9 minute read
Get The Right Advice
Buying a franchise can be a great way to get into your own business – but there’s still an element of risk involved. That’s why using the right advisors is essential, says Simon Lord
If you’re thinking of buying a franchise, you’ll find you have a huge range of opportunities to choose from. There are around 600 different franchises in New Zealand and they cover a huge range of industries and operating styles, from man-and-a-van operations to multi-million-dollar restaurants. Many of our best-known and mosttrusted brands are franchises.
But just because a franchise is well-known doesn’t mean that it will suit your own situation, and it doesn’t mean that every new outlet will be profitable, either. That’s why, if you’re looking at buying any business, you need to take good professional advice so that you can be sure you’ve made the right decision and enjoy the peace of mind you need to focus on growing your new business. Strangely, many people don’t bother to do that when it comes to franchises. Why not? Well, having talked to many new franchisees, it seems that too many people:
Assume that everything will be okay because the franchise has a good reputation;
Think that by not using a lawyer or accountant they will save money on professional fees that they need to invest in the business; or
They use an inappropriate advisor – the family lawyer, for example –who might be great at conveyancing but have little experience and few contacts in the franchise world.
Alas, the people who take these appealing shortcuts often learn an important lesson the hard way.
While franchising can be a great route into business for many people, as the various profiles in this magazine show, it’s not right for everyone. Research carried out in Australia a number of years ago found that 20 percent of respondents admitted that they had no idea of what they were getting into when they bought a franchise. It suggested that people are prepared to pay $50,000 or $200,000 for a franchise, but they are not prepared to spend the time or money they should on finding out what they are getting into.
That’s not just scary – it’s crazy. One of the most common causes of franchisee failure is poor choice or inadequate research by franchisees. A small investment now can save a lot of distress later.
Don’t become a bad statistic
The failure rate of franchisees in New Zealand is generally very low, but it can and does happen. Whether it’s the fault of the franchisee, the franchisor or something beyond their control like a pandemic, an unsympathetic landlord or a changing market, you don’t want it to happen to you.
It’s vital, then, to check out the differences between franchises to make sure that any opportunity really is as good as it seems to be. Here’s why it’s worth spending a little time and money on advisors, whether you’re buying a lawnmowing franchise or a million dollar restaurant:
You’ll save time (and maybe even money). Choose experienced advisors and they’ll probably have come across the franchise system you’re investigating before. Even if it’s new to New Zealand, the chances are they will be able to find out more about it from contacts overseas than you will. And if it’s a brand new system, they will at least know the characteristics to look for in a successful franchise. They might cost more per hour than non-specialist advisors, but they will give you better advice and take less time about it.
You’re less likely to make mistakes. You might not know what rents or margins are normal in a certain industry, but your advisors should. You might not know whether a sub-lease arrangement leaves you exposed, but your lawyer will. You might be new to business borrowing, but your banker will know what is and isn’t possible – and the fact that you are buying a franchise may mean special terms are available if you talk to the right people.
You’ll know what to expect. One of the most important tasks of your advisors is to ensure that you know exactly what the franchise entails and that you know what will be expected of you as a franchisee. That will not only help you to make the right choice of business but also enable you to settle into your new role faster.
You’ll be confident your chosen franchise will meet your needs. Whether your reasons for buying a franchise are short-term growth, long-term security or lifestyle, involving advisors and briefing them honestly about your goals will help ascertain whether the business will really meet your needs.
You’ll get impartial advice. If you find a business you love, it’s easy to focus on the positives and miss some of the warning signs. For all sorts of reasons, a good franchise may not actually be the right one for you. Advisors can help you see beyond the dream to the reality, and help you make the right decision.
What advice do I need?
The three key people that you need to speak to are a lawyer, accountant and, if you are going to require finance, a banker. Many franchise professionals believe that getting good legal advice is so important to a prospective franchisee that Franchise Association members have to tell purchasers:
‘You are also required to have the Franchise Agreement explained to you by a solicitor experienced in franchising and you should seek financial advice on the franchise proposition from an accountant experienced in franchising.’
When you buy a franchise, you are getting into a legal arrangement that involves rights and obligations on both the franchisee and the franchisor. It is therefore extremely important that you should have a clear understanding of what those will actually mean to you in practice.
How about using an accountant? Well, one of the primary reasons for buying a business is to make money, so you want to ensure that the franchise you are considering is actually a sound proposition and that it can provide the financial returns that you are looking for. An experienced accountant can help you investigate this. See page 76 of this magazine for financial tips.
As for franchise bankers, the good news about them is that they have a huge amount of expertise and knowledge about different franchise systems but they aren’t actually going to charge you anything for sharing it. It’s therefore a simple matter to talk to them fairly early in your researches to find out what they know and start to build a relationship with them.
How do you choose the right advisor?
So how do you ensure that your chosen advisors are the right ones for you? Here are some tips.
Don’t assume that your normal family lawyer or accountant has the skills to analyse a franchise opportunity. Franchising is a specialist field and it pays to use specialists. They may charge more per hour but they will know what is and isn’t acceptable, they will have contacts in the field and they may well take less time than someone inexperienced in franchising.
Look for advisors who are demonstrably focusing on the world of franchising already. The Directory in the back of this magazine is a good place to start, as it lists those with specialist knowledge in this area.
Choose people who are able to demonstrate knowledge and experience of franchise systems in the field in which your chosen business is operating. Don’t be afraid to ask for a summary of their relevant experience. There’s an expanded version of the Directory online at www.franchise.co.nz with more details on the top advisors.
Check the reputation of each advisor with your other advisors –some may work particularly closely with other specialists and be able to recommend someone.
Make sure that you choose people with whom you can build a good rapport. You need to be honest with your advisors and trust that they will respect your confidences and give you good advice. In all likelihood, you will be working with them not just while you are buying your franchise but as your business grows, too.
Be prepared to pay reasonable fees for professional advice. It’s not worth saving a few dollars at the outset and getting poor advice. Most advisors charge on an hourly basis, so find out what this is and get a written estimate of the likely number of hours involved. Ask to be kept informed in writing of any extra hours incurred.
Finally
With the right team of advisors behind you, buying a franchise can be much less stressful – and less risky – than trying to do everything on your own. The trick is to choose the right advisors in the first place, be honest with them and listen carefully to what they have to say.
At the end of the day, the decision whether to proceed or not will be yours and yours alone, but if you have listened to the voices of experience then you stand the best possible chance of making the right decision for your future success.
More Info
To work out whether any particular franchise is the right one to help you make the leap into business ownership, you’ll need to do some research and ask lots of questions. While nothing can replace using good professional advisors, there are many helpful articles on the Franchise New Zealand website to help you get started. Here’s a small selection.
Where do you start? – how to get into your own business with links to helpful online resources. www.franchise.co.nz/articles/2903
Find the right franchise for you – our guide to finding a franchise that suits your pocket and your dreams. www.franchise.co.nz/article/639
250 questions to ask franchisors – a comprehensive list of questions to help you make the right decision. www.franchise.co.nz/articles/77
Terms you need to know – Franchising has its own jargon which can be pretty confusing to the newcomer. Here’s an explanation. www.franchise.co.nz/articles/3679
Reducing the risks of self-employment –why buying a franchise can make going into business for yourself an attractive option. www.franchise.co.nz/articles/2825
Guarantees - what do they mean? Some franchises offer guarantees of work or income levels. Are they worthwhile? www.franchise.co.nz/articles/242
