Before you dive into a franchise agreement, here are 6 questions you need to ask.
With franchising often referred to as a “commercial marriage” the importance of finding the “right match” cannot be underestimated for potential franchisees.
An effective due diligence, including input from a franchise specialising accountant and lawyer, is a key step in preparing for the journey but on a more personal level there a few things worth checking out first.
For example:
1. Am I suited to franchising?
Business format franchising requires a readiness and commitment to follow a prescribed way of doing things. Uniformity and consistency are essential ingredients of franchising and are designed to enable franchisees to maximise their business health and financial return. However, if rules, procedures and authority frustrate you then perhaps this commercial marriage may not be for you.
2. Is this the right industry?
Franchising techniques have been successfully applied across a wide range of industries but just because it is a franchise does not mean it is right for you. There can be enormous differences even in similar categories. For example, in mobile services compare the role of a dog groomer to a pool maintenance technician. In food compare the early starts required in a bakery franchise to the late finishes in some hospitality based concepts.
3. Am I looking in the right price range?
Entry costs for franchises range from less than $20,000 to more than $2 million for some of the larger concepts where fitout, property and stock costs can be high. An early realistic assessment of your personal financial position and any potential borrowing need can save everyone a lot of time.
It is important for prospective franchisees to look past advertised or estimated entry costs to ensure they understand any seasonality issues that may impact on revenue projections and have adequate access to working capital for any slower periods or contingencies. An inability to provide for sufficient working capital can be terminal.
4. Can I get access to finance?
All major banks have dedicated franchise lenders and in recent times the sector has welcomed the increased investment from regional banks and non-traditional lenders. Like any business proposition, finance is simpler and cheaper when the borrower is in a sound financial position or in the case of franchising when they are dealing with a brand that can demonstrate a solid track record to lenders.
Tools like The Australian Franchise Registry can help prospective franchisees uncover those brands that have invested in making themselves more “lender friendly” which in turn can promote easier finance access for their prospective and existing franchisees.
A clear understanding of your borrowing requirement and an accurate statement of assets, liabilities and personal expenses are prerequisites to a good start with lenders. Filters on leading online directories, like Inside Franchise Business, allow prospective franchisees to identify price ranges for brands they may be interested in which helps clarify any potential borrowing requirement and commence those conversations with prospective lenders.
5. Will the franchisor get me ready for early success and support me on an ongoing basis?
Quality franchise brands provide strong initial training to ensure the success of new franchisees and effective ongoing support to keep them and the overall brand successful. Strong brands will be proud of their approach in this area and generally in a position to provide clear information early in the process.
6. Could this work for my family?
Finally a key ingredient for many successful franchisees has been the engagement, involvement and support of their families.
Like any small business franchising can be tough; early starts, long hours, hard work, staffing headaches and tenancy issues. None of these things individually are insurmountable but it is important to consider the capacity and willingness of other family members to provide support and to ensure potential impacts are manageable.
Once initial comfort is achieved across these areas, a more formal due diligence process can be commenced to progress your journey of operating a successful business.