Pointers for buying a franchise

There are close to 54,000 franchised businesses in Australia and the number is growing almost daily.

One reason for this growth is that more people are realising that becoming a franchisee can often be much cheaper and much less of a risk than setting up their own business. They also realise that as franchisees they will not have to reinvent the wheel. They can buy their way into an operation which has ‘tried and tested’ products, systems and procedures, guaranteed suppliers and a brand name that is not fighting to make its presence felt.

However, before investing in a franchise business, prospective franchisees need to do their homework. In addition to having the necessary capital, they must have trust and confidence in the franchisor – the person who owns the franchise system. They also need to know they can trust the franchisor’s systems and ways of doing business. The best ways of doing this are to make an assessment of the franchisor’s character, conduct their own research and ask questions of franchisees that have joined the franchising chain.

While the franchisor might willingly provide much of the information, potential franchisees need to consider the following and also make their own enquiries:

· Find out as much as possible about the organisation you are thinking of joining and about the franchisor’s reputation;

· Try to find out how much demand there is for the goods or services offered by the franchised business in the area where your store will be located;

· Make an assessment of the strength of the franchisor’s brand;

· Evaluate the proposed site’s ease of access for customers and for suppliers to make deliveries;

· Try to gauge how much direct and indirect competition there is in the area;

· Decide whether the demographic information provided by the franchisor is adequate or whether an independent assessment is required;

· Undertake company searches, litigation searches, trademark searches, permit searches, and make any enquiries you consider relevant and necessary. If the franchisor is being sued or is threatened with legal proceedings, its brand name, its reputation and your investment could be at risk. The same may be true if the franchisor does not own the intellectual property that makes its business successful.

· Ask the franchisor to explain its expansion plans. Does the company intend setting up another store in the area that will compete with yours for business?

· Make doubly sure that the bank will lend not only the initial sum required to get started but also money for all the capital requirements.

For further information, read about Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.