How can you make the most of your time at an expo? Start early and do your research, ask questions and be informed advised Dr Michael Schaper Deputy Chairman of the Australian Competition and Consumer Commission .
Australia is home to more than 1000 different franchise systems according to the 2008 Franchising Australia study conducted by Griffith University. Choosing the right one can therefore be a daunting task for a prospective business owner.
Attending an expo can be one way to find out about a large number of franchise opportunities at the same time, but to make the most out of the event your work needs to start well before you walk through the doors.
In order to properly assess those opportunities, you need to be able to ask the right questions, collect the right information and be able to make a meaningful comparison. Every system owner (franchisor) will be doing their best to impress, but just because one business costs three times as much as another one doesn't necessarily make it a better investment.
Your homework before heading to the expo should start with a thorough study of the literate that is available to assist first-time business owners (franchisees).
The Franchisee Manual and the Franchisee Start-up Checklist are two of the free publications available either electronically via the Australian Competition and Consumer Commission website. These are a good place to start, but the more you read the better prepared you will be on the day.
The manual introduces first-time franchisees to a number of important issues they need to be across, such as what rights they have under the mandatory Franchising Code of Conduct, warning signs to look out for when comparing franchises and the sorts of financial information you will need to be able to make an informed decision.
The Code of Conduct
Among its first recommendations is to familiarise yourself with the Franchising Code of Conduct.
The ACCC administers the Franchising Code of Conduct, which is a mandatory set of rules all franchised businesses in Australia must abide by. It provides a number of important protections to prospective franchisees, including specifying information that must be provided to buyers before they hand over any money or sign any agreements. This includes the financial health of the system, relevant legal action hanging over the directors or the business, the sorts of returns that can be expected and the training and support a franchisee can expect from the franchisor.
Once you are familiar with the literature, it may be time to talk to an independent business adviser or accountant to work out what sort of opportunity you can afford, and the type of industry that best suits your skills. This will give you a better idea of the sorts of businesses you should be looking for and will help avoid wasting time on those that are not suitable. It will also help you identify any skills you might be missing that will be important in running a successful franchise outlet.
Key questions
Preparing a list of questions ahead of time is a good idea, so you can compare the different answers provided by those you speak to. The sort of information you should be asking for includes:
- How old is the business?
- How quickly has it been growing?
- What royalties or fees will you have to pay the franchisor?
- How many people have left or not renewed their franchise agreements in the last three years?
- What sort of support and training does the franchisor offer?
- What sort of leasing/site arrangements do they have with their franchisees, and what sort of proximity clauses exist that prevent another business in the same system setting up close to yours?
Much of this information will be contained in the disclosure document, which a franchisor is required to provide to you at least 14 days before you sign any agreements or hand over any money.
The disclosure document will be an essential tool in evaluating the health of a business you are looking at, but it shouldn't be considered the only source of information.
Under the Code, franchisors are required to provide as part of the disclosure document details of how many franchisees have left or not renewed their agreements in recent years, and with the consent of those departed franchisees, their contact details.
If you are interested in finding out more about a franchise after meeting the owners at the expo, ask them for contact details of franchisees.
It is worth asking those currently working in the business questions such as:
- How happy are you with the franchise?
- Do you make the money you expected to make?
- How many hours do you have to work?
- What did you think of the training provided?
- How do you get support when you need it?
- What advertising do you do and have you found it effective?
- Does the franchisor do what the contract says it will do?
- Have franchisees successfully on-sold their franchise?
- Do you have many disputes with the franchisor, how are disputes managed?
It is also worth considering which businesses are not attending the expo. There might be great businesses that are looking for franchisees that are not represented at the expo, so don't fall into the trap of feeling you have to choose between those represented.
The way to gain the most out of the day is to do some research ahead of time, think about what sort of opportunity you are looking for, and prepare your questions. Extract as much information as you need to on the day, and seek out contacts so you can find out more about those that appeal to you. Finally, when you're satisfied you've done thorough research, talk to independent advisers with franchising experience to ensure the business is sound and the financial claims stack up. You should also seek legal advice about the terms of the franchise agreement.
Get all that right, and you will be giving yourself the best chance for a successful entry into the world of franchised business ownership.
This article appears courtesy of Franchising Magazine