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10 ways to maximise your franchise investment

Sarah Stowe

Franchising is an attractive option for many people looking to start their own business because it often comes with established business processes, assistance from the franchisor, and even an established customer base and recognisable brand.

However, any new business carries risk and the key to maximising your investment in a franchise is to minimise those risks as much as possible.

There are 10 key ways to maximise your franchise investment;

1. Choose the right franchise according to your personal interest, skills and compatibility

Like any business, a franchise is more likely to succeed if you are personally committed to it. Franchise businessess can often demand long hours and constant attention from the franchisee. If you are genuinely interested in the business, then the long hours will seem shorter. It is worth projecting what your life will be like a couple of years down the track – will you be happy to be doing this role day in, day out for the next few years?

2. Choose the right franchise through research and due diligence

While a franchise may have a well-recognised brand name and seem like a good investment, it is still vital for a potential franchisee do conduct careful due diligence before committing to the purchase. It is quite possible that the business is failing for some reason, or that there are other hidden problems with the business. Thorough, comprehensive research is the only way to be sure that a franchise is a good investment. Talk to a wide cross section of franchisees in different areas. Ascertain the support level from the franchisor in terms of in-field support, marketing and sales support and general business advice. In particular, it is important to understand the complete costs of the franchise including ‘get in’ royalties, advertising levies and ‘get out’ fees that might need to be paid to the franchisor and or landlord.        

3. Get an independent opinion
An independent advisor can be invaluable in the decision-making process. They can help point out potential negatives as well as positives and, because they are not emotionally invested in the decision, they can help clarify whether the franchise really is a sound investment. Ongoing, a good business advisor will help ensure the business is running smoothly and can help identify and solve any potential issues before they affect profits. Value for money in terms of what you receive for what you pay and the overall asset backing and financial position of the franchisor are all important considerations.

4. Don’t overcommit
Investing more than you can afford into a business means there is no safety net or cushion to help keep it running if profits aren’t rolling in immediately. Committing the right amount of funds means you should still have some left over to avoid having to wind the business up before it really gets going. The ability to fund working capital requirements particularly in the early build up period is essential.

5. Consider choosing an existing, successful business
Setting up a brand new business in brand new premises, even with the might of a franchise system behind it, is more risky than simply taking over an existing, operating business. The advantage of taking over an existing business is that there are real sales figures to examine in your due diligence rather than simply projections. However, the same level of research and due diligence should apply.

6. Conduct marketing
No business can thrive without a solid investment in the right kind of marketing both now and in the future. Work with the franchisor to see where the marketing opportunities are and how you can benefit from emerging trends and opportunities.

7. Structure the finances properly
Setting up a new business, including determining how much salary you will receive as the franchisee, can be complex. However, expectations on what is a realistic market salary for owners is important to establish upfront. While it may be necessary to take a reduced salary at the beginning of the venture to assist with cash flow this should not be a long term approach.

8. Add more businesses over time
Like property investments, franchises can help grow your income exponentially if you make the right decisions at the right time. More franchise locations, for example, can mean more work but can also multiply your profits. A multi-franchise approach can take advantage of economies of scale within the same franchise system, with no additional learning curve and with risk being relatively lower given you already know and understand the business.

9. Stick with the proven system
Successful franchises have a tested and proven system that benefits franchisees. Everything from procedures and processes to marketing and branding are covered within the franchise system. Franchisees who execute according to the system are more likely to be successful than those who try to go outside the system. If you have an idea for improving the system, take it to the franchisor, since they may have already thought of or attempted the change you’re suggesting. In most cases it is advisable to defer to their judgement. Non-system followers usually do not make successful franchisees.

10. Have a good exit plan
Whether you plan to maintain the franchise in the long term or simply get it up and running to sell it, having a solid exit plan in place will help maximise your return on investment. The exit plan should cover how you plan to exit the business and when. It should include contingencies such as what to do if the business is failing or the market changes dramatically. A professional business advisor should be able to help you develop an exit plan that will help you achieve your goals in all kinds of circumstances.

A franchise can be an excellent way to secure your future and generate a strong income. By following these 10 steps you can maximise your franchise investment and minimise the risk involved in running your own business.