Ready for Lift-Off

Looking to launch into your new future? Here are 10 reasons why now is a good time to buy a franchise

The idea of launching your own business is both an exciting and scary one at any time, and in the wake of a global pandemic, it might seem crazier than ever. But if you’ve ever wanted to be your own boss, now could be the best possible time to make the move – providing you make the right move.

Buying a franchise can help you there, because you can see how the business model performs before buying it, and there are plenty of opportunities available across all sorts of industries. You’ll also get the training, support, systems and marketing you need to get yourself established, not to mention the buying power that comes with being part of a larger group. All these things add up to reduce the risk, and increase your chances of success.

So why is now a good time to make the move? Let’s count down some key reasons why you – and your new business – could be ready for lift-off.

10 - Changed lifestyle

New Zealand might have come through the pandemic better than many other countries, but lockdowns and border closures meant that many people became aware of their lifestyle preferences. You don’t need to commute constantly; you can work from home if you choose; you don’t need to live in the city and, best of all, New Zealand has some wonderful regions where all these choices can be enjoyed without having a massive mortgage hanging over you. Instead, you could invest in your own business and live life on your own terms.

9 - New options

A franchise can offer you a new career, an opportunity to turn an interest into a business, a chance to work with a family member or friend. It can create an income, a return on investment, and an appreciating asset. According to pocket and preference, you can start a new outlet from scratch and make a larger capital gain for yourself or take over an established business with existing cashflow. Some franchises also allow you to work parttime, either in addition to a full-time job, as a secondary source of income, or as a way to build up confidence or experience before going full-time. There are also semi-passive investment franchises such as vending, cabin hire and laundromats.

8 - Where to invest?

New Zealanders have traditionally been big investors in property, both in terms of owning their own home and having a rental or two for retirement income. Much of the appeal of such investments lies in the expectation of constantly growing property values and the lack of a capital gains tax. While the current Government has ruled out a CGT (for now), recent changes to housing policy have removed the tax deductibility for interest costs associated with residential property investment. Along with the extension of the bright-line test from 5 years to 10 years, this will further reduce the commercial benefits of residential property investment – see Updates on page 16. Bank interest rates have been at historic lows for some time, and seem unlikely to rise considerably any time soon, so where do you invest instead? While cryptocurrencies, the share market and gold all have their fans (and their risks), if you have the desire to own your own business, a franchise can be a good option.

7 - More efficient franchise models

The last 18 months have been tough for all sorts of businesses, and franchises are no exception. Many business models have been stress-tested and come out stronger, with a renewed focus on franchisee profitability, not just sales growth. Franchisors have looked at ways to reduce costs for both new and existing franchisees. In some cases, more efficient or online training has enabled them to reduce upfront fees. In other cases, they have renegotiated prices or terms with suppliers; introduced new systems to manage costs; or found ways to improve productivity or reduce wastage. All these changes add up to produce a better bottom line for franchisees.

6 - Better relationships

During tough times, franchises also score over independent business owners in having a support structure – not just a franchisor team of experts in different disciplines, such as marketing, purchasing, digital systems and operations, but also a network of fellow franchisees who share the same issues and are also looking for solutions.

During Covid, franchisors and franchisees came up with a lot of new ideas and, because of their size, were able to test and implement solutions quickly. There was more communication than ever. As a result of this, many franchise relationships grew stronger. For franchise buyers, this created a perfect opportunity to see how a franchisor performs and what support really looks like with a brand. You can learn a lot about a brand by asking current franchisees about their experience – see Questions to Ask About Support on page 46.

5 - More choice of locations

If your preferred franchise will operate from premises, there’s never been a better time to look. Sadly, the pandemic saw a number of businesses close their doors for good, leaving empty shops available and landlords looking for new tenants. In many cases, those were good locations – it was just that the previous business wasn’t carrying enough reserves to be able to ride out the lockdowns and lack of foot traffic. It means that there are now some good deals to be done. You’ll also be able to see how the landlord worked with their tenants during the various alert levels. The majority of commercial landlords tried to help; a notable few were totally unsympathetic. Franchisors learned from those lessons – and, as a new tenant, you get to choose where you go – see Leases & Landlords at www.franchise.co.nz/articles/3332.

4 - New or existing?

Over the past 18 months, many franchisors focused on supporting their existing franchisees rather than growing their network. As things improve, they are now looking for new franchisees for many areas around the country, including the growing regional centres. This means a wide range of new start-up opportunities with advantages such as price, potential capital gain and choice of locations – see Why Buy New at www.franchise.co.nz/ article/2724.

At the same time, a wide range of existing outlets are likely to come on the market as franchisees start to consider moving on. Many were ready to sell or retire, but kept running the businesses which provided a good, reliable income; others were unable to sell in such uncertain times. Good established businesses with established cashflow will always fetch a premium, but there will also be others where owners are keen to sell in order to get on with their other plans.

There will also be cases where, sadly, some franchisees have exhausted their reserves or energies and have to sell. These businesses may require more work to recover, but if they are in good locations and the new owners are not carrying too much debt, they could prove to be excellent opportunities. Potential buyers should look at past performance, talk to the franchisor and, as always, consult a specialist franchise accountant.

3 - Money is cheap

For the past few years, interest rates have been at historic lows, making borrowing to fund a new business more affordable than ever. At the same time, property prices have gone on rising, giving many people greater equity in their homes and increasing their borrowing power. Borrowing against your property is one of the cheapest ways to fund a business purchase, although it has to be properly planned – see Structuring Funding and Reducing Costs on page 22. You also have to ensure that you allow for rising interest rates during the term of the loan, although these are expected to remain at relatively low levels for the foreseeable future. This is another area where taking professional advice is important.

However, banks are very interested in funding good franchises because of the way they performed during the pandemic. They will review each opportunity on a case-by-case basis, of course, but where a franchise has a strong track record and the business proposition and security stacks up, funding will be available.

It’s also worth noting that both franchisors and funders will more than ever want to make sure that new franchisees are properly resourced. This should be reassuring for would-be franchise buyers: undercapitalisation is one of the main causes of business failure, so to have people helping you avoid that situation reduces your risk – see Taxing Times on page 74.

2 - Improving markets

New Zealand will benefit. Commodity prices are strong and, although we might not show the double digit growth of some other economies, that’s because we didn’t decline as much. We’re actually pretty well-placed for the future. Our vaccination roll-out might be slower than ideal, but is underway and the borders will open again.

While some of the New Zealanders who returned during Covid-19 will be lured back overseas, there will be pent-up demand from visitors eager to see relatives again, tourists keen to experience our country, people wanting to work here and immigrants looking for a better life. It won’t happen overnight – but it will happen.

1 - Ready for summer

2022 might seem like a long way away – but if you’re thinking of getting into a new business, that’s not far at all. Finding the business you want, doing your due diligence, arranging funding and then going through training will all take time, even before you open your doors or get your show on the road.

Even then, no matter how good the training, you won’t be fully up to speed with your new role for the first few months. It will take a while before all the little everyday tasks become automatic and you can start to focus on working more efficiently, building your customer base and increasing your profits.

Success in business is partly a matter of timing. That’s why, if you want to change career or own your own business, it makes sense to start now and get valuable experience under your belt before things really get going.

We have lift-off

For all these reasons, now could be a great time to make the move into business ownership. Start your own countdown now and get ready for lift-off.