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QUESTIONS to ask Business experience One of the most important things that a new franchisee buys is the experience of the franchisor. Every successful franchisor will admit that they made many mistakes in the early days, and it is the wisdom and experience they gained through these that they are able to pass on. A new franchisee pays to learn from someone else’s mistakes. It is therefore vital that the franchisor has experience of running the sort of business that he or she is now offering as a franchise. They may already have successful franchised operations up and running; if not, they should ideally have had a pilot operation running for at least 12 months. This applies equally to locally-developed systems and to franchises brought in from overseas. What works in Australia or the US does not necessarily work here without some adjustment. Look at the background of the franchisor company – and the people involved – too. Here are some of the questions to ask:
What do you need to know before you buy a franchise? Here’s a comprehensive list of over 250 vital questions that will help you make the right decision
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f you are looking at buying a business, it is vital to ensure that it is right for you and your own particular needs. Never buy a business assuming ‘She’ll be right’ just because you have seen the name around or because other people have already bought in. What you want to find is a franchise that suits your own abilities, ambitions and lifestyle. When you buy a franchise, you will be relying upon the value of the brand and the quality of the franchise system, product or service to achieve these goals. A lot therefore depends upon the fit between you and the business, and the quality of training and support you will receive. Many years ago, Franchise New Zealand set out to develop an exhaustive list of questions to help potential buyers evaluate both the franchise opportunity and the franchisor company. The list has been updated annually ever since; established franchisors know it well and welcome enquiries from those who have used it to work out the information they need to know before they make their decision. This year, we’ve added some new questions relating to Covid-19. Because franchising is so diverse, it is not possible to provide a single list that would be applicable to every type of business. There are over 250 suggested questions here, so put a mark against the questions that are most appropriate to your own situation and use them to create your own checklist of what you need to know. Although there is no legislation in New Zealand to define what information a franchisor must give you, most franchisors should provide a disclosure document that will include many of the answers. You should read this thoroughly and discuss it with your professional advisors. Depending on your own level of knowledge of, say, financial matters, you may prefer to get your advisors to ask some of these questions for you.
How many years of experience do you have in this industry? In this business? What is the previous relevant experience of the key people? How many franchised businesses do you have at the moment? How many company-owned outlets do you run? Did you run your own pilot operation in New Zealand before franchising? If not, why not? In the case of a new franchise, how long have you been running the pilot operation, and how successful is it? Can I see the figures? Do you intend to keep running a company-owned business as well as franchising? How many outlets? What guarantee is there that they will not compete with franchised outlets? What is the extent of your own cash involvement in the business? Has any franchised business of yours ever failed? Covid-19 affected some types of business more than others, so closures may reflect individual franchisees’ financial resilience rather than a franchise-wide issue. Discuss this with your accountant. Also, beware “hidden failures” where an ailing franchise was sold just prior to going into liquidation, or was bought back by the franchisor and resold. What mistakes have you made and learned from? Are you a member of the Franchise Association of New Zealand? If not, there is no requirement that the franchisor must provide a disclosure document, offer a seven-day ‘cooling-off’ period or include mediation provisions in the franchise agreement. Many franchise systems are not FANZ members, but good franchisors will often have similar arrangements.
Research Although the franchisor should provide you with information about the company and the industry in which it operates, it is important that you check out the quality of this information for yourself. Use the internet (our article at www.franchise.co.nz/article/446 suggests some useful tips on how to do this) and ask the franchisor: What do you see as the future of the industry you are in? How is digital or other disruption affecting it? Where does this company stand in its industry? What do you do to keep up with developments? Is there a viable market for the franchise’s product/service? Is there still room for growth? What is its market positioning, eg. price, image, quality? How do you maintain margins? How dependent is the business on price competitiveness? How good is the competition? These questions apply in all industries, from retail to lawnmowing.
The areas that you will want to examine may be divided into:
What direction is the franchise company moving in? For example, is it adopting new technology as it becomes available/affordable? Is this important? How will new technology affect costs for franchisees?
• Business experience • Research • Financial/costs • Marketing • Legal
What exclusive rights to a territory do I get? Can my territory be eroded by the franchisor? At a later stage can I sell off part of it if I choose to? How do you define a territory: eg, number of businesses, homes, geographical area, people, type of population? Do I get first option on an additional territory? What is the procedure if you plan to open a neighbouring territory?
46 EDIT 250 Questions.indd 1
• Selection & training • Support • Operations • Communications
Franchise New Zealand
Summer 2021
Year 29 Issue 04
2/12/20 1:41 PM
