Franchise Alliance is a body of franchise consultants throughout Australasia specialising in new business format systems and they recognise that for most people, the prospect of looking to buy a franchise can appear frightening and confusing. The main reason for this is that it is a new experience clouded by uncertainty and encompassing a range of new issues that appear on the surface to be complicated.
In reality, as the experienced can testify, it is not such a complicated process if sufficient preparation, sound franchise advice and an orderly process are applied.
It is important for ‘first timers’ to have a plan of attack to find and select the best business. Not surprisingly, it helps to have the right set of tools to assist in that selection. This simple plan backed up with a selection process will make the journey easier – all you have to do is follow it! The process consists of six simple steps accompanied by a checklist which allows you to make a comparison and your final selection.
To start
The starting point – step one – is to assess the financial aspects of the decision to buy a franchise, that is, to look at affordability from two sides.
Firstly, exactly how much can you afford? In answering this question, work out the sensible and conservative limit you should invest. Your accountant or investment advisor can assist you to assess the safe limit of your purchase.
There is no sense in stretching your budget to buy a business only to find that, if an economic downturn occurs, you are under financial stress and you have to sell it to survive! Buy only what you can sensibly afford today. Do not buy what you can only afford if everything goes right. Something is bound to go wrong, so allow for contingencies.
The second consideration – ‘Can the business afford you?’ - is just as important a question to answer. In recent surveys of seminar audiences we found that more than 70 percent of participants did not have a household budget worked out. This simply means that they did not know how much money they needed to cover all necessary domestic expenses. This is dangerous when considering the purchase of a business. Franchise Alliance recommends that you will need to draft a detailed household budget, right down to the last $20 a week in expenditure. You may get a shock – most people do – but you need to know this figure to make sure that the business can afford you.
This simple step might eliminate around 80 percent of franchise opportunities for most people; there is no point in looking at things that you cannot afford to buy or that will not provide for your needs.
Casting the net
Step two is to look at the franchising industry as a whole in order to find a business which matches your skills.
Thanks to technology gains over recent years you can now research most industries on the internet. You can add to this research by reading articles and journals which will provide you with an insight into the state of the market or perhaps suggest some future trends.
Speaking of technology, you should be cautious about businesses which are technology dependent. That is not to say that they might not be a good investment; just ensure that the industry you are looking at has a future, so that it can provide you with a profit when you sell it to retire or move on to another business.
It is important that you find a business which is compatible with your skills or those which you can readily learn. There is little point in buying a business which demands skills that you do not have and cannot learn. The franchisor or their staff should be keen to see that you are compatible in this area; if you are not, look for something else.
Checking the fit
Step three is to make sure that the business fits you. Franchise Alliance realises that we all have personal issues to consider either when we have a job or own a business. It is critically important that you sit down with the members of your family and ask them how they feel about you being in a certain type of business.
Think about the time needed to work in your own business and how you will manage. It may be that you are heavily involved in sport or some other social or community activities. If this is the case then it is most likely that your business will interrupt these activities; at least in the time it takes to get well established.
So, if you are not prepared to make those sacrifices, think twice.
It is also important to feel comfortable telling friends and associates what it is that you do for a living. Make sure that you feel good about the prospects of being in a particular type of business.
Choosing the best
You do deserve the best, don’t you? Of course you do, and by now you are probably looking at two or three opportunities to select the best one for you. For this fourth and important step, you will need a process. The process is to have a checklist of questions to ask each franchisor and then once you have all of the answers you should be able to select the best business for your needs. Most of the time the best is easy to see. If you feel equally confident about two businesses, but you feel more comfortable with a particular franchisor, then make that selection.
This is when to use the 50-point checklist. Don’t be embarrassed to have a prepared list of questions to ask; the interview process with a franchisor is meant to be a two-way process, so they will expect it.
The importance of advice
Step five is crucial… get advice! This may seem fundamental; however, the most common cause of franchisee unhappiness is that people did not realise what was in store for them when they signed up and they did not get advice to find out. Some elements of this step will cost you money, but look on this as an investment to make sure that you do not make a mistake. There are three key sources of advice that you must get.
Commercial advice. This is not likely to cost you anything, so do this one first. The best source of this advice is from the franchisees who are already in the franchise system. The franchisor is obliged to provide you with a list of the current owners and their contact numbers. Ring at least half of them (or up to, say, 10 if there are a lot). You must be honest with them and tell them why you are calling and make sure they have time to talk to you… they are likely to be busy! Ask them about the franchisor, training, support etc. Don’t ask them about financial matters as they will not discuss these with a stranger any more than you would. The best question is to ask them if they are happy. Not all of them will be – we all have bad days. If the overall ‘happy’ scale is high then it is a good sign; if not then this is a sign of something being wrong. When you go back to your franchisor for another chat ask them about it.
Accounting advice. Being confident about the financial prospects of your target business is one thing, being right is another thing altogether. Make sure you get an accountant with experience in the franchise sector to check things out for you. It is too easy to be optimistic and take unnecessary risks. Your accountant should balance your enthusiasm with reality, just in case you have got carried away. They should be cautious, but make sure that you make the final decision.
Legal advice is a must. You should not buy any franchise without it. While the terms of the Franchise Agreement may seem clear to you, there are normally many clauses that require clarification. Again make sure that you talk to a solicitor with experience with franchising. They are likely to list a few things for clarification with the franchisor; however, bear in mind that it is unlikely that a franchisor will make major changes to the agreement for individuals, so don’t rely on that happening. The agreement will be deliberately skewed in favour of the franchisor and that is necessary to provide them with the power to deal with a renegade franchisee to protect the system and the investment of each franchisee.
Decision time
Step six is either a ‘yes’ or a ‘no’. Whatever you do, don’t procrastinate. You have spent a lot of time and some money (and you have used up a lot of other people’s time too). It doesn’t matter if you don’t feel confident enough to take the final plunge. If that is how you feel it is better to say ‘no’ than to go ahead while uncertain. The journey that you have just completed will make it easier next time around and you will probably find the right business quickly.
Read about buying a franchise and running a franchise.
4-May-2006