to materials, business support and marketing. The concept is Israeli-born and the costs are set in US dollars. Lynn’s Learning Lynn's Learning offers tailored mathematics and English tuition based on the Australian curriculum. “We estimate that about 60 per cent of new customers come via word-of-mouth referrals, so that is an important avenue for our business,” says Lynn’s Learning business development and marketing manager Mikayla Tam. The centres are run out of school or community halls at an hourly rate. This, along with staff wages (once the centre reaches a certain size) and paper and

INDUSTRY SPOTLIGHT pencils, plus advertising, are the main costs of the business. “We complete quarterly audits with each franchisee to discuss their business, any wins, any problem areas and any ideas for improved processes,” says Tam. “Generally speaking, all our centres have become profitable within two school terms of opening, but there's always room for improvement. “For example, an audit last year found that franchisees were spending a particularly large amount of time on administrative tasks. To cut down these hours, we are in the process of creating an online franchisee portal which should at least halve the time taken to complete the tasks.” The initial investment is $20,000 + GST for a new centre, which includes training, territory and ongoing support. On top of relevant police checks, franchisees need a firm understanding of English and mathematics principles. This is tested early in the application process. “Potential buyers should have some understanding of how much they want to be earning within three, six, 12 and 24 months, and should be looking for a franchise that can support this - and even exceed it,” says Tam.

SPORTS/ENTERTAINMENT READY STEADY GO KIDS Ready Steady Go Kids is multi-sport and exercise program for preschoolers from two years old. “While metro areas can have the advantage of population density, many regional areas have the advantage of lower costs and less competition,” says director Sherrie Boulter. “In many areas it is hard to find programs suitable for pre-schoolers, which means a lot of our regional areas are

very well attended.” The two major overheads are venue hire and staff wages. “Because our child-to-instructor ratio is only 6:1, most classes are run with two staff members. All classes are run indoors so as to maximise the experience and provide consistency. This means that halls, schools and community centres need to be hired.” Boulter says it is a high-volume/low-margin business. “The greater the awareness of the program and its standing within the territory will give franchisees the best possible chance to maintain profitability.” The initial investment is about $30,000 for a greenfield site. Franchisees receive head-office support and benefit from a customer-service centre that takes bookings and payments from clients, allowing franchisees to concentrate on the business. Franchisees need a level-one coaching certificate or equivalent. LITTLE KICKERS/LITTLE RUGBY Little Kickers/Little Rugby NSW/ACT master franchisee Dan Kelland says its franchisees receive exclusive territories. Social media, local marketing, SEO from strong brand awareness in the sector, and engaging the local community is key to customer growth. While it is not necessary to have a business background, Kelland says there needs to be a passion for getting young children involved in sport and gaining healthy habits for life. “Some of the overheads include staffing/ recruitment, equipment maintenance, venue hire and stock,” he says. “As sessions run year round, customers can enrol at any point in time, providing franchisees with maximum profit throughout the year.” However, Kelland says that convincing

some parents that 18-month-old children can engage and learn soccer skills is sometimes a hurdle. “But once parents attend the classes and see what we have to offer, they are always pleasantly surprised with what their children can achieve.” Investment required is between $20,000 and $50,000 for a five-year term, with an option to renew. Franchisees receive initial training, marketing and administrative support. SOCCAJOEYS Soccajoeys is a preschool soccer program designed for children from three years old. MD Stacy Alogdellis says the model is profitable in both regional and metropolitan areas. “With the use of GeoTech analysis, we provide franchisees with data to maximise the profitability of their franchise,” he says. “The opportunity for profitability is exponential because of the growing Australian population. “The general overheads franchisees can expect are staff wages, venue hire, royalties, marketing material and equipment to run the classes.” Alogdellis says the programs give franchisees the chance to maintain a highly profitable business. Other benefits include flexible hours, days and times to run the business. The initial investment is between $25,000 and $35,000, and includes initial and ongoing training in all aspects of the business, marketing support, program and curriculum delivery, national staff-training days, on-the-ground area manager support, and a head-office contact centre. 

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INDUSTRY SPOTLIGHT

driving sales Convenience and speed are shaping the future of fast food as drive-through outlets become commonplace.

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ast-food models are moving into the fast lane, and as franchisors look to match the customer need for a coffee, snack or meal on the go, the drive-through model is looming large on the horizon. So what does it take to run a drivethrough food business? Inside Franchise Business asked some key players for their perspectives on the state of play in the market right now. See what Gloria Jeanâ&#x20AC;&#x2122;s Coffees GM Damien Zivkovich, Guzman Y Gomez GM Mark Hawthorne, Muzz Buzz executive chairman Warren Reynolds and Red Rooster CEO Chris Green have to say...

Why is this model growing in appeal? RR: People are busier than ever, and the drive-through provides the convenience for customers. As the Australian population grows, so does the number of cars on the road. GYG: Convenience is critically important for customers, and the key reason traditional quick-service restaurants have grown in popularity in recent years. MB: In a world where people have little time, meals need to be served at high speed. Drive-through is the only efficient methodology. Pretty much all the major players in the fast-food industry are

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developing drive-through methodology, and in the coffee sector this is a key element of peopleâ&#x20AC;&#x2122;s daily ritual. GJC: With the growth in the Australian coffee sector evolving to focus on convenience and coffee on-the-go, drivethrough business models have emerged as the answer for time-poor consumers seeking quality.

What are the challenges for the franchiser and franchisee? RR: Real-estate and development costs are higher for drive-through restaurants

FRANCHISE INDUSTRY SPOTLIGHT BASICS because of the fit-out and safety requirements. Your business model must be strong enough to accommodate extra development and real-estate costs. Your operating platform also needs to run efficiently during peak times and keep traffic moving. Our dual-linear kitchen design and technology platforms have enabled us to serve fresh food at pace. With drive-through, we can process orders for up to 80 cars in an hour. Drive-through involves different processes and an extra delivery channel within the restaurant. Franchisees need to invest in in-house training so their teams are prepared for the different workflow. For example, accuracy is always important but is integral to drive-through success. MB: This service sector involves a great deal of planning regarding traffic management and speed, as well as significant training and high-quality equipment. Muzz Buzz has developed technology that allows us to service customers and produce products in less than one minute. GJC: The right selection criteria must be used to secure the perfect site. The main challenges prospective franchise partners face must be that drive-through sites

rarely sit on the market for a long time. When a site becomes available there is usually a small window of opportunity for someone to secure the business.

What sort of costs are involved in setting up an outlet? RR: A Red Rooster drive-through typically costs the franchisee from $650,000 to $900,000, depending on the size. Rents vary from $100,000 right up to $250,000. GYG: The final cost depends on the location and real-estate deal. On average, opening one of our drive-throughs costs about $200,000 more than a traditional GYG restaurant. That said, the drivethrough model has a much stronger return as average unit volumes are significantly higher. MB: A full two-sided Muzz Buzz drivethrough outlet is about $380,000, and this includes total ownership of the building, all the equipment, training, the franchise fee, initial stock and site works, which will vary from site to site. GJC: The investment is more significant

than a coffee house and does vary depending on several factors including the size of the site and location.

What does it take to make a drive-through a success? RR: The key to success for drive-through locations is either car counts or household populations. Traffic drivers are usually related to work, home, shop or play. You must have good visibility and access is key. The more ins and outs the better. GYG: Three things are crucial: highquality real estate, access and exceptional operations. We have outstanding franchisees who serve quality, authentic, healthy Mexican food at fast-food speeds — up to 450 transactions an hour. Creating another channel with drive-through not only means more customers, but also another layer of business complexity. The ongoing training we provide to all our franchisees and restaurant teams is crucial to our success. MB: Above all, you need to provide fantastic service with great personality and individual interaction with the consumer.

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We are not a business that relies on talking to a pole and a faceless voice at the end of some line. Our business is focussed on making personalities and relationships between customers and our staff a key element of our success. GJC: The team at Gloria Jean’s Coffees has established a formula to ensure the location and site selection are within a high traffic-flow area and cater for the convenience of a drive-through system. The people equation in the area, local marketing, community involvement, team capability and ongoing product innovation are all also needed to deliver.

How much is technology a driver of the business? RR: There have been massive developments in drive-through technology including menu boards, speaker and headset systems, cameras and timing, and POS and payment systems. GYG: Technology is a key strategic focus of our model, from the order point and headsets our crews wear to the Summit

Speed is not just about the drive-through lane and equipment, it’s about team culture.

system that measures service times and the flow of cars through the outlet. We are always exploring new ways to leverage technology to enhance customer experience and improve efficiency. In future, GYG will leverage the existing app and our partnership with Google Zoo to develop our very own virtual drivethrough platform. The virtual drive-through will eventually combine location awareness, sensor beacons, artificial intelligence and voice ordering so customers will be able to do all their ordering through their phone and not even need a drive-through lane. MB: Technology is vital in terms of the equipment we use, the fact we use

advanced coffee machines and ovens that work at high speed. Our POS technology and apps our consumers can download to interact with our business are very important. Technology will continue to be a major factor in the development of our business.

How important is driveway layout, and what tips do you have for franchisees? RR: Drive-through layouts are supercritical. The vital points are visibility of the entrance, distance from entrance to speaker, distance from speaker to pick-up and, of course,

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FRANCHISE LICENSING AND RETAIL GROUP

Marsh & Maher are members of: The Franchise Council of Australia (FCA), International Franchise Lawyers Association (IFLA), US Commercial Service. MAY/JUNE 2017 | 75 | WWW.FRANCHISEBUSINESS.COM.AU

INDUSTRY SPOTLIGHT the angles of any turns. Higher-volume locations may need an extra order point and cash window. It is also important to have a waiting bay for customers with larger orders so as not to slow down the lane for everybody else. The biggest tip is, seconds saved equals dollars made — drive-through is all about speed. GYG: It is critical you achieve maximum throughput at peak time, and great layout helps achieve that. Franchisees should understand that investing in staffing and restaurant layout will lead to greater efficiency and ultimately increase drivethrough capacity. MB: We take total control of driveway layouts and planning as this is a very specific area of expertise. It has to be done in a safe and efficient way for both cars and pedestrians. GJC: It is important to ensure the drivethrough flow of a coffee house is optimal. This includes careful consideration of every element of the store’s layout, from the first direction sign to the order point, and ease of access for the guest.

How many ordering stations do you need? RR: Our drive-through restaurants typically have four - two for drive through and two for front counter. In busier restaurants we sometimes have a cash window, which means we need an extra register. Tablets can also be used for more flexibility. GYG: Technically speaking, you need only one ordering station to run a drivethrough, but having two significantly adds to your capacity to serve more cars in an hour and reduce the bottleneck during peak service times. Eventually, ordering stations will become less important as smartphones and devices becomes the point of order. As we continue to invest in digital, more orders will be made through the app, leveraging technologies like virtual drive-through. MB: Ordering and servicing is done at the same window, ensuring interaction between the service provider and the consumer. Our drive-through stores have a service point on both sides of our building. GJC: Ordering stations vary from site to site and the number is dependent on how

much space is available in a particular layout. However, the main idea is to ensure there is one order point and one pick-up point at each site.

What technology are you using for customer orders? RR: We are installing a speaker box with digital headsets and customer order display. We also put in the Summit timing system that times every car and benchmarks speed live across the network. In the future, we will be looking to use our delivery app and online ordering site for pick up in the drive-through. GYG: With more and more of all our orders coming through the phone, we are focussed on continually developing our app to make our customer experience even better. Our platforms give our restaurants the capability to process 450 transactions an hour (this has been known to reach 800 an hour on Free Burrito Day). MB: Muzz Buzz has an app that allows efficient service at the store. We don’t encourage people to use phones while driving, or to text orders. In fact, we do not

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take orders in this manner. We believe that safety on the road is a key factor so we will not introduce technology that encourages people to risk their lives, nor those of their passengers and other commuters.

If there is a dine-in restaurant as well, how should franchisees maximise their production crew? RR: Our POS system ensures our production crew is maximised. All orders go straight to the kitchen screens and tell the staff everything they need to know. It is also best practice to have kitchen crew members wear drive-through headsets so they can hear the customer. Using CCTV systems can also be beneficial so the kitchen staff can see the drive-through lane and front counter. GYG: Adding the drive-through channel is a challenge for restaurants and needs its own procedures and staffing. At GYG, we are lucky to have significant expertise from our management team and staff who have brought years of QSR drivethrough experience and learnings with

them to their present role.

As drive-through becomes increasingly popular, how do you ensure accurate and swift service? RR: There are two key areas to focus on for accuracy: the ordering and the packing process. At the ordering point you need to have an well-lit easy-to-read menu board, quality headset and speaker system and well-trained staff. We spend a lot of time ensuring our POS system is designed so the restaurant teams can get it right. Speed is not just about the drivethrough lane and equipment, it’s about team culture. At our restaurant support centre we are always considering the impact of menu development and marketing to our drive-through business. Our menu must comprise items that can be eaten on the go, and the preparation time cannot impact our speed. Our best drivethroughs also have one thing in common: a franchisee fanatical about speed and accuracy.

layout is critical to accurate and swift service. We maintain our standards on speed and accuracy with a combination of procedures, staffing, technology, franchisee management and leadership. We closely monitor service times and procedures so we can continuously identify ways to improve the customer experience. We never compromise on customer experience. MB: High-quality training, high-quality equipment and efficient, enthusiastic staff are the keys. Beyond high-traffic zones inside shopping centres or perhaps city malls, drive-through is the future of the fast-food business. For most consumers on the move, drive-through is, and will continue to be, a key element of their daily routine. “Beyond high-traffic zones, drive-through is the future of the fast food business.” 

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FRANCHISE BASICS

MONEY

MATTERS Do you have the money to buy a franchise? Do you know what to look for in financial statements from the franchisor? Check out our easy 30-page guide to getting the numbers right before you commit to business.

rmed with passion, enthusiasm and a capacity for hard work, you’re all set to invest in a franchise. You just need the funds. Start here with a focus on understanding all the numbers you will come across when signing up to a franchise agreement, and the best way to be finance-friendly when you speak to a bank or other lending institution.

IN THE NEXT ISSUE Legal insights • The franchise agreement • The disclosure document • Mistakes to avoid • Restraints of trade

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FRANCHISE BASICS

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HOW MUCH

CAN YOU

BORROW? Calculate the spend upfront to ensure you don’t waste time on business opportunities that are not in your budget.

ou might have your heart set on a fast food outlet but when it comes to the crunch, will you have the financial wherewithal? The first step to seriously searching for a business opportunity is to work out what you can afford. Work out what your assets are and how much you owe to get clarity on your financial circumstances. This means you can then spend the time finding out if the right-priced franchises will offer you the potential to achieve your financial goals.

ASSETS AND LIABILITIES The first step is to assess your borrowing power. Start the process by listing your assets (what you own) and your debts (liabilities). What should you include as an asset? Personal assets such as a house or investment property - the larger assets, perhaps those valued at more than $5000. For instance: • House $400,000 • Savings $20,000 • Car $30,000 • Life insurance $20,000 Total $470,000 Then you will need to deduct from the total what you owe - remaining mortgage payments for instance. • Mortgage $200,000 Total equity = $270,000 The resulting figure is your personal equity or net worth. So should you risk all of that equity to buy a business?

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FRANCHISE BASICS

HOW MUCH SHOULD YOU RISK? Tim Kilham at Lanyon Partners, says “It is worth noting that just because you have a certain borrowing capacity, say $500,000, it does not mean that you should spend $500,000. The amount that you will be prepared to spend will depend on your risk profile and a whole range of other factors.” Part of the process is to evaluate how you want to set your levels of equity and debt. There’s a danger in over-extending yourself financially, and some advisors recommend committing to at least 50 per cent of the purchase price. However that might not work for you. If you invest a smaller portion of your equity, you may end up with a lower return but safeguarding some of your net worth might suit your circumstances. Franchise accountant Peter Knight suggests caution when deciding how much to commit. “In the current market it is important not to over-stretch yourself because this will increase your stress. As a consequence this can distract you from the essential job of growing the business.” Let’s assume you don’t want to risk everything, and are just including your house and savings in the equation. Using the figures above, that’s a total of $420,000.

Then you deduct the mortgage of $200,000 and your equity is now valued at $220,000.

GETTING A LOAN Let’s take it one stage further. You want to get a business loan too. When the bank considers how much to lend, it will base the figure on the value of the house - remember that it’s the bank’s valuation that counts here and this can be lower than expected. The bank may loan up to the maximum 80 percent of the value of the house. So on a property valued at $400,000, that’s $320,000. But the bank will take the mortgage debt of $200,000 into account and that means it can offer a loan of $120,000. Add the value of your loan to your cash of $20,000 and you have $140,000 to spend. But you need to calculate working capital before you can settle on a budget limit. It takes time to build up revenue in a business, even a franchise, and working capital is the sum you will need to ensure you can trade through the early months. You will need to estimate what figure is likely to sustain your business (the franchisor can share what is commonly kept as working capital in a particular network) but let’s assume it’s $30,000. If we deduct that amount it leaves you with $110,000 to spend on a franchise. Total investment: $110,000

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RETURN ON INVESTMENT You know how much you have to spend, now you need to consider what sort of income you need to achieve a viable lifestyle and return on income. There are living expenses to add in for starters and it’s easy to underestimate these costs - above and beyond food and utilities there will clothing, holidays, travel expenses, repairs, sundries such as gifts and entertainment, perhaps school fees and health insurance. Take into account whether you will be funding these costs or whether there is a partner bringing in a secure income which can cover all or some of these expenses. You will also have to include interest and principal mortgage repayments (on the remortgaged costs), insurance and tax liabilities, and of course ongoing franchise and marketing fees. So how much should you be getting as a return on investment? Peter Knight says “The question is how much money can you make out of the business and how does that compare with how much you would like to make?” What you will need to consider: 1. Can it pay you a wage for the job you are doing in it? 2. Can it give you a return for the risk you are taking? 3. Can it repay what you have borrowed, in the term of the franchise? Work with a franchise accountant to assess whether these figures will achieve your goal, and whether you need to make adjustments to get the right return on investment. Armed with the budget and income expectations you can search within your financial boundaries for a franchise that will match your investment needs. 

• • •

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FRANCHISE BASICS

PLAN YOUR EX T EARLY IAN DONG Rucker Financial

Every business has the same goal: to make a profit. And, eventually, every owner will eventually exit their business.

hether this be in the short term, say three years, or in the longer term, say 10 years, all business owners should have an exit plan. This should ensure your personal goals are in alignment with your business goals. If you are a franchisee, it is best to start planning early - preferably at the outset. When you buy into a franchise, it is important to have an exit strategy in mind and plan for that. As some franchise businesses are only short term, having an exit strategy early is even more important. There are three main benefits to

having a formal business-exit plan: it helps protect one of your most important income-producing assets, your business; it helps maximise business value; and tax-saving strategies are put in place early to avoid nasty tax surprises when the franchise is sold. Here is a checklist of some of the things you need to consider... üü What net proceeds of sale will you be seeking to fund your retirement? üü What profitability and assets will this need? üü When will you want to transition out? üü What will you do once you are no longer involved in the business?

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üü What will be your income source after you exit? You need to consider the exit options your business offers, and how these fit in with your personal circumstances. For instance, do you sell to another franchisee? Can the franchise be sold in an open market or does the franchisor control who buys your business (and help in selling the business for you)? Another option is a management buyout. For example, a manager will take over the franchise either in full or part, and some ongoing income streams might be retained by the franchisee. You also need to know if there are exit fees, obligations and requirements upon sale. Also, can the franchise be sold, or does it terminate if you exit the business?

ASK EARLY However, these are some of the questions you should be asking when looking into buying a franchise - not when you are ready to sell. Your business may be one that will generate a high level of income and cash flow, but have limited capital growth on sale. In this case, your strategy will be to recoup your capital investment, and build up and invest enough cash reserves to fund your retirement or to take up other business opportunities once you exit the franchise. Alternatively, your business may offer significant capital appreciation on sale. If so, having a growth plan for your business can make it more attractive to a potential buyer. In both cases it is important to obtain professional advice as to the best structure to run the business through, and which tax-saving and asset-protection strategies to implement from the start. Even if your structure is not correct now, you may be able to rectify it to ensure you have a good exit plan. When you are seeking a significant capital payout when exiting the business, it will be necessary to have a good idea of the value of your business as you are going along. This will need professional help (business owners tend to overvalue the worth of their business). Your exit plan will also take into account the possibilities of unexpected contingencies such as no longer being able to work in the business because of illness, death or other unforeseen circumstances. Adequate death and disability insurance needs to be in place, or a plan that can be implemented if these situations arise. So, set your goals and plan your exit. Having an end game means you can work back and pick the right business for your own personal needs. 

FRANCHISE BASICS

A MEASURE

OF SUCCESS Why seeking expert financial advice makes sense.

hen someone makes the commitment to invest in a new business venture, it is no surprise they like to have back-up. Few of us make big decisions solo, and seeking help to evaluate an opportunity or confirm a decision makes perfect sense. A study last year showed that franchise buyers are as likely to seek advice from friends and family as from legal and financial advisers. The Asia Pacific Centre for Franchising Excellence survey also showed that while more than a third of potential franchisees seek expert advice, they are reluctant to pay for it. Almost 40 per cent of franchise buyers completing the survey say they avoid paying accountancy fees. The research also showed only a cursory commitment to obtaining advice: if franchisees were paying the sums they quoted for advice, they were not paying enough for detailed feedback. Seeking appropriate financial advice from franchise-experienced professionals is just part of thorough due diligence. With the benefit of hindsight, 69 per cent of the survey’s respondents believe they would have benefitted from better due diligence before buying their franchise. While paying for advice can seem like another unnecessary cost amid so many

expenses in the researching and purchasing process, key decisions need to be considered, and it pays to seek advice from professionals who understand franchising, says Franchise Council of Australia CEO Damian Paull. “Having the right advice and ensuring you understand the rights and obligations arising from the purchase of a franchised small business is critical to the ongoing success of the franchise relationship and the expectations inherent in franchising,” he says. Getting it wrong can be costly. Finding a franchise-friendly accountant who recognises and can deal with the nuances of the sector will make a difference. Accountants will review: • The structure of the franchise business • Whether your business should be a company, partnership or trust • Taxation requirements • GST • Risk management • Capital gains tax. Your accountant’s job is not to rubber-stamp what you present, but to play devil’s advocate. You need a good franchise accountant to spot any holes and discrepancies in your business proposition. The accountant will consider how the business works, take into account any franchise obligations such as buying equipment and franchisee fees when forecasting profit and loss and cashflow,

Seeking appropriate financial advice from franchise-experienced professionals is just part of thorough due diligence.

and check whether there are any reporting requirements - to the lender or the franchisor, for instance. You should expect your accountant to evaluate the purchase price and other costs you have to commit to, and give guidance on whether the price is fair or overpriced. An expert eye cast over a franchiser’s financial submissions and statements can bring to light any anomalies and concerns, so investing in professional advice will provide valuable insights that could make the difference between a loss-making venture and a successful franchise. 

MAY/JUNE 2017 | 86 | WWW.FRANCHISEBUSINESS.COM.AU

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FRANCHISE BASICS

STA NDI R E D N G N

E NUMB

S R E

Franchisors have financial figures at their fingertips that can help you make the right decision about buying a franchise.

DARRYN MCAULIFFE CEO, Frandata Australia

hile there is no guarantee of success in any small business, for many prospective franchisees and their advisers the franchise model has some clear advantages - a strong brand, effective initial training, ongoing support and a proven working model. As important as this financial information is, prospective franchisees should also be aware that some franchise brands may initially be reluctant to provide too much information until they are confident how it will be used. There are several reasons for this, including... 1. Franchise brands are often subjected to information requests from less-than-genuine inquirers

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FRANCHISE BASICS 2. Franchise brands are reluctant to have sensitive information fall too easily into the hands of competitors and potential competitors 3. The penalties for providing misleading information are severe, and “earnings claims” can be particularly problematic. Quality brands invest in time and processes to protect themselves and prospective franchisees from the potential consequences of unrealistic expectations. Prospective franchisees and their advisers will generally pay close attention to a range of key factors...

ESTABLISHMENT COSTS It is important to receive a full breakdown of initial costs. Clarity around the initial investment (do not forget to add a buffer for working capital, rental bonds and so on) provides a strong starting point in any due diligence, including projecting possible returns on a franchise investment. Initial costs to set up your franchise will generally include an initial franchise fee (IFF), which is primarily charged to recover the initial recruitment costs of the franchisor. The IFF may also include a goodwill component for the use of the brand. In some cases, franchisors will split out other initial costs such as training, travel and uniforms from the IFF. Estimates should also be provided around legal and other likely professional fees incurred at opening. Typically, the most significant - and variable - component of the cost to establish a franchise relates to premises, equipment and required opening inventory. It is important to go beyond the amount of each establishment fee and cost to ensure you are very clear on what is actually being provided and how it will position you for sustained success. An established franchise system should be able to predict all these amounts with a good deal of accuracy, and these establishment costs are usually provided early in the process. If not available on the website they will be generally be provided in early recruitment brochures, and can be verified in the disclosure document.

FINANCIAL PERFORMANCE For prospective franchisees and their advisers, it is impossible to complete an effective due diligence without meaningful financial information. For most franchisees, the critical inputs are sales (including seasonality and margins where applicable), franchisor costs (royalty and marketing), rent and labour.

SALES REVENUE The starting point for most budgets will be a realistic projection of sales. Established franchise brands have a significant advantage here from the historical data they have collected. In a simple example, if a franchise brand has a reasonable number of units across Australia and every unit is using the same (linked) point-of-sale system, the franchisor can develop a very clear picture around average sales turnover and peak trading periods. It can also use this data to identify unusual trends that may warrant extra field support or other measures. To get things started, questions can be phrased in terms of average sales turnover, plus higher and lower performing units. Other useful questions and insights will come from the franchisor’s ability to share and explain any seasonality in trading results. Rather than asking for assurances, this line of questioning merely seeks to understand what the franchisor should know and be prepared to communicate.

ONGOING COSTS ROYALTY FEES Royalty fees are generally either a percentage of turnover or a flat rate, and are effectively an ongoing share of revenue paid to the franchisor for use of the brand. Royalty fees can vary greatly, and the question of what it covers is again of relevance. The frequency and quality of field support is one good component to explore. MARKETING FEES Most brands will also charge a marketing fee or levy that is used to centrally promote the brand for the benefit of all franchisees. Franchisors have significant obligations around the collection, deployment and reporting requirements of these funds. A requirement for a minimum investment dedicated to specific local-area marketing initiatives is also common. RENT When premises are involved, rent is a significant cost for franchisees but can generally be budgeted for with some certainty. It is important for franchisees to also have a clear understanding of what they may be exposed to later in the term, with any refurbishment or relocation costs that could apply. The franchisor’s experience in site selection and their support managing both the initial negotiation and ongoing issues with the landlord can be invaluable for franchisees. In some cases the franchisor may take the head lease and sublet to the franchisee.

LABOUR Labour is also a significant cost for many franchisees, with the burden compounded by penalty rates and an increased focus on compliance costs. Effective rostering and the owner’s commitment to working in the business will usually have a large impact on the financial outcomes for any small business, and franchising is no different. Initial labour costs can be particularly hard to estimate in greenfield sites with their absence of sales and customer traffic data. This can make it difficult to match appropriate staffing levels to actual customer demand. However, a good franchisor should be able to provide valuable insights from their experience opening similar outlets and reviewing key inputs in the site selection process. While technically the labour costs will still be hypothetical in a greenfield site, the expected range for budgeting purposes should be far narrower when dealing with a data-rich franchise system. .

OTHER COSTS Franchise brands will generally have access to other data that enables them to monitor and support each individual business unit against a range of other expenses. In many cases the support extends to collecting and reviewing full profit-and-loss accounts, as quality franchisors look to continually identify ways to help units improve their overall financial outcomes. Of course, if you are taking over an existing outlet you should be provided with historical financial results that you and your adviser can review against the both the system’s and other general industry benchmarks.

VALIDATING THE NUMBERS A great way to become comfortable with these numbers and variables is to check them out with existing franchises. The chance to work or train in an actual outlet or with an existing franchisee can provide further reliable evidence to support the numbers. And, of course, your accountant, particularly if they are a franchise specialist, will be able to provide insights into the reliability of the numbers. Whether you are buying an existing business or taking on a greenfield site, the franchise model should deliver a superior ability to review and test data. Starting your own business is a major life decision that justifies a lot of research. A strong franchise brand can make that process much easier. 

MAY/JUNE 2017 | 90 | WWW.FRANCHISEBUSINESS.COM.AU

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FRANCHISE BASICS

MAKING

MONEY The key to a successful franchise is its ability to make a profit, which will ensure it can be sold when it is time for you to exit.

JAMES YOUNG DC Strategy

or most people, buying a franchise will be the most significant investment of their lifetime, even more so than buying their first home, as the franchise will need to provide the income to service the mortgage as well as a business loan, if one was used to fund the franchise. Imagine buying a house without looking in every room, commissioning a building inspection or researching the value of similar houses in the area. At least the same level of due diligence should be undertaken when buying a franchise, even if it is part of a successful franchise network. This is the first step in the money-making process. The motivation for every franchisee will vary: social responsibility, creating employment, doing something they love, working with their partner and/or family, being their own boss or making a difference in their community. But all these dreams will turn to nightmares if you cannot make money. Also, without a track record of profits, you will be trapped in the franchise and unable to sell. Good profitability provides future saleable value.

In many franchise networks, the average tenure is seven to eight years. It is hard to find a period in history in which we have been free of some form of economic turmoil within a seven-year span. Why, then, are people prepared to invest their life savings into a business which would not survive if revenue dropped by, say, 10 per cent?

THOROUGH EVALUATION Avoiding failure begins a long time before you commit to a franchise agreement. Given the financial and contractual nature of the franchising relationship, it is crucial that prospective franchisees thoroughly evaluate the money-making potential of the business opportunity before committing. So, what can you earn in a franchise? In the table, you can use the format to prepare a monthly, yearly and five-year pro-forma profit projection. While this is for a food business, you can easily modify it for any business. Importantly, it captures many of the not-so-obvious costs your business may incur.

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YEAR 1

YEAR 2

YEAR 3

YEAR 4

YEAR 5

Food

1,129,508

1,183,111

1,218,605

1,255,163

1,292,818

Beverages

204,905

214,629

221,068

227,700

234,531

Dessert

54,259

56,834

58,539

60,295

62,104

Salad

1,221

1,279

1,317

1,357

1,397

Total revenue

1,389,892

1,455,853

1,499,529

1,544,515

1,590,850

Food/beverage

400,289

419,286

431,864

444,820

458,165

Packaging/serviettes etc.

48,646

50,955

52,484

54,058

55,680

Total COGS

448,935

470,241

484,348

498,878

513,845

Gross margin

940,957

985,613

1,015,181

1,045,636

1,077,006

REVENUE

COST OF GOODS SOLD

OPERATING EXPENSES Administration and finance Bank fees/charges Merchant fees

1,668

1,420

1,462

1,506

1,551

Bookkeeping/accounting

8,000

18,234

18,471

18,711

18,954

Legal services

Insurance

7,000

7,091

7,183

7,277

7,371

ASIC reporting/permits/ licences

1,900

1,925

1,950

1,975

2,001

Membership fees

Total: Administration and finance

28,568

28,669

29,066

29,469

29,878

Employment Franchisee salary

60,000

61,140

62,302

63,485

64,692

Salaries/wages (staff)

368,094

375,088

382,215

389,477

396,877

Commissions

Superannuation

40,669

41,442

42,229

43,031

43,849

Workcover

4,856

4,949

5,043

5,138

5,236

Uniforms

Amenities

Training/development

Other employment expenses

1,200

1,223

1,246

1,270

1,294

Payroll tax

Total: Employment

474,820

483,841

493,034

502,402

511,948

Franchise fees and levies Royalty

69,495

72,793

74,976

77,226

79,543

Marketing levy

27,798

29,117

29,991

30,890

31,817

Total: Franchise fees and levies

97,292

101,910

104,967

108,116

111,360

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FRANCHISE BASICS YEAR 1

YEAR 2

YEAR 3

YEAR 4

YEAR 5

Telephone/internet

6,000

6,078

6,157

6,237

6,318

Software licences

Maintenance/support services

Total: ICT

6,000

6,078

6,157

6,237

6,318

Local-area marketing

13,899

11,831

12,186

12,552

12,928

Total: Marketing

13,899

11,831

12,186

12,552

12,928

206,000

216,300

227,115

238,471

250,394

ICT

Marketing

Occupancy Rent/outgoings Repairs/maintenance

5,900

5,977

6,054

6,133

6,213

Cleaning

27,200

27,554

27,912

28,275

28,642

Security services

Rubbish removal

11,800

11,953

12,109

12,266

12,426

Pest control

Total: Occupancy

250,900

261,784

273,190

285,145

297,675

36,000

36,468

36,942

37,422

37,909

Utilities Electricity Water

3,500

3,546

3,592

3,638

3,686

Gas

12,700

12,865

13,032

13,202

13,373

Total: Utilities

52,200

52,879

53,566

54,262

54,968

Lease expense

Total: Equipment lease

Kitchen equipment

Other general expenses Freight/courier/postage

General expenses

1,500

1,520

1,539

1,559

1,580

Printing/stationery

950

962

975

988

1,000

Smallware replacement

1,400

1,418

1,437

1,455

1,474

Kitchen equipment/supplies

1,800

1,823

1,847

1,871

1,895

Travel/accommodation

Total: Other general expenses

5,650

5,723

5,798

5,873

5,950

Total operating expenses

929,329

952,715

977,965

1,004,056

1,031,023

EBITDA

11,628

32,897

37,216

41,580

45,982

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The core of your business plan is your financial model, and this will get you started. Whether you are a novice or an experienced franchisee, an annual budget then monthly profit-and-loss statements in this format are critical to managing your franchise and making money. Sales are an important contributor to profits, and there are many techniques to increase sales (use the model to see what happens to bottom-line profits when you increase sales by 20 per cent). Many franchise owners believe they cannot do much about sales and think it is the franchisor’s responsibility to promote the brand and find customers. If these owners are not pursuing sales-generating activities, then sadly they are not so much entrepreneurs as workers who bought a job and should never have got into business. The most profitable franchisees are passionate about the brand and its products and services. They monitor sales monthly, weekly, daily and, in many cases, hourly with specific targets for each team member for each month, week, day or hour.

SALES DRIVERS Sales drivers include promoting you and your business in the community, sales and event promotions, customer workshops or demonstrations, product sampling, spruiking, better or deeper stock range, in-store and window and/ or mobile merchandising, coupons, home delivery, local area marketing, sponsoring community groups and networking with members, public speaking, telephone sales, Facebook and other online marketing activities, Ad Words, website and SEO enhancement, texting and database marketing. Of course, there is also training for yourself and your staff members in product knowledge and sales skills. And when traffic comes to your business by phone or faceto-face, everyone on your team is clean, well presented, appropriately dressed, instantly attentive, smiling, enthusiastic, knowledgeable and helpful, and uses a proven sales process to maximise sales. Sales can also be improved by raising prices. Many business owners are afraid to charge a fair price for the value of the products and services they provide, thinking customers won’t pay, or a competitor or internet site with a lower price will get most of the customers. Trial a price increase of a popular product or service, sell its features

The most successful franchise owners work full-time and often more than 60 hours a week in their business.

and benefits, and monitor the sales trend of dollars earned and units sold.

MANAGING EXPENSES Managing expenses is a key part of making money, and while you cannot save your way to success, careful management of every expense will often be rewarded with improved profits. You will see that some expenses are “fixed”, in that you can do little to change these from month to month, so be sure you understand what all your fixed expenses are before you commit to them. Rent is especially important, and as this expense is locked in for five years or more, you need to ensure your location and lease are right before you commit. Remember, however, that cheap rent is not often associated with the right location. Other fixed expenses may include insurance, your internet and phone plan, and monthly loan repayments or equipment finance charges. You can, however, manage variable expenses to improve profitability. The bigger variable expenses you can manage are the main contributors to profit (or loss). These include the cost of goods sold (COGS) and running expenses such as energy costs, advertising and wages, group tax and the superannuation guarantee levy, and profit drawings. These expenses will really affect profitability, so they need to be reviewed every month and monitored daily and weekly if you are to make money. Profits can be substantially improved by lowering these costs. Obviously, the price you pay for the products you buy in to on-sell to your customers will impact profits, so astute buying at the source and constant pricechecking of regular purchases can reduce COGS. Always check every delivery and invoice to ensure the right quantities are received and at the agreed price and quality. Short deliveries and substituted quality or prices can be a hidden cost.

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COST CUTTING You will note in the pro-forma P&L an expense item for your wages as a proprietor, so decide what you are going to pay yourself so you can meet your family obligations and expenses. Wage costs are a big expense in many businesses and must be micromanaged to ensure profitability. One of the key ways to make money and to reduce wage costs is for you to work the costlier weekend and public-holiday hours. These are often the busiest times, and if you work these shifts you can positively influence your team and the customer experience, thus increasing sales and profits. Never make the mistake of thinking a franchised business is a passive investment where you can just employ a manager to run the business while you are an absentee owner. This can lead to failure, so be prepared to work the long, hard hours needed for success. The most successful franchise owners work full-time and often more than 60 hours a week in their business. If you have a spouse or teenagers who can work in the business either full-time or part-time, this will reduce wages and keep expenses down and income in the family. Look at each of the expense lines and ask your family if they could help you clean, work a shift over the weekend, do the books or deliver product to clients. Don’t forget the little things - a good internet recording-and-monitoring security system can reduce shoplifting and internal theft, while turning the lights out and powering down equipment every day when closing will reduce electricity and gas costs. All these activities reduce expenses, boost profits and make you money. Looking at your bank statement is a waste of time in regard to making decisions about improving profit. Good business people ensure any excess cash is invested in driving profits higher by using cash as a capital expense to buy new equipment or as an operating expense to invest in more stock, more people or more advertising. 

FRANCHISE BASICS

R O F T N I R P E BLU

S S E C C SU

How to go about formulating a solid business plan that will help you gain the best from your franchise.

JAMES SCURR MD, Cashflow It

hile it is common to simply assume that a business plan is a necessity only because it may be needed for an application for finance, it can be much more valuable and will ultimately increase your chance of business success. I am a big advocate of a well-considered business plan. When I bought my first Boost Juice franchise in 2001, I was only 23 years old and my bank manager said I did not fit the bankâ&#x20AC;&#x2122;s application criteria. That is, until he read my business plan. Despite my young age, despite the franchise being a start-up and despite not meeting the bankâ&#x20AC;&#x2122;s application criteria, I was able to secure the finance I needed to begin my career as a business owner and entrepreneur - all because of my business plan. MAY/JUNE 2017 | 96 | WWW.FRANCHISEBUSINESS.COM.AU

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FRANCHISE BASICS

What makes a good business plan? There are many aspects to a business plan, and many uses. These include... • Explaining the critical aspects of the business and how these will ensure you succeed • Communicating all the objectives of the business to financiers, business partners, investors and, possibly, employees • Acting as a point of reference once you are trading, for monitoring your progress against the goals or targets you have set. What information should be in your business plan? Some plans will be extensive, but they have no doubt been formulated by large companies over many years. As a starting point, for new and small businesses, a plan should include the following... • The business: List the entity name, trading name, legal structure of ownership, ABN, trading location, shareholders, and a summary of what the business does. • The market: Define your target market, give an overview of the industry in which you will work, and include information about your competitors. Prepare a SWOT (strengths, weaknesses, opportunities and threats) analysis, and outline your marketing strategies. • The management team: Outline your own experience as well as that of any key partners or employees. Include previous business experience, education and training that may help the business, as well as any awards or

recognition. • Financial information: Include financial projections for the business as well as the latest financial statements in the case of an existing business. For a new business, you should also include a summary of the total cost to set up the business and clearly show how the total purchase will be funded. • Goals: You may have particular goals relevant to your business, and these can be a great way to engage your staff in the business plan. For example, a gym franchise may have monthly targets for new memberships. You may have broader business goals like aiming to be a multi-site franchisee. You could also outline your exit strategy here, too. There are many places you can go to for help in preparing a business plan. First check to see if your franchisor offers support. Some franchisors provide a business-plan template, but you still need to customise it. At Cashflow It, as a lender, we occasionally see exactly the same business-plan templates with the same projections and marketing plans. This does not instil a great deal of confidence that the aspiring franchisee has put much thought into the planning process.

TEMPLATES AND OPTIONS If you are applying for finance, your lender or broker may offer their own business-plan template. Alternatively, a simple search in Google will bring up a range of template options.

Various state-government departments provide small business support at no charge. Consider making an appointment with one of these agencies to see how they can help you. If you feel that your requirements are more complex or you want professional advice, speak to your accountant or business adviser as they will be able to help you prepare a business plan. Several points need to be taken into consideration... • Be concise: Quality over quantity is what you want in a business plan. Lenders, investors and other stakeholders do not want to read long business plans. Outline the valuable information quickly. • Be realistic with goals and projections: Do not assume that overstating your financial projections will make it easier to gain approval for finance. Lenders have access to seemingly endless data and will have a very good idea of key financial metrics. • Get the numbers right: If you are not sure where to start with your financial projections, seek guidance from your franchisor. This can be a challenging area as there are laws around making representations. If the franchisor is not able to offer enough guidance, speak to other franchisees, talk to other business owners near your business, search for industry benchmarks, or seek professional advice. • Review and update your plan regularly: For some businesses, this might be once a year, for others it might be every month. This process

MAY/JUNE 2017 | 98 | WWW.FRANCHISEBUSINESS.COM.AU

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FRANCHISE BASICS

may reveal gaps that have developed and need to be addressed through updated strategies.

TWO OR MORE...

Your business plan is your own personal blueprint. It is documented evidence that you understand how the business will work.

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Finally, if you are keen to put in a little extra work, a tip I have used with all my businesses is to prepare two (or more) business plans. This may seem crazy, but I recommend this tactic because I believe your business plan should be tailored specifically to the audience that needs the information. For example, you may want to articulate a highly detailed map of how you are going to achieve everything in your business. It will be referred to and updated regularly as a tool for implementing your plan in the business. This may be too much detail for a lender or investor. The information you provide to a lender might be more concise, tailored toward the financial performance of the business and showing how you will be able to make good on your loan commitments. Write one master plan with every detail in it, then tweak the contents for secondary plans to ensure you include the information that is most relevant to a particular audience. Ultimately, your business plan is your own personal blueprint. It is documented evidence that you understand how the business will work, how you will make money and what will define your success and happiness as a business owner. Most importantly, do not write your business plan then file it away, never to be looked at again â&#x20AC;&#x201C; implement it. ď&#x20AC;ź

FRANCHISE BASICS

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SETTING

TARGETS Franchisees need different approaches when running a retail or mobile service, but the common bottom line is achieving the right level of sales for success. By Kate Groom, SmartFranchise

ne of the most important questions to ask when you are assessing a franchise for purchase is what level of sales needs to be achieved so you can pay your bills and make a decent living. In my experience, it is not wise to assume sales will always be constant and strong. As the business owner, it is your job to know the target and work in a focussed and deliberate way to build the business. That is not to say you should ignore other important aspects of the business. For instance, your accountant might tell you to keep good records, and the manager might advise you to control your costs. They are both right, but their advice does not matter much if there is not enough income to keep the business afloat. So when you are researching a franchise, it pays to think carefully about the sales targets you need to achieve and how you will do that. Financial elements can be confusing until you have spent time in the business.

When you start your franchise you’ll probably be told about all sorts of targets. For instance, there may be targets for wage costs and cost of goods sold. There may be target response times for inquiries, and your accountant will probably be asking you for information to help keep the books up to date. It’s a lot of stuff to get right and leads to the question of priorities. Of course, many factors matter in business. Controlling costs and keeping good financial records are both important. But, especially in the early days of a business, it can be helpful to consider the few critical things that need attention.

FOCUS ON SALES If there was just one thing to focus on right at the start, I would argue that it is sales. That is because sales do not “just happen”, even in a franchise. Somebody has to do something to draw in a customer then keep them returning.

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FRANCHISE BASICS You may have a brilliant location for your retail franchise, but customer service will drop if you don’t have the right staff rostered at the right time. As a result, sales will be less than they could be. There may be massive demand for your mobile service, but you won’t be able to pay the bills unless you convert those leads to customers - and keep them. There are two things you specifically need to be clear about: • What sales does the business need to achieve each month, week and day to pay the bills and provide you with a decent income? This is the target you need to meet. It is a number you really need to know. • What must you and your team do to generate sales for the business? This is the “how”, and it depends a lot on the type of business. Retail and mobile businesses share many aspects, but there are also distinctions worth noting. Whether you own an ice-cream shop, a beauty treatment spa, a pool-cleaning franchise or a photography business, you must attract and serve customers in order to succeed. The revenue you make will be determined by the number of customers and the amount each of them spends. There are some important differences between how sales arrive in a retail business compared with a mobile business, however.

PRESENTATION VITAL In a retail business, potential customers go past your store and, you hope, go in to make a purchase. How can you ensure a sale? You certainly will not make the most of an opportunity if your presentation is unappealing or your staff distracted. By contrast, high, regular sales are more likely if a business is well presented and has attentive staff members who know the products and provide an efficient and courteous service. Firstly, you need to focus on daily sales figures, and how sales are tracking compared to your monthly target. Secondly is the “how” - what can you do to ensure your team delivers excellent service with a smile? Spend time with a franchise owner who has a great team and find out specifically how they keep their customer service top notch. Allocate time each week to refine your own sales skills, and coach your team.

TIME FACTOR When it comes to a mobile business, you could be the big roadblock to achieving sales targets because you are the one generating the business and doing the

Sales do not “just happen”, even in a franchise. Somebody has to do something to draw in a customer then keep them returning. work. The danger is that you become consumed with this without spending enough time to nurture leads or existing customers. You could easily find your week full yet not generating much money. The keys here are to know your monthly and weekly sales targets, and to allocate time for selling activity each week. In turn, this means being efficient about the time you spend with your customers. Know how long to spend on a job, and stick to that time. This will leave you time for marketing and selling, which are essential

if you are to survive. Plan your week so time is allocated for customers and for marketing and selling activity. Each week hold yourself to account on the amount of time you have spent developing your business, not just the hours you have spent servicing clients. Many factors contribute to having a successful franchise, but it all starts with sales. And no matter how good the location or how hot the brand, it is up to you to make sales happen. 

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FRANCHISE BASICS

WEIGHING THE OPTIONS When investing in a franchise, is it better to choose an existing business or go with a brand new site? It is a matter of balancing the risks... By Craig Ridley, RSM Australia

o you have made the decision to invest into a franchise business system rather than launch an unsupported business, and now there is a further decision to be made: invest in an existing business or choose to open a new location?

As always, there is no right or wrong answer. Hindsight will certainly be the best judge of how good your ultimate decision proves to be, but there is no need to rush blindfold into making a decision.

The choice to invest into a franchise rather than go it alone is often made on the basis of risk, return, convenience, security and support. When you buy a successful, established franchise outlet you have the benefit of history to assess the ability of the franchisor to deliver. Opening a new business means the risk of your investment would be higher. While it is vital you follow a full due-diligence process in any business investment decision, it is even more important when looking at a business

you are starting from scratch. Having historical financial performance data can give you great comfort when assessing an existing franchise. Without it, you need to make many more subjective assumptions, which again adds more risk.

GREENFIELD BENEFITS To offset this greater risk, there must be some benefits in investing what is termed a greenfield or brand-new site.

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These may include... • Not having to pay goodwill to the owner based on the business growth. • You have the opportunity to build a business from the bottom up • You can make your mark in the community • You won’t inherit bad practices and/ or staff • Your fit-out and equipment will be new and up-to-date. It might well be argued that each of these same points can be a reason to buy an existing business: • Properly valued goodwill is proof the business is being run profitably and sustainably • You might inherit the positive reputation developed by the previous owner • Existing sites have a customer base, and the franchisor will believe they have negotiated the best possible lease on your behalf • Fit-outs and equipment need to be maintained to agreed standards and should always be fit for purpose (any deficiencies would normally be reflected in the business valuation so you pay only for what you get) • The existing staff member are versed in the systems and understand the customer base so you can start working from day one with few problems So, depending on your risk profile and your passion, either option may be right for you. There are several key points you need to focus on in order to reach a decision.

NO GUARANTEE Firstly, you must be fully confident in the ability of the business to continue making money. While past performance can be a strong guide, it is no guarantee of future success. You need to fully understand the cashflow needs of the business, not just its profitability – seasonal fluctuations and lack of start-up capital can be terminal for any business not properly prepared. While it seems like a cost at the time, you must commit to a professional due-diligence process that includes accounting, business and legal advice to ensure you have all information available

before you make the investment decision. Also, before committing to the investment, approach your bank to approve the franchise agreement and the purchase price for lending purposes. You must fully understand the operational, geographic, marketing and financial restrictions included in the franchise agreements, and must also fully understand the costs and risks of exiting the franchise system and property leases should the business prove unsuccessful. You must be comfortable in the franchisor’s ability to provide the support and systems you need; and you need to fully understand the disclosure document and franchise agreement - and I mean every word. Ultimately, you will balance the risk and return inherent in each franchise system and make a decision that best suits your goals and needs. It is then the hard work will really begin. 

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Commit to a professional due-diligence process that includes accounting, business and legal advice to ensure you have all information available before you make the investment decision.

FRANCHISE BASICS

you get what you pay for. Use science rather than emotion when buying a franchise business. The key is to find out why the business is on the market, especially if it is being sold at a fire-sale price. A business’ earnings history typically reveals why it is being offered at a price too good to be true. Companies that have had repeated losses usually sell at fire-sale prices. Unable to command any goodwill – usually derived from three-plus years of good EBITDA history – these businesses base their sales price only on the value of assets such as plant, equipment and stock.

DUE DILIGENCE

BE WARY

OF BARGAINS If you’re thinking of buying a franchise being sold as a going concern, be sure you are careful with due diligence - the business could have true turnaround potential, then again it could be a lemon. DAVID JOHNSTON Partner, Business Advisory, RSM Australia

mploying more than 460,000 people and contributing an estimated $144 billion to the Australian economy, the franchise world is certainly big business, yet high-profile casualties like Pie Face, which allegedly grew too quickly, or Video Ezy, which was broadsided by digital technology, show that not even franchises with household brand names are immune from failure. Australian Bureau of Statistics data suggests that more than a third of SMEs

fail within their first three years, so it is hardly surprising there is no shortage of companies, including franchises, up for sale with varying degrees of financial distress. Many of the 60,000-plus businesses for sale across Australia have had sufficiently strong earnings over the previous three years to attract buyers willing to pay above the average EBITDA (earnings before interest, taxes, depreciation) multiples. However, people looking to buy a business at a bargain price should tread carefully - typically,

To avoid financial disaster, a firm's assets in this case will often be priced far below their fair market value. While that may make for an attractive starting point, the next step is to perform due diligence on the losses to ascertain if the business can be turned around. For starters, assess the dynamics that led to the company being run down, and why the owner wants out. There is a big difference between an owner who simply wants to retire rather than build up a business before selling, and a lossmaking business or one that the bank is foreclosing on. Similarly, losses may be more about the owner’s ill-health or other personal considerations than the business per se. By having your accountant do due diligence on the company’s books, you will gain a good idea of what wages and/ or any profit the owner has been taking out of the business. This exercise will also reveal the company’s strongest-selling stock items. It is equally important to have the franchise agreement scrutinised by your lawyer. It should clearly spell out what you receive in buying power, marketing, training, back-office support and geographical exclusivity in return for the fees as a percentage of your income, plus any flexibility you have to act independently. Then there is the lease document. Look for at least five years within a prime location before expiry. Often overlooked is the impact the previous owner’s absence will have on earnings, how long they are willing to stick around before handing over, and whether they are willing to extend finance. A turnaround strategy takes time, but you should aim to earn back your money within three to four years. Any business must deliver more than just a wage, and ideally you should aim to achieve a return on investment of at least 15 per cent for the risks you are taking. 

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FRANCHISE BASICS

FINDING FUNDING You are ready to buy a franchise but need more money. There are options for funding, all with the advantages and drawbacks.

btaining a loan of some type to fund a franchise purchase is quite common, even for franchise buyers with savings. The good news is that there are increasingly diverse ways to find financing to get you over the line. Traditionally, if you need a loan you go to the bank. While that is still a popular way to access extra finance, the banks have tightened their lending practices since the GFC took grip of the Australian economy. As a result, alternative paths to source business funding have emerged. Some franchisors use third-party lenders to offer vendor-finance; others see manage-to-own options as a way to encourage good candidates to build up experience and financial worth before taking on franchise ownership. There are also new names on the banking scene that see an opportunity to bring in extra business by supporting franchise investors. Of course, there is always the family option - turning to parents or other relatives to provide financial back-up is still a popular choice, particularly for younger franchise buyers. Here is a closer look at the optionsâ&#x20AC;Ś

BANKS The big four banks have worked in the franchise sector for years, and some have a specialist franchise division. Check with the franchiser to see if they have any particular associations with a bank, or a banking contact who can steer you through the process. Major banks offer improved lending through a process of accreditation, which typically lets a potential franchisee borrow up to 70 per cent of the purchase price based on the reputation of the franchise system and the value of the franchiseeâ&#x20AC;&#x2122;s business. Banks accredit franchise brands when they are comfortable about what that brand stands for, and the processes and success of choosing franchisees, training them and selecting sites. While accreditation makes it easier for a franchise buyer to gain access to capital, few franchised brands are accredited. However, that does not prevent the bank from supporting your business plan and providing finance. Each bank has a different process to evaluate the offer, and it is preferable to deal with a banker who is knowledgeable about the franchise sector. To find out more about what you can do to be bank-friendly, turn

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to page 114. It will be your personal decision as to which loan will suit you best, whether remortgaging the house is the most appropriate option, whether you want a loan with fixed or flexible repayments, or whether you want to take out a business or a personal loan.

VENDOR FINANCE Franchisors who have introduced vendor finance can provide a loan, either through the company itself or through a thirdparty financial business. The franchise buyer may need to pay a deposit to secure a loan. One advantage of this method of funding is flexibility - the franchiser may be able to provide finance when a bank cannot (so it works if you have poor credit rating, for instance), it may accept different or lesser assets, or it may negotiate the terms. Repayments might be made as a monthly premium on top of the standard franchise fees, or delivered as profits once the franchisee has reached an agreed performance level. However, franchise buyers need to be

FRANCHISE BASICS

aware they could find themselves overcommitted financially because such loans can demand inflated repayments.

These institutions may provide speedy access to capital or competitive loan repayments, but need to be reviewed as carefully as a traditional bank loan.

MANAGE TO OWN Some franchise brands are broadening their expansion on a manage-to-own basis. The franchisor essentially funds a franchisee as it would a company-owned outlet. The manager pays off the purchase through the business’ profits. Clearly, the advantage for a franchise buyer is the opportunity to buy without capital investment and to build up financial equity through sweat equity.

ALTERNATIVE INSTITUTIONS Second-tier banks and loan providers can deliver finance options that might help the outright purchase of an existing franchise, or provide funding for specific capital investments or leasing options such as equipment or a vehicle. As with vendor financing, this choice might be more appropriate if you lack some of the requirements put in place by the banks.

FAMILY AND FRIENDS Franchise buyers often access parental savings or some much-needed capital from a bigger group of relatives banding together. This can seem an easy option if it’s available, but there are inherent challenges in co-opting the family into your business investment. In just the same way as a bank can call in the debt if you are not making repayments, your family will not want to see its investment dwindling. It is essential there are clear terms set out in a legal document to ensure each party’s interests are protected. It is wise to consider there may be social and emotional outcomes to accessing family money, and what that means for the family overall. Going into business with another investor, perhaps one who has the funds you lack, is a second option. This could be a friend, family member or a business angel. Again, clearly laid-out expectations

and rules of engagement will ensure this funding process goes smoothly. It might be that when you pull your financials together, you actually adopt more than one of these funding options - perhaps boosting capital with a one-off family investment, seeking a business loan from the bank and securing equipment through a lease managed by an alternative lender. Sometimes the path to sourcing finance is not smooth, and although a franchise buyer may end up with just enough for the purchase, it is worthwhile reviewing the situation if applications are not immediately successful. Financial institutions and the franchisors want any business initiative to be successful, and you don’t want to be struggling with repayments or find yourself over-capitalised. Of course it is expected that you will be providing a chunk of the cash yourself. Franchisors and any financial institution want to see your commitment to the business in clear, monetary terms. What the sector commonly refers to as “skin in the game” adds to your determination to make the business work. 

Franchisors who have introduced vendor finance can provide a loan, either through the company or a third-party financial business.

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FRANCHISE BASICS

FUNDING

FUNDAMENTALS Top tips to help you get the banks on side when you are seeking funding to buy your franchise. By banking and franchise executive, Maria Robinson.

ou have found the perfect franchise system in an industry you love, you have conducted your due diligence, developed a business plan and cash flow, and have been approved for the franchise system of your dreams. You think the hardest part is behind you. But you now need to set up your company, obtain finance and sign the franchise

agreement. It seems simple - until you speak to your lender. Your lender starts talking about serviceability, LVR, your experience in the industry, franchise terms, lease terms, amortisation, projections, benchmarking … your head starts to spin. The good news is that you don’t need to worry about all these technicalities. Feel free to ask them to speak in plain English and leave out the jargon. They won’t be offended, it is a polite reminder

for them that not everyone is familiar with lending terminology. There are some basics every lender will want to know. Here is a list of what you will need to hand to them… • Your business plan, even if your franchisor did not require you to develop one. Do a business plan anyway, for your own due diligence and for your lender. The business plan outlines how you intend to run and grow your business.

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FRANCHISE BASICS

• Your cash flow projections. These are imperative as they indicate how much it will cost to run the business as you describe in the business plan. Cash flow projections will also tell you how much capital you need for setup and running costs, tell you when you will break even, tell you when you will be able to repay the investment capital, and set out your monthly cash position. The figures will also show your lender how much you intend to pay yourself as a salary. • Your resume. Your lender will want to know what experience you have had in running a business, your industry experience and your skills. A resume is the easiest way to provide this information. • Your household assets, liabilities, expenses and other income. The lender will want to know the full financial situation of your proposed business as well as of your household. If you have other business or investment interests, provide full information on these as well. • If you are buying an existing business, you will generally need two years of trading figures and financial statements for the business. • Details of any security or collateral you may be able to offer, such as property, can help secure the loan. • Have all your franchise documentation ready, preferably in soft copy. The lender will need to review the franchise agreement, the lease and other documentation, whether it is an accredited

franchise system or not. Your lender will collect additional information about you such as an ASIC search and a credit history report. If you are aware of any issues regarding your ASIC or credit history such as defaults, liquidators being appointed for previous businesses and so on, it is important that you raise and discuss these with your lender right away.

PRESENTATION IMPORTANT How you present yourself is also important. Here are some pointers on good preparation and presentation… • Complete application forms in full – do not leave out any information. • Have supporting documents ready to give to your lender as evidence of all the information you have provided in your application form, including bank statements, payslips and rates notices. • Ensure there is no conflict between the information in your application form and supporting documents. • Answer openly and honestly any questions your lender asks. Remember you want to borrow money, and if you appear hesitant about providing information or documentation your lender will have concerns that you are trying to hide something. The individual you are dealing with at your lending institution is generally not the person who will approve your loan. If you

can make their life easier, they will be able to better represent you to the credit team that makes the approval. You need to take into account several things that lenders love and hate... LENDERS LOVE IT WHEN: • You invite your banker to contact your accountant directly • You provide all required paperwork quickly • You are organised • It is clear you know what you are doing (for example, you understand your corporate structure, you know who will be a guarantor to the franchise agreement, and you understand your franchise terms). LENDERS DO NOT LIKE IT WHEN: • They need to chase you for information • You provide conflicting information • You appear to not understand what you are getting into • You are not open about your personal and business details How smoothly your loan application progresses will be impacted by how organised you are, the quality of information and documentation you provide and your level of understanding of the business you are buying. If you feel that you are doing everything right but you are receiving poor service, ask to speak to the manager of the lending institution. 

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FRANCHISE BASICS

HOW TO BE ON THE

MONEY When buying a franchise, it pays to keep a clear head when it comes to the financial aspects so as to avoid costly mistakes. By Peter Knight, SmartFranchise

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hinking about buying a franchise can be exciting, and it is even more exciting when you are passionate about the brand - but it pays to keep a clear head when it comes to the financial aspects of your decision. It’s fairly common for franchisees to be unfamiliar with the terms and language bandied about by accountants and franchisors so that can be a challenge even before you start in the business. Franchisors might provide a toolkit for working the figures, but not every franchisee will use it the same way which means the expected figures will be different. There can be a disconnect between the numbers on the page or the screen, and making sense of them. It pays to find a franchisor who doesn't overload with numbers, but provides key figures for franchisees to work with:

• • • • • •

Sales compared to budget Gross profit Net profit Bank account Outgoings Accounts receivable Once you’ve made your decision, and you have signed up to an exciting new future, it's important to get control by understanding the business you are operating. It could happen that down the track, when you look at the business plan, you realise somewhere along the line things have slipped; now the income is too low and your financial commitments too high. When franchisees don't see the financial commitments upcoming things will go awry. So how can you avoid franchise failure and stay on track in your new business? It all starts before you buy... Here are four tips to ensure you avoid

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big money mistakes that can significantly impact the running and success of your franchise...

THAT THE NUMBERS 1. CHECK STACK UP This is one of the most important parts to get right. It is critical to check that the numbers stack up before you sign anything. If it looks like the business may not make money, there’s little chance it will improve once you’re under way. In the excitement of honing in on a franchise to buy, many prospects can “fall in love” with the brand. They are convinced it is the right one for them. Unfortunately, the financial side may not stack up as well as they could wish. The best way to deal with this is to obtain a pre-purchase review. This is an independent review of the business

FRANCHISE BASICS

The best time to set your budget is before you actually start your business, but in our experience this is rare. by a franchise accountant, similar to commissioning a building and pest inspection before buying a house. A pre-purchase review checks out the numbers to ensure the business can give you the return you need. It provides a clear estimate of the costs to run the business. It also shows the level of sales you need to cover these costs, including your loan repayments. It is an important part of your due diligence and provides the basis for a sound financial decision.

BORROW MORE 2. DONâ&#x20AC;&#x2122;T THAN YOU CAN AFFORD Most people need to borrow money to buy their franchise. If you are in this

category, you need to be careful about how much you borrow. Even though banks have tightened up their lending policies, if you offer the right level of security you can still borrow money to finance a business purchase. In some circumstances, you can borrow more than the purchase price of the business, which gives you some working capital to cover the day-to-day expenses of running the business. The danger here is that you incur more debt than the business can repay. This puts you in a high-risk position because you will then need to repay the loan from income sources outside of the business. Extra risk arises when interest rates go up, putting you under more strain to repay your loan.

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The best approach is to borrow only the amount you actually need. You should then cross check this against the profitability of the business to be sure the loan repayments can be serviced. If it seems too tight, you may need to provide a larger deposit when buying the business.

A BUDGET FOR 3. SET YOUR BUSINESS BEFORE YOU BUY Setting a budget is a fundamental tool for every business owner. It need not be difficult. A budget sets out what you expect the business income to be and what expenses are expected. When you deduct the expenses from the sales, you will be left with the profit you can expect to receive. The best time to set your budget is before you actually start your business, but in our experience this is rare. Some

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FRANCHISE BASICS

If it looks like the business may not make money, there’s little chance it will improve once you’re under way.

people have told us it is too hard, or they don’t know how to do it, or they have no idea what the future holds. When you think about it, however, there actually are some numbers you can predict with a fair degree of certainty. For instance, consider your rent. By the time you are into your due diligence, you will have a good idea of what your rent expense will be. Your franchiser will be able to help you with this. You will also be able to have a good estimate of your wages expense. Even if it is a greenfield site, your franchiser should be able to give you figures for comparative sites so you can come up with a reasonable estimate. If you sell products, your franchiser will also be able to tell you what your cost of goods sold percentage should be. You are well within your rights to ask. The franchiser is not breaching any laws in telling you the actual results of other franchisees for this expense item. In this same way, you will be able to come up with a pretty good estimate of your budget. This provides you with a target to aim for as you launch your business.

TRACK OF YOUR 4.KEEP FINANCIAL POSITION Now for the fun part. Once your business is up and running, the next important step is to keep a close eye on your financial position. We have yet to meet a business owner who is not interested in how they’re going. Through cloud technology, it is now possible to do the bookkeeping and financial reporting for your business cost effectively, and you can run financial reports on a timely basis. You can look very carefully at how your business is performing. It is important to work with your franchise accountant to make sure you’re on track. They can work with you to ensure you are complying with your legal obligations as well. It’s a fact of life that we all make mistakes and that some of our decisions may not always be our best. But when it comes to the financial side of running your business, being forewarned is to be forearmed. 

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FRANCHISE BASICS

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REASONS WHY IT PAYS TO ANALYSE

THE NUMBERS Franchising, like any business, is a numbers game, and before buying into such a network it is vital to do your homework.

our research should include careful examination of the figures to make sure everything adds up for a successful venture. Here are five reasons why it pays to scrutinise the numbers...

RISK LEVEL 1.LOWER Franchising is seen as a way to mitigate risk when going into business, but that is true only if the opportunity has been properly researched with the financials put under a microscope. A solid start is possible only when you take the time to understand and reconcile the numbers supplied, as well as undertake your own research about the businessâ&#x20AC;&#x2122; potential. Before investing in a franchise, be sure you have data on turnover and expenses to inform your decision.

2.FINANCIAL CLARITY You can manage what you can measure, and it is critical to recognise the value of keeping a beady eye on the revenue and outgoings of the business. Understanding where the business stands financially at any point allows you to make any necessary adjustments, head off cashflow issues and spot opportunities to boost revenue.

3.BENCHMARKING

It is common for franchised business networks to share data between franchisee and franchisor, or franchisee-franchisor-franchisee. Benchmarking is an excellent way to compare performance between franchisees, and this is when the story behind the numbers is the key. Ambitious franchisees use regular benchmarking data to learn how other franchisees have cut waste or boosted revenue. The data highlights the differentials, but is just the starting point. The franchisee network can offer all sorts of help.

Understanding where the business stands financially at any point allows you to make any necessary adjustments, head off cashflow issues and spot opportunities to boost revenue.

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4.BUSINESS CONFIDENCE

Financial clarity leads to confidence in day-to-day management and decision making. Even at an early stage of a franchise you can work on the business and not just work in it. A franchisee who can steer their business and talk confidently about financial performance will be an attractive proposition for a bank or other financial institution. So when the business is ripe for expansion, seeking the financial wherewithal to take it to the next level is one step closer.

5.STRATEGIC STRENGTH Achieving goals is possible only when a vision can be realised through strategy. Franchisees have diverse financial goals - to exit the business after three or four years, to build up to a mini-empire of multi-units, to pay a good salary and reap the rewards through capital gains at sale time, to use the business to see children through school and university, or set up for retirement. Whatever your reasoning, you can achieve it only through constant reviewing and analysis of finances. Remember, cashflow, capital gain and profit level are all a reflection of the processes and behaviours of a franchise team. Analysis is just the start. ď&#x20AC;ź

GLOSSARY

LEARNING THE

BUZZWORDS

Like any area of endeavour, the franchise sector has its own particular terminology that new franchisees need to understand.

ACCREDITATION: a banking

loan scheme that provides franchisees with some of the finance they may need when buying the franchise. It is based on a bankâ&#x20AC;&#x2122;s understanding of the brand and its business methods. While this funding option is popular, it is not common across the sector.

ASSIGNMENT: when a franchisee sells their business to a new franchisee, it is referred to as assignment. It is common for the franchisor to retain the right to interview and accept or reject any proposed buyer. The franchisor may also have the right to buy back the franchise. The vendor franchisee can set the value of the franchise. BUSINESS-FORMAT FRANCHISE: a business

model with four criteria â&#x20AC;&#x201C; a franchise agreement, a trademark or symbol, payment of a fee, and a system or marketing plan. A franchise business falls under the jurisdiction of the Franchising Code of Conduct and franchisors have certain obligations to fulfil.

COMPANY-OWNED UNITS:

locations run by the franchisor rather than a franchisee. CONVERSION: an existing

independent business that joins a franchise network. DISCLOSURE DOCUMENT: this

document provides information about a franchise system, the franchisor and the franchised business. It must be supplied to a prospective franchisee in accordance with the Franchising Code of Conduct. DUE DILIGENCE: the process of conducting in-depth research on a business before purchase. FIELD MANAGER: an individual tasked with managing a group of franchisees, with a focus on relationships, brand alignment, and sales and profit. This role might also be called business development manager or area manager. FIXED SERVICE FEE:

franchisees may pay their franchisor a weekly or monthly fixed-amount payment, or a service fee calculated as a percentage of turnover

(above a minimum payment). FRANCHISE AGREEMENT:

this is the legally binding business between the franchisor and the franchisee. FRANCHISEE: an individual

who runs a franchised business using the intellectual property of the franchisor.

FRANCHISEE ADVISORY COUNCIL: a structure for

franchisors to seek and receive feedback from their franchisees. Participating franchisees may be elected or chosen by the franchisor.

FRANCHISE FEE: an up-front cost paid to the franchisor. It covers the use of the brand name and business system. FRANCHISING CODE OF CONDUCT: a mandatory

code that governs franchising in Australia. It is designed to guide the behaviour of franchisors and provide certain protections to franchisees. It is administered through the Australian Competition and Consumer Commission (ACCC). FRANCHISE TERM: this

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GLOSSARY

is the period granted for trading under the franchise agreement. Most franchise terms are on a renewable three or five year term but they can vary from one year to perpetuity. Franchisors often refer to a term with two options to renew as 5 + 5 + 5, for instance. FRANCHISOR: the franchisor

grants permission to the franchisee to conduct business using its intellectual property, brand name, working methods and marketing.

GREENFIELD SITE: a

brand new site.

GOODWILL: this is a

calculation of the value of trade in an existing business that is likely to continue and benefit the incoming business owner.

INFORMATION STATEMENT:

this is a two-page standard document that outlines what franchise buyers need to know about franchising.

INTELLECTUAL PROPERTY:

this term refers to the trademarks, copyright, know-how, trade secrets, designs, patents, branding, operational manuals, methodologies and/ or recipes franchisors license to franchisees.

LICENSE: the right to use

the same as a franchise. LOCAL AREA MARKETING:

often abbreviated to LAM, this is marketing the franchisee is responsible in their territory or designated marketing area. MARKETING & ADVERTISING LEVY: a regular flat or

percentage-based-fee paid into a centralised advertising or marketing fund.

ROYALTY: fee paid by the

franchisee to the franchisor for the ongoing use of the brand and systems, management and technical support. It may be a flat fee or a percentage of sales or profit.

franchisee who is responsible for a large territory, appointing other franchisees within the territory with direct agreements, and ensuring that the franchisor’s systems and methods are applied.

TERMINATION: the ending of the franchise contract between franchisee and franchisor, usually for breach of contract. Some franchise agreements allow the franchisor to terminate the agreement even if the franchisee has not breached the agreement.

MULTI-UNIT FRANCHISEE:

TERRITORY: is the area assigned

MASTER FRANCHISEE: a

a franchisee who has been granted the rights to run more than one franchise outlet. Not every franchise system allows for franchisees to be multiple operators. OPERATIONS MANUAL:

the franchisee’s guide to operating the franchise business. The franchisor may produce several manuals for different areas of the business, and should regularly update the information. REGIONAL FRANCHISEE:

intellectual property in business, such as sales rights in a territory, manufacturing technology or access to a trademark. A license is not

for a further term. This process is bound by the Franchising Code of Conduct. There is no automatic right of renewal.

similar to master franchisees, regional franchisees operate a large territory and appoints franchisees within the area. RENEWAL: once a franchise

term nears its end, franchisees may or may not be given a right to renew their agreement

to franchisees for their business. Territories can be exclusive or nonexclusive.

TOTAL INVESTMENT: the total

amount of money a franchisee requires to set up in business. This includes the franchise fee, working capital and any equipment purchases required.

TURNKEY FRANCHISE: a

franchise package that includes all the equipment, information and systems required for a franchisee to open up the business and start trading.

WORKING CAPITAL: the funds required by any business to pay its costs before it starts making a profit, and as ongoing cash flow to counter any dips in business activity.

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CHECKLIST

THINGS TO CHECK BEFORE YOU INVEST GET SET PRIOR TO YOUR PURCHASE WITH OUR EASY CHECKLIST. JUST TICK OFF THE MUST-DO ITEMS.

Are you confident in the franchisor?

Have you worked out your operating costs?

What are the franchisee and franchisor obligations?

Have you seen a disclosure document?

Do you know the term of the agreement?

What training is available and who pays for it?

Is the franchisor compliant with the Franchising Code of Conduct?

Do you need a permit or license to operate the business?

Who owns the intellectual property and what is licensed to the franchisee?

Have you run a credit check on the franchisor?

Is the business operating from fixed or mobile premises?

What marketing will the franchisor implement?

Does the franchisor have a history of litigation? Are there any cases coming up?

Have you checked the lease? Is there a right to renew?

What marketing is your responsibility?

If you are buying an existing business, have you seen current financial statements (balance sheets, profit and loss, tax returns)?

Does the length of the lease match the franchise term?

What is the dispute resolution process?

What are the store fit-out costs?

Do you know what it is like to be a franchisee?

Have you evaluated the financial returns? If you are buying a greenfield (brand new) site, do you have sales and profit examples and know the method behind the calculations? Do you know all the expenses franchisees are required to pay?

What royalties are there and how are they calculated?

Are you working within a territory? If so is the area exclusive?

Do you have an exit plan?

Are you restricted in your product purchase?

Have you spoken to former and current franchisees about the business?

Are you required to reach a minimum performance level?

What restrictions are there on the franchisee and guarantor operating a similar business?

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RESOURCES