Franchise hand-me-downs

Let’s make the broad assumption that you have identified the type of franchise business which best fits with your own skills, interests, personal goals and available capital.

You may then find yourself asking:

• What are the benefits of starting up a new franchise business?

• Would an established franchise business be a safer investment?

• How can I work out whether a ‘new’ or existing franchise business is best choice?

The prospect of starting up a ‘new and shiny’ franchise business appeals to many people, especially those with true energy and enthusiasm. Perhaps you have been presented with an opportunity to bring a major brand franchise system into a market area that is, as yet, untapped? With proper start-up assistance, full training and ongoing support from a committed franchisor, could you develop a new and highly profitable business?

We’ve heard many stories of successful franchisees who have taken a proven franchise system into a new market and reaped major rewards. Some have been so successful that they have then ‘moved to the next level’ and established additional, profitable units within the same franchise network.

As you may appreciate, there are also other stories of people who thought starting a new franchise business was the way to go. These people began with high motivation but found that the going got much tougher than ever expected.

If ‘starting from scratch’ appears risky then the purchase of an established franchise operation may seem to be the better option. When considering purchasing an existing business we must always start by asking the question: Why is the franchisee selling out?

When purchasing any business, franchised or otherwise, there is a need for serious investigation and research. If the business is not already successful then you definitely need to know why. Is the market/location/territory viable? Does the current franchisee’s operation meet the franchise system standards? Could you, as the new operator, drive the business further?

First steps

Going into your own franchise business starts with real ‘steps of faith’ – faith in yourself and the franchisor. Before we examine the subject of whether the new or existing franchise option may be the best choice we should briefly consider some fundamental issues. In thinking about stepping out of where you are right now, take time to ask yourself the serious question: Why do I really want to go into my own business? Then ask other probing questions, such as:

• Am I simply bored or frustrated in what I am doing now? (Is this just a knee-jerk decision?)

• Can I handle a major change in lifestyle? (Small business involves a huge commitment – long hours, personal energy and capital input.)

• Do I need to increase my income? (Would a job change be a better alternative?)

• Am I suited to running my own business? (Many people are not suited to being their own boss.)

• What do my supporters think? (Do I have the full backing of a partner and/or family?)

Buying a ‘new’ franchise business?

It’s easy to get excited about something brand new. There are obvious challenges when starting up a new franchise business but there is also real satisfaction when it all comes together. If you are the kind of person who has fun building things and/or developing concepts then maybe a ‘green fields’ franchise is the best choice.

First time franchisors

Even reputable, established franchisors may have some poor-performing franchise units. Usually the system is right and the failure is due to the franchisee’s low standard of operation. Occasionally the location or territory decision was wrong. Sometimes there are changes in the local market area that have a major negative impact – changes outside anyone’s control such as entry of new competitors, heavy discounting and diminishing traffic flows.

Location and territory selection

Best practice franchisors understand the key factors that drive their business. They know how to identify a prime site and/or allocate a viable franchise territory. They have established selection criteria and have learned how to do the necessary background research and market evaluation. I suggest it is vitally important that you also do your own research to confirm the franchisor’s opinions. Ask the franchisor to detail and explain their selection criteria so that you can do your own appraisal. Discuss your research findings with the franchisor.

General planning issues

For anyone ready to buy a franchise (new or existing) the message is always the same: Do your homework! Regard your research and planning effort as part of your overall investment. The following comments embrace many of the general issues confronting all franchise seekers.

Read on about Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.