Searching for the perfect franchise business

Although franchising is a proven business method there are always risks. In order to limit these risks, there are a number of factors that should be considered.

Evaluate yourself

The first step is to honestly and thoroughly evaluate yourself and your motivations. Some things to consider are what your goals are, how many hours you are willing to work, and whether you would be happy operating a business for the next five or 10 years. Are you good with people?

What type of business?

Next think about the type of franchise business that is right for you and which fits your personality, expectations, your existing abilities and investment limitations. When ascertaining the type of industry you want to work in, ask yourself the following questions: Do you have specialised knowledge or skills that you can bring to the business within that particular sector? Do you need to be trained?

What you need to know about the business?

Try to learn as much about the field of business that you are interested in by attending franchising expos and investigating websites of relevant franchisors. However, marketing material on websites and in brochures can be biased so don't put too much reliance on such material.

Existing and past franchisees can provide a more realistic view of the business so contact them. You might like to ask whether they have received adequate training and advertising support from the franchisor, whether they are satisfied with the overall franchise system, how long it took them to cover operating costs and earn a reasonable income, and whether the franchisor has been able to comply with its obligations under the franchise agreement? Don't rely on franchisees suggested by the franchisor, make your own enquiries.

The documentation you need

You should seek from the franchisor a copy of their franchising documentation, which should include at the very least the franchisor's disclosure document, franchise agreement and a copy of the Franchising Code of Conduct. These documents need to be looked at carefully to ascertain whether the terms of the franchise are aligned with your business interests; you may want to seek legal advice to ensure that you completely understand the terms under the franchising arrangement.

When assessing the franchise arrangement it is important to make yourself aware of any prior litigation that the franchisor or its executives may have been involved in. Franchisors are legally obliged to disclose such information in their disclosure document but you should be aware that some may deliberately avoid doing so. You may also request further information such as financial data and forecasts, and to view a copy of an operations or instructions manual to assist with understanding the daily operation of the business. Where you are considering purchasing an existing franchise, it is also prudent to seek from the current franchisee selling his business historical trading information.

Assess financial viability

In determining the economic and financial viability of a particular franchise business arrangement, it is wise to gain the advice of an accountant who is well versed in franchising. You will need to consider whether you can, in fact, afford to enter into the franchise system, taking into consideration the necessary payments you will be required to pay if the anticipated turnover or sales are not met; how you intend to finance the business and how you intend to structure the business, that is, either as a sole operator, a partnership or company.

There are many other considerations to take into account. Do your research, ask lots of questions and hopefully you will find the franchise business that is perfect for you.

This article was written by Tony Garrisson, a Principal in the franchising and commercial division of Mason Sier Turnbull .

This article appears courtesy of Franchising Magazine