Converting a business to the franchising model can be lucrative but it is not as easy or risk-free as many believe.
Adrian Gaskin has developed a successful franchise model to form
Supanews, Australia’s leading newsagency retailer, with specialist business advice to help him.
Gaskin and his family had owned newsagencies for 33 years and made a good living. Four years ago they decided to look at developing a retail franchising operation under the name Supanews.
"We found ourselves in a great position with 23 stores, 19 of which were newsagencies. We got Deacons [a law firm specialising in franchising] involved and their advice was to franchise," Gaskin says.
"But at first I wasn't too keen because of the history of the industry.
"However, under the guidance of Deacons, Supanews is now the leading
newsagency retailer and the only organisation offering a full business model for the newsagency industry.
"We made two mistakes: one of believing people and their financial claims at face value; and secondly, of believing what they told us about their entrepreneurial skills.
"After meeting a few problems with the process and with franchisees, Gaskin says he held off on expanding the business for a year to work on the model, and to build alliances with business groups that could help Supanews.
In late 2006, Supanews established a joint-venture agreement with the A&R Whitcoull group to form Supanews Retail.
Supanews Retail
business services franchise now has 41 stores. 18 of these are franchised in Queensland, New South Wales, the ACT and Victoria. The group has plans to expand to 60 stores by the end of 2008 through acquisition and the development of greenfield sites. Gaskin says a big hurdle is to get franchisees to be realistic about the potential return on investment, particularly in the case of greenfield sites. Supanews is selecting sites in new areas using specific modelling to test the potential, he says.
"The difficulty is to manage the expansion of a franchise on a greenfield site. We find that while some people say they understand the modelling, they believed they could do better than our model. They borrowed on the basis that they thought they could do better and they got into trouble, so we changed the model. "We have improved our franchise model by acquiring existing businesses, allowing incoming franchisees access to historical figures," Gaskin says.
"We believe that this helps ensure that franchisees and their advisers are better able to make appropriate business decisions."Our current model is primarily based on acquiring existing newsagencies, shop-fitting and implementing the Supanews system into them, and then franchising them for the same multiple as we purchased them.
Gaskin says Supanews buys a newsagency on an agreed purchase multiple based on the profit. The company then uses an independent accountancy firm to do the due diligence with the main aim of verifymg the profit figure. When Supanews takes possession it installs its systems and the Supanews shop fit-out to get a standard look and feel.The store is then offered for franchise for the same multiple as Supanews purchased it and the prospective franchisee is able to complete their own due diligence of the business using the entire original due diligence data as required under the franchising code.
"The only way to grow a franchise network is to have a heap of franchisees saying 12 months down the track, 'that was the best decision of my life'," Gaskin says.
"We are vetting our franchisees' advisers and only allow accredited accountants who fully understand the newsagency business and its complexities to do their due diligence."We also understand that we must have mutual respect between each other to be able to manage through any issue. It's a bit like getting married - you need to know how to resolve problems."
11-Jul-2008