January 2019
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Logging in to the Rapid Growth Cybersecurity Business
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Refurbishing your store is a fact of life in franchising. Whether it’s required under your franchise agreement or under the lease of your premises it typically occurs every 5 to 7 years. The stress and downtime of a store refurbishment is enough to put most
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Apply now at or call us on 1300 659 676 to get a quote and discuss your funding requirements today.
Inside this Edition of January 2019 12 Opinion: In-N-Out Burger – Don’t believe the hype By Glenn Walford 16 Buyer Help: You have found the right business to buy – it’s now time to negotiate By Rob Semmel
Logging IN TO THE Rapid Growth Cybersecurity Business. Cybercillin By Paul Robinson
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20 Finance for franchises: Have you thought about your refurbishment costs? By James Scurr 22 Locating your business: Finding the best location for your business using research and logic… By Peter Buckingham 26 Broker insights: What does a good business look like? By Len Ferguson
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w w w . f r a n c h i s e b u y e r . c o m . a u Published by
FRANCHISE MEDIA GROUP PTY LTD Editor GLENN WALFORD glenn@franchisebuyer.com.au Digital & Technology Strategy ROBB SNELL Writer PAUL ROBINSON
Art Director KATHERINE BERCASIO
Contributors PETER BUCKINGHAM LEN FERGUSON JAMES SCURR ROB SEMMEL GLENN WALFORD
Published by Published by Franchise Media Group Pty Ltd Opinions expressed in Franchise Buyer are not necessarily those of Franchise Buyer or the Publisher. Persons entering into a franchise agreement are strongly urged to seek their own independent advice. All material is copyright and reproduction in whole or in part is not allowable unless specific permission from the Editor is provided.
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News Bites
Café chain is ‘open’ and supportive of people seeking a regional ‘sea change’
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afé chain Croissant Express is bringing the idea of a sea change via your own new business alive. While the ‘sea change’ is not the primary thinking behind their push into the Darwin and Broome markets, it certainly seems to fit. Steve Andrews, National Operations Manager explains, “We have been looking at varying expansion opportunities to provide businesses of strong value to investors, into markets where we have seen that locals are not getting the café / food retail options that the metro markets are.” As a veteran of northern regional Australia food retail businesses with Hungry Jacks and Croissant Express, Steve believes “…that often people in regional Australia are having to put up with sub-standard food and coffee offerings. And, what we’re working toward is providing a high-quality,
consistent and value-driven food and coffee offer to the markets were opening in.” Interestingly, the approach taken by the company has been built around keeping entry costs low for would-be investors in store and on-going costs. “We’ve opened a couple of café locations in both Broome and Darwin that we have been able to dramatically lower the standard costs of entry. We did this by searching for, and finding, existing café operations and re-branding them to Croissant Express. We’ve also looked at our operational costs and found ways we can further assist regional Australia operators as a distinct special group to metro markets.” This approach sees the company currently being able to offer each new operating business to the market for as low as $130k each with staff trained and in place. “This means you could have your
own café business serving local communities that want and need a high-quality, but valuedriven product, for a fraction of what it would cost you to simply try to open your own from scratch. This is part of our commitment to expansion of our brand through the northern regions of Australia.” “Of course the businesses are just as great for a local to take advantage of at that investment level. But the ‘sea change’ angle also becomes a real possibility. Both Broome and Darwin are desirable locations for inter-state people who are also of the mind-set that they would like to slow down and relocate from the fast paced metro environment of places like Sydney, Melbourne, Brisbane and so on. If that’s you, we’d also love to talk with you.” n
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News Bites
The summer heat brings sales for SafetyQuip
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n a nod to the way that weather can impact on product range of many types of businesses, the intense summer heat in Australia is no exception. With the safety industry in Australia accounting for a total turnover of approximately $3.7 billion annually, the seasons have a significant impact on product sold. With record temperatures
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predicted and appearing across the summer months, workplace health and safety switches gear to concentrate on ‘summer safety’ products. For SafetyQuip, a franchised leading provider in the market of this and many other safety related products and services, the heat plays a large role in product and marketing. According to Elizabeth Sauterel, Operations Support
Manager, “…we have a select range of products chosen specifically to deal with the challenges of this season which are over and above our core product offerings. This year, our ‘summer safety’ range includes the latest in head protection, eye protection, SPF50 clothing, sunscreens and re-hydration drinks.” Elizabeth explains further, that “On a national level, we started our summer campaign in November with promotion on our website, regular updates on social media (Facebook) and email marketing. However, we offer our Franchisees the flexibility to start promoting on a local level when they feel it appropriate for their area. It’s one of the ways we support Franchisees to cater for regional differences including industry mix, climate and customer types.” “With four well-defined campaign periods per year
News Bites
and four weeks’ notice as to strategy details, it is easy for our Stores to plan ahead with stock control and local marketing opportunities.” “Our franchisees also have the security of knowing that all products added to our range meet Australian standards and are often global products that have been market tested and proven before launching here.” Every two years, the business also produces a large format, magazine-style catalogue publication for franchisees to use in their marketing, which gives the company the ability to educate on safety and awareness, as well as featuring products and brands sold, which plays a large role in ongoing sales at store level. Again, according to Elizabeth in referencing the role of the catalogue, “The majority of our sales occur in categories where brands have developed a reputation for reliability and performance.” n Find Out MORE
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COVER STORY
LOGGING IN TO THE RAPID GROWTH CYBERSECURITY BUSINESS With cybersecurity breaches being headline news on a constant basis, all of us will be looking for solutions to the problem at some level now or in the future. By Paul Robinson
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ccording to founder John Burgess, new franchise system Cybercillin is at the cutting edge of the cybersecurity space — the only system in Australia offering IT peace of mind as a service. If you run a small to medium business and you haven’t already evaluated your IT security, then you’re just not paying attention. Cybercrime is one of the biggest risks SMEs are facing as business moves into the third decade of the 21st century. Whether it’s identity theft, malware, phishing, hacking, scamming or ransomware, most businesses that have abandoned the world of pen and paper for the digital age have already had a few close encounters of a data breach kind. Such encounters can
interrupt business flow, put intellectual property at risk and seriously damage the reputation of a business. In 2017, cybercrime was estimated to have cost Australian businesses about $7 billion. Worldwide, the figure was more than $200 billion. And about 70 per cent of all cyber attacks target SMEs — which are usually not particularly prepared to deal with a sophisticated cyber attack. That’s where Cybercillin steps in. The brainchild of one-time accountant turned IT guru John Burgess, he explains that Cybercillin is the only franchise system in Australia that targets cybersecurity as its primary focus — and has the support network and R&D component to back it up. John was national IT manager for intellectual property specialist law firm Davies Collison Cave when he decided to set up his own IT business. Established in 2005, the Gamut Group specialised in automated document and knowledge management systems. From there it was a logical step into managed IT services. Gamut would eventually become Cybercillin’s parent company. “We acquired a Melbourne-based software development company that added to both our technological and client base,” says John. “We soon began to provide IT services on a proactive, preventative basis for a monthly fee — as opposed to the old ‘fix it when it
COVER STORY
breaks’ model. We’d make sure all of an organisation’s IT systems continued to run optimally.” The next big step was all the way to Europe where Gamut opened an operations centre in Skopje, capital of the Republic of Macedonia, a country that had focused a lot of its resources on developing information technology research and education. “About five years ago, we decided to increase our technical depth and opened the subsidiary in Macedonia,” says John. “It directly employs technicians who range from database and software developers to network administrators and cybersecurity experts. We’re helping to make it the Silicon Valley of Eastern Europe!”
“About five years ago, we decided to increase our technical depth and opened the subsidiary in Macedonia. It directly employs technicians who range from database and software developers to network administrators and cybersecurity experts. We’re helping to make it the Silicon Valley of Eastern Europe!”
John says the choice of location — on the other side of the world and in an opposing time zone — was a pragmatic decision. “I was at a conference in the US where the prime minister of Macedonia was a keynote speaker. It was obvious that setting up in Macedonia would give us access to a very skilled labour market and the advantage of a physical presence in Europe. The truth is, it’s a global marketplace and things like Skype and encrypted messaging make it easy to straddle those time and distance barriers.” Organisation in place, John became aware that cybersecurity was rapidly becoming a front-of-mind issue in the IT managed services space. He decided
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that’s where his company should focus its resources and effort. “Over recent years, we noticed a big increase in enquiries, from new and existing clients, revolving around the cybersecurity field,” says John. “And obviously we also saw a great opportunity for further expansion, but it was beyond our immediate ability to do that organically. The idea came to us about 18 months ago that this would be an excellent model for franchising — and we formed Cybercillin to specialise in this area.” Cybercillin takes a holistic approach, which means you don’t have to be an IT specialist to get on board. The Cybercillin process assesses various factors like management, HR, staff awareness training and procedural controls to determine an organisation’s “risk surface”.
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“We don’t see cybersecurity as specifically a technical issue,” says John. “A lot of the factors contributing to data breach and cybersecurity risk are actually human factors. Organisations are spending on sophisticated antivirus software and firewalls, but neglecting to take care of the ‘soft’ factors.” One example of an area in which many organisations let themselves down is “password hygiene” according to John. “It’s very common for people to re-use credentials in multiple websites and online accounts, often the same ones they set up in their internal work systems. Unfortunately, when you do that you trust your access rights to the security of the organisation you create the account with. You don’t even have to have your own system hacked for that information to be lost.” To illustrate the point, John
mentions the work of the Cybercillin security research team, who are constantly trawling the “dark web” looking for evidence of lost, stolen or compromised credentials. “We’ve accumulated a database of well over a billion plain text passwords stolen by hackers. Statistically, a large percentage of those passwords would still be valid.” Using the recent Facebook hacking, which affected about 100 million users, as an example, John notes that a month after being notified of the breach, around 50 per cent of users still hadn’t bothered to change their passwords. “On an individual level you can accept the risk, but from an organisational perspective, if your passwords are compromised, their systems can be accessed so you’re also putting them at risk,” he says. “People often don’t
COVER STORY understand the consequences of their decisions, and part of our process is to help organisations put in place policies and awareness training to ensure those risks are minimised.” John says the SME sector is seen as a soft target by cybercriminals. “They’re least equipped to deal with the problem. They don’t have the time, resources or in-house expertise that the bigger end of town has. Our franchisees help them through the process of doing an internal audit of their information security, which produces a risk analysis report.” The audit, completed with Cybercillin’s custom software platform, allows the client company to develop a training program and policies to address its information security needs. Tech support is available 24/7 through Cybercillin’s security operations centre — whether it be via online chat or support request, or through direct personal contact. “We deliver cybersecurity as a service,” says John. “We’re not just going out trying to sell firewalls and antivirus software because none of these things remain useful for very long unless they’re proactively managed to take account of all the new threat techniques that are emerging as attackers respond to the techniques companies put in place. It’s like locking the front door and leaving all the windows open.” The biggest challenges in the cybersecurity space relate to the speed and complexity of change. The types of cyber risk happening today will always be different to those happening a year ago. John uses “cryptojacking” — the process of stealing computer resources to mine bitcoin or other virtual currencies — as an example. “There’s was a big spike in cryptojacking in 2018,” he says. “Unlike ransomware, which is a direct attempt to extort money by corrupting your files, you might not even realise
cryptojacking is occurring until you start to see bigger bills for your internet connectivity or your staff complains their computers are running slow. It’s warfare, there’s no other word for it. You create a defensive position, attackers respond in new ways and you have to adjust your defences accordingly.”
The biggest challenges in the cybersecurity space relate to the speed and complexity of change. The types of cyber risk happening today will always be different to those happening a year ago. Aside from business and reputational costs, new data breach reporting regulations also mean businesses can be penalised for being too lax with cybersecurity. John says that in Australia, until the introduction of mandatory data breach reporting earlier this year, this was a risk that only applied to large corporations. “It’s a really big issue from a regulatory perspective. Companies can incur multimillion-dollar penalties for breaches if they don’t comply with the scheme,” he says. “Even operators and executives can be held personally responsible and fined.” The penalties can be even stiffer when companies are trading offshore. The European Union’s stringent General Data Protection Regulation (GDPR) for example, applies to any companies trading within the EU. “There was an example recently where British and Dutch regulators fined Uber more than
US$1 million in relation to a data breach that had happened in 2016,” John says. “Even though US law didn’t require Uber to do anything about it, because some of the affected records were those of European Uber users, the company was penalised.” The Cybercillin franchise operation was launched at the Melbourne Franchising Expo later last year and initial interest has been impressive. John says they fielded more than 100 enquiries in the first three months and have already established four fully paid-up franchises with another couple in the pipeline. Cybercillin have identified 60 promising territories in Australia and expect to fill them within two to three years. “We’re expecting a steady inflow of people interested in becoming cybersecurity specialists,” John says. “We’ll provide the necessary tech training for them to understand the risks their clients are facing, but they don’t have to become IT experts because we’ll also supply all the tech support they’ll need. Our franchisees can concentrate on providing business consulting and relationship management services, confident that we’ve got the resources and geographical reach to deal with any problems.” Given that organised crime is now operating just as enthusiastically in the virtual world as it does in the real one, John sees no shortage of opportunity for Cybercillin going forward. “Until now, SMEs have had to rely on their local IT company to help them with these issues, but taking that approach is no longer efficient and organisations are realising they need to work with specialist brands that understand the extent of the problem. It’s an exciting space, but at the end of the day, it’s simply good risk management.” n Find Out MORE franchisebuyer.com.au
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OPINION
IN-N-OUT BURGER – DON’T BELIEVE THE HYPE I reckon In-N-Out Burger is so over-hyped! By Glenn Walford
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et me be clear, it’s not that I don’t like it, or had a bad experience, it’s just not at all worth the hype people associate with it. On a recent trip to the USA, I had a long list of businesses I wanted to check out for myself, and In-N-Out Burger was at the top of that list. The US has a well-earned reputation in my view, for providing some exceptional franchise food concepts. It is very common to hear entrepreneurs referencing visits to the US market as a catalyst for their own concepts back home in Australia. I’d heard of the brand over a few years, and recalled the stories of people queueing for hours to get a
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burger when they had ‘pop-up’ stores here in Australia. My kids were also desperate to go to In-N-Out, and not to mention, every other Uber driver (about 6 or 7) we asked where the best burgers were – and they all (except one) said In-N-Out. So, suffice to say I was expecting something pretty darn good.
bring themselves to say that, so they wouldn’t feel like a goose for gifting hours of their lives that they’ll never get back for just another burger? With the fact that I am certain that waiting more than 10 mins for an In-N-Out Burger is absolutely not worth it, I still took a few things away beyond just that fact from my visit and experience.
“Is this all it is?” I’ve had better, fresher burgers at just about any other burger joints popping up all over Australia. While eating my burger I couldn’t help think to myself about the people who queued for hours to have one of these. Were they disappointed but couldn’t
Exceptional value pricing – I found that the US has become really expensive for food since my last visit. Sure, it’s been around 10 years since I was in LA, but, even with our low Aussie dollar removed from the equation, I am still surprised at just how expensive casual dining has
OPINION become within that economy. In and Out Burger delivers in spades here with a family of five having burgers, shakes and fries each for just $38 USD. That was by far the best value sit down meal I recall in the entire trip.
Fresh and clean – In my observation from one visit, I wouldn’t say it’s particularly fast. It’s about the same as waiting for a McDonald’s meal, which has got mostly progressively slower over
time. But the trade off, which I’d say is worth it, is that the meals are freshly made to order. I must have looked quite the stalker as I keenly watched the operations in the kitchen while waiting!
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OPINION What stood out to me was how clean and lean the operation was. Very simple, with minimal equipment and no ‘stuff’ all over the place. When I compare what I see in a modern day McDonald’s, it’s what I imagine an earlier McDonalds in the 1950’s being more like - minus all the other bits of equipment to make the massive menu range McDonald’s now often fumbles to deliver on.
Minimal Choice – The menu is oh so simple. And for a family with kids just craving a burger, that’s music to every parent’s ears! It’s a case of having a burger with or without cheese – that’s it… The milkshakes are actually thickshakes – Not much else to say here, but I’ve read through the commentary on varying news sites
interviewing people from the pop-up locations across Australia over the last couple of years, and they are carrying on about how amazing the milkshakes are. Nope. They are more like some slightly runnier soft serve with some chocolate, vanilla or strawberry flavouring I reckon! Again, not bad by any means, but seriously, hardly worth standing in line for more than 5 minutes for! Closest burger here in Australia In my view, if you’ve had a Betty’s Burger you’ve already eclipsed whatever you’ll get from an In-N-Out Burger. Betty’s are actually nicer (and a whole lot more expensive), and but they seem in my thinking as the like burger look, taste etc. Theirs are also that bit more ‘fancy’. This is the funny thing with brands that get hyped, as
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OPINION
we’ve absolutely got better product sitting right in front of us, but we just can’t help ourselves I guess when it comes to some people and the buzz around In-N-Out. Back to the ‘other’ Uber driver As I mentioned earlier, in doing our straw poll of Uber drivers on where they thought the best burgers were, only one reckoned In-N-Out was not up to it. Interestingly, the difference with him was that we had already been days before, and I prefaced my question to him with the fact I thought it was over-hyped. He totally agreed! But then I thought, did I taint the survey, and did I finally give someone ‘permission’ to not drink the Koolaid? I guess we’ll never know… n franchisebuyer.com.au
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BUYER HELP
YOU HAVE FOUND THE RIGHT BUSINESS TO BUY
IT’S NOW TIME TO NEGOTIATE… By Rob Semmel
Finding what you think is the right business to buy is not easy for many, but it’s just one part of an important lengthy process.
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HE FUN BEGINS THE DEAL Having searched websites for months in search of the right business to buy and having spoken to a varied range of helpful and unhelpful business brokers over the journey, you have finally found the
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business that appears to be right for you. It looks good. You’ve done your homework and have had a close look at the financials provided as well as the systems and procedures in place. The location is ideal and there appears to be a strong market growth which will support
the business going forward. Staff appear motivated and suppliers have been paid on time. You have spoken to your accountant and whilst he/she may be nervous, they have done their job as a devil’s advocate and told you all the pitfalls. You are still keen and
BUYER HELP business is the high point. There is only one way to go - down. There are so many factors that determine the value of a business and no exact rule. Some businesses have a valuation based on turnover and others on profit multipliers, and many have a combination of these. Ask a business broker how the asking price was determined and see how quickly they can justify the valuation. If you have done your homework, you will have a good idea of a realistic price range.
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BUYERS MARKET TAKE ADVANTAGE
It’s a buyer’s market, where there are thousands of businesses for sale. Some are excellent acquisitions and others have owners desperate to escape an unprofitable venture. You are in control - it is your offer that will be presented. Don’t be taken advantage of by business brokers trying to achieve a top price for their vendors, as that is supposedly their job. Obtaining a loan to purchase a business can be difficult, and many businesses do not have the
documentation to support their asking price. Banks will find it difficult to lend on businesses that have reported low profitability due to many reasons, not the least due to efforts to minimise the business’ tax liability. If you have cash or security in personal assets, and are not relying on a loan from the bank linked to the business, you can therefore present an offer not subject to finance - you have won the jackpot. An offer not subject to finance will save you thousands on the purchase price.
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IT’S NOT JUST ABOUT PRICE
Negotiation is a strategy, and there needs to be a win/win for both parties. The offer is not just based on price but various other terms conditional to a successful acquisition. In many cases a buyer will require the existing vendor to assist them through the transition period. This is such an important element to ensure the business continues to trade smoothly. The deal should be a give and take relationship, and in doing so,
prepared to make an offer. The 5 key things to remember in negotiating a deal.
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IGNORE THE ASKING PRICE
The asking price for a business is a vendors wish price. Unlike real estate, where typically a reserve is a low range for a purchase, an advertised asking price for a franchisebuyer.com.au
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ensure you focus on the bigger picture, and the vision you had when you first discovered the business. Having a supportive and helpful exiting vendor assisting you with contacts, suppliers, staffing and existing client introductions, is worth a lot more than saving a few thousand dollars upfront.
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KEEP THE EMOTION OUT OF IT
Finding the right business can be exhilarating after months of searching, then finally discovering a business that is within reach of your budget. Take stock - this is a life changing decision and you need to have any emotion put to one side. Be practical, analytical, and seek advice. If you have not negotiated before or are too emotional, have a professional represent you. That’s exactly what we do for buyers every day, which
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totally removes the emotion from getting in the way.
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KEEP YOUR OFFER DEADLINE SHORT When making an offer, you must take control. If you have determined the price you would pay, and on what conditions you would offer, present the offer in a written format, pay a deposit and set a deadline for acceptance. Put the pressure back on the business
broker and vendor. The broker wants the sale as they only get commission on a sale, so use this to your advantage. Have the broker working on your behalf. Negotiating the best deal for a buyer is a combination of strategy and timing. It is buyer’s market, and thousands of dollars can be saved on a purchase price while still providing a win/win for both parties. n
Rob Semmel is General Manager of Business Buyers Advocacy Australia. An agency exclusively representing the business buyer to find the right business on the right terms at the right price. As a CPA, licensed agent and Business Buyers Advocate, Rob and his team can help buyers navigate the murky waters of the business search. To contact Rob email; rob@ businessbuyersadvocacy.com.au or visit www. businessbuyersadvocacy.com.au
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FINANCE FOR FRANCHISES
HAVE YOU THOUGHT ABOUT YOUR REFURBISHMENT COSTS? Lovely, clean and importantly, on-trend store designs and equipment is often like a magnet to customer traffic. But, how do you fund it without harming your cashflow? By James Scurr
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efurbishments are a part of business for franchisees, and are often written into the The Franchise Agreement. Coming around roughly every 5 years they can be a major expense, and unfortunately many franchisees don’t plan ahead. This can place business owners in a precarious position, and can place stress on capital levels. However refurbishments play an important role in the growth of any franchise business and should be embraced by franchisees. 20
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Whilst a refurbishment is a major financial outlay for any business, it is not without its benefits. Whilst a franchise may experience a short-term dip in activity whilst any major refurbishment takes place, it can promote a long-term boost in sales. The draw of a new in-store experience and atmosphere can see a boost in traffic through your doors, and even bring in customers that may not have visited otherwise. Ultimately, choosing not to update to a new store fit out or design can be damaging to your location, as consumers may begin to see it is
‘older’ or ‘outdated’. Refurbishing a franchise not only provides an opportunity to upgrade to a new store design with the most up-to-date branding and fitout, but is the perfect opportunity for the business to upgrade their equipment and technology. The equipment used in the daily running of any business will see considerable wear and tear, and over time will need replacing. This not only promotes a more efficient workplace with a higher quality output, but raises the value of the business as a whole. Another consideration is that
FINANCE FOR FRANCHISES refurbishment isn’t always just a new fitout, and can often include new equipment roll-out that allows the franchise network to start providing a new product or service to its customers. Investing in equipment that allows the business to expand its offering and increases potential profit is key to staying competitive and promotes sustainability by ensuring the franchise is growing and changing along with the target markets needs and wants. Despite all the benefits, there is no doubt that the cost of a franchise refurbishment can place a strain on finances. However, there are a broad range of options available to franchisees and franchise networks as a whole that will allow business owners to retain their working capital. This is important as maintaining local area marketing and promotion during and postrefurbishment is key to minimising any lulls in activity caused by refurbishment down-time. Franchisees and franchisors alike should seek finance providers that specialise in franchise and refurbishment finance, as they can help provide funding solutions that fit the unique needs of the franchise partners business. Such alternative lenders can often provide quick access to funds, without the extended waiting times often experienced when applying for bank finance. Specialist franchise lenders often offer flexible solutions that allow franchisees to gain access to funding for just one piece of
equipment, or for a whole store refurbishment. In most cases it is unrealistic to expect a franchisee to fund the whole refurbishment from their own pocket. Utilising alternative lenders to finance the large expenses such as new equipment and major changes to fit out allows franchisees to maintain a healthy balance of working capital and outside finance. Whatever the franchisees motivation, whether they are looking
to add value to their business, drive traffic or they are simply obligated under their franchisee agreement, refurbishment is a necessary expense. In the lifecycle of a franchise business, refurbishments can represent new growth phases and can set the business up for another period of success. Take the stress out of franchise refurbishment by utilising outside funding from a specialist franchise lender.. n
James Scurr is the Founder and Managing Director of Cashflow It, a specialist equipment finance company and the only equipmentfunder focused solely on the Australian franchise industry. He has almost 20 years’ experience in the franchise industry having spent time as a successful multi-unit franchisee for campanies, including Boost Juice Bars. James has extensive franchising and small business experience and has an acute understanding of franchisees’ requirements. Phone: 1300 659 676 Email: james@cashflowit.com.au Web: www.cashflowit.com.au
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LOCATING YOUR BUSINESS
FINDING THE BEST LOCATION
FOR YOUR BUSINESS USING
RESEARCH AND LOGIC… By Peter Buckingham
For such an important decision that largely determines success or failure of any business, having data to make the most considered decision around your location in business is crucial.
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any small businesses are forced to make very big commitments on rather thin information. When you are looking at signing that 5 or 10-year lease for your first (or next) store, you hope your view on who is your “Market” is correct.
Many times you have observed who your clientele are, and you hope that those are the people living and working in the area you have chosen. In many cases you can improve the probability of success by linking who your actual customer is to the data that is available.
LOCATING YOUR BUSINESS Understanding who your customer is There are many ways to try and understand who your customer is. These range from observation, running focus groups or undertaking some form of survey. Being from a statistical background, we recommend the latter as it can be measured and analyzed, and the results can married into the relevant data available as business or residential demographics. By undertaking a simple survey you can address the questions you want answered in a statistical way. We recommend a survey tailored to meet the simple questions you need to know. Typical of the information you should be seeking is:
• Male / Female, • Age profile, • Whether the purchase is related to being there due to work or where you live, •Family type or status, •Ethnicity (if felt to be a major Driver), •Income (sensitive issue). The number of surveys is always a question. When we work for a major international fast food chain, their minimum is 300 surveys, yet we aim for 500. The issue they are normally addressing is cannibalization of new stores, and it is very sensitive as to whether people feel they will move their business to a new store or not. Our view is that around 300 – 500 is a good indication, however
if we had 4 existing stores we are using, we would probably look at 100 - 150 surveys from each store. What should we ascertain from the surveys? Our view is we are trying to distinguish who our customer is so we can match this to the area and type of people we would expect to be present.
Type of person and age Asking the Male / Female question is really for your own interest and maybe to help match to what other generators are in the area. Across Australia the male / Female proportion is normally 49 / 51, with the exception of areas
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such as mining towns etc. Most areas in capital cities are very consistent. The age may be a question you ask, at least into a range, or you may choose to have the surveyors give their best estimate, I recently did a survey at a DFO outlet and just marked people as Male / Female, then 0 – 12 (kids), 13 – 19 (teenagers), 20 – 40, 40 – 60, 60 +.
Home or work? It is important to understand if a person purchases off you because they are working in the area, or they live in the area. A lunchtime sushi business is probably 90% related to where people work, where a fast food restaurant with a Drive Thru is probably 90% related to where people live. Knowing the type of customer influences your location.
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Family type or status If an area is strong in young families, then the type of offer and marketing will be completely different to an area such as near a university, where students are the major customers. This can influence the price points and the marketing of the offer you are making. Ethnicity There are some products and services that can be strongly influenced by the ethnicity. If it is easily observed that certain types of people are a higher proportion of customers than the areas average of those type of people, then this should be considered. Income If you are selling a relative high value product, then the income of the area will have an effect.
Income may be gauged by asking if a person will indicate an annual income range, or if it is a minor purchase, maybe the surveyor can make some indication based on how people look or dress (or the car they drive). With all this combined information we should be able to determine some indication of who our customer is rather than just the average of the area. Using this information in determining locations Once we have the understanding from the surveys, we can match this to the residential and business demographics of the potential area. Census 2016 was released over the second half of 2017, and this gives us a very good understanding of the issues we have recommended be surveyed above. The Australian Bureau of
LOCATING YOUR BUSINESS Statistics also release data on business counts at postcode area, cross referenced to the size of the business (number of employees) and the business classification. Whilst not an exact dataset, we can deduce whether an area has high / medium or low levels of employment, combined with the type of work being done, broken into 16 ANZIC classifications. If you want to look at a specific area, you can purchase a Datapak for a postcode, shopping centre or shopping strip from the franchise buyer website.
Mapping Using a GIS system, we can combine the various agreed strong Drivers of the business (learnt from our survey above), combine these into a value that can be used to look at any area across Australia. The simplest way to think of this is imagine each postcode has one resident. If that “average” resident was worth 1.00 units of demand, what would the probability of that 1 person being a good or bad customer. If the demographics of the postcode was favorable as per the survey, then that 1 person could be worth 1.5 Units of Demand, where if the person did not match the customer type from the survey, they may be worth only 0.5 units of demand, or they are about 1/3 the probability of purchasing good compared to the person in the favorable area. We call this the Target Market Index or TMI. This can be mapped to show the strongest areas, through to the weakest areas, and we can estimate the potential demand by comparing 2 opportunities
in a similar way. This maybe for example the number of people living within 3 kms of the potential store multiplied by the TMI for that area. For example, a fast food business with 5 stores wants to decide where to place the next few stores in their chain (in their home town), and where to place the first few stores in a new market they plan to break into. We would undertake a survey of around 100 customers and from that we have learned the following: • Mainly used by males over females (70 /30), • Highest % of people were 20 – 40 years old, • 60% of the people were there due to work (typical lunchtime business), • Observation shows many in suits and ties, • Very few Asians, possibly due to the product having a European background. Ideally, the Drivers we would use would be tuning the TMI to show us areas of high white collar employment, higher income over lower income, and lower % of ethnicity. Combining this knowledge with Shopping Strip data or a Homemaker database The final part of the puzzle is
not only where the area looks good for having potential customers, but also is there a strip, shopping centre or homemaker centre suitable for your business? We have been able to create databases to evaluate strips by looking at how many shops are present and what generators there are. In the case of a strip, the number of supermarkets, banks, chemists and newsagents are a very good measure for the power of the strip. In our Homemaker database, we have given each Homemaker centre a score based on the contents, with a Harvey Norman store and a Bunning’s being awarded the highest score, and many of the other regular residents gaining a score between 5 and 1. From this we have evaluated 140 Homemaker Centres across Australia and intend using this data as a source of evaluation for identifying the best centres for the client. The Challenge If you are expanding your retail network, and you want to better analyse where to locate new stores, from an area prospective, think and act as described above. You should expect a better result than just guessing or just putting your wet finger in the air! n
Peter Buckingham is the Managing Director of Spectrum Analysis Australia Pty Ltd, a Geodemographic and statistical consultancy. Peter is the Go To person as to where to open new stores in Australia. Peter is both a Certified Franchise Executive (CFE) and a Certified Management Consultant (CMC). To contact Peter email peterb@ spectrumanalysis.com.au or visit www.spectrumanalysis.com.au
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BROKER INSIGHTS
With literally thousands of businesses on the market, and not to mention over 1,000 franchise brands out there to choose from, how do you actually know what a good business looks like amongst this sea of options? By Len Ferguson
WHAT DOES A GOOD BUSINESS LOOK LIKE?
W
ell it’s another new year, 2019! I’m not sure how that happened so fast, but here we are, how time flies. In our business, what I find at the beginning of a new year is a spike of people looking for business opportunities. We have more people at this time of year exploring their options and maybe this is because they have time while on holidays or it’s their new year’s resolution to finally buy their own
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business once and for all. Whatever the reason it is a busy time of year for a business broker. My experience tells me that most of these potential buyers won’t go on to buy a business. From what I see and hear from them, they are just not sure what a good business looks like or how they can identify one. Without this knowledge or understanding, they can easily justify going back to what they know or to their job for another year. So maybe I can help with this article to clarify what a good business looks
like for you. Firstly, right from the outset let me say that there are no perfect businesses out there. All businesses have issues or something that the buyer won’t like about them. This is normal and when looking at a business you need to be commercial in your thinking. If you see an issue that you don’t like about a business, but it ticks many other boxes, you need to work out if you can live with the issues that you don’t like. In other words, is it commercially acceptable considering all the other
BROKER INSIGHTS positive points? You need to understand this point and then come to terms with it. Otherwise you can end up wasting a lot of time searching for a business that doesn’t exist. Secondly, what does a good business look like? Well, this is actually different for everybody as we all like different things, but let’s look past what we like and don’t like about a business. The main attributes we need to focus on in determining if a business is a good one or not come down to three (3) basic things in my opinion; Is it profitable? This is obviously the most important need of any business. If it is not profitable, is it really a business worth looking at unless you believe you can turn it around. Many fortunes have been made this way, although it is very risky. For me, I’m looking for a business that is profitable due to a good underlying reason. • Does it have sought-after products or services, • Are the products or services priced correctly with good profit margins, • Does the business have good supply lines with their suppliers, • Does the business have a good reputation (google ranking) with their customers and the business
community at large, just to name a few. There are a few more things to look for and each business is a bit different, but these are the big ones to look for and ask questions about. Does it have a good stable history? For me a good stable history is more than the businesses sales results and financial statements. A good business that has been operating for quite some time will have good systems, hopefully stable financial records and strong relationships with staff, suppliers and customers. What I find with most buyers and their advisors looking at purchasing a business is they spend a great deal of time reviewing the financial statements of year gone by, and not enough or any time reviewing aspects of the business that will hopefully see the business grow and prosper into the future. Don’t get me wrong, financial statements are important, but they don’t guarantee what has happened in years gone by will be repeated into the future. This is why I would spend time looking at these statements then then look
into the business to see why these results were achieved and can they be replicated, or better still improved on. Look past the financial statements to see what makes the business tick and does it have sound systems and procedures. Good questions to start with would be to ask to review their operations manuals, business plan and other documents to show they are prepared and organised. Does it suit your lifestyle? Now this one for me is the most important. It wouldn’t make sense to me if the business I was about to purchase had the first two (2) points covered, but was then totally not suitable for me, my family and our lifestyle. This is a hard one to pass as well, as the business might look great and ticks all the boxes, but has something about it that doesn’t suit your way of life. These businesses usually end up becoming a burden and unpleasant to be part of. They can also put great strain on you and your family. Spend some time at the beginning working out what you want your lifestyle to be and then shape your business search around that. You will be a lot better off for it. n
Len Ferguson is the co-founder of The Finn Group. It has established itself as the leading and largest franchise brokerage firm in the country, and is expanding beyond franchising into the broader market. www.joinfinn. com
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