Looking for a franchise that will pay dividends on your investment? Take some simple steps to get closer to that winning franchise.
Taking hold of the future by buying into a franchise network is an exciting proposition. Everyone is trying to solve the dilemma of which franchise to choose and there is no one-size-fits-all solution. Personality, aptitude, ambition, time commitment and available finance all contribute to a profile that reflects what will suit you but not necessarily your neighbour.
The key to success is to unlock the doors that lead you to a unified front; you, your family and the franchisor sharing goals, expectations and understanding. Winning franchises don’t have to be about the fastest growth or the biggest profile but you do want to find a franchise that provides support, is transparent in its dealings and offers a good return on your investment.
Here are some ways to gain confidence that the franchise offers what you want.
Understanding the franchisor’s expectations
Kevin Bugeja has been a franchisee and now runs Franchise Selection, a franchise recruitment consultancy.
Like any good business, a franchise company will want to populate its system with great people. Since franchising has as its foundation a strong, consistent brand, a franchisor looks for franchisees who will present the brand in the most positive light. In the same manner, franchisors will want to have only those people as franchisees who are able and willing to learn the system and work within the specific parameters of the business.
When researching a franchise company, you will find that they may have as many questions about you as you do about their company. A franchisor is putting its time, money and reputation on the line, so most have developed a profile of a successful franchisee which is used to determine if you are right for the business.
If you encounter a franchise that doesn’t discriminate when choosing franchisees, look out. Such a franchise is just going for volume and hoping some of the businesses succeed. Stay clear of these companies as they will not invest in helping you achieve your long term goals. The goal for every franchisor is successful franchisees.
As much as you may want to qualify for a franchise opportunity that interests you, remember that the franchisor has the background and experience to know what type of person makes a good franchisee in its system. While this may sound exclusionary, franchisors have a very good reason to learn what works and then to stick with it.
Successful franchise companies want franchisees to excel. Systems have been refined around a set of standards which franchisees need to thrive.
Talk
Ian Krawitz is head of intelligence at topfranchise.com.au, the website which ranks franchises according to franchisee response.
Don’t be afraid to ask existing franchisees if they would recommend their system. It’s easy to recommend a business to an acquaintance, but a different thing to recommend it to someone you see on a regular basis.
Be thorough in your reference checks. Have a list of questions in your mind of the areas you would like to tick off to feel comfortable about progressing to become a franchisee.
I would be looking to ask existing franchisees whether they would recommend the support provided by the franchisor, whether they would recommend buying into the business as a lifestyle decision or any other key factor to you. That way you will get a good feel for which areas of the franchise are strong and which are a little weaker, so you can make an informed decision and buy into a franchise system with your eyes wide open.”
Research your chosen market
Jim Cornish built Ecowash mobile on a love of cars and a simple business concept.
Look for sustainability, not only commercially but also environmentally and personally. Environmentally you want to make sure that your model is designed in such a way that it won’t be affected by the progressive tightening of environmental restrictions.
At a personal level choose a market in which you have a strong personal interest; the key to success is relationships and you are more likely to build strong relationships if you have a strong interest in your customers.
Check out the social trends; is the market part of a national (preferably global) trend? Current examples include lifestyle and environmentally focused markets.
And review the market potential — is it a new market or is it a model which gives access to a new market segment of a developed market? Is there potential for repeat business and long term contracts? How broad is the market segment for your product or service? Look outside the square to see where the potential is after you have targeted traditional clients.
Choose a franchisor with a good support structure
Bill Lockett is a consultant with Franchise Systems. It is easy to be dazzled by a franchisor’s glossy brochures and elegant website, but what is the reality of life as a franchisee in their business? You can ask the franchisor, but they will no doubt give you a glowing report of their support structure, so it is imperative to talk with as many existing franchisees as possible.
Some questions you could ask include: did the induction programme provide the necessary knowledge to run the business? Did the initial marketing programme bring customers to the business? What assistance did the franchisor provide at the launch? What ongoing assistance is available? Do you get regular visits from the franchisor or its field team and what issues are discussed at those visits?
Find out what ongoing marketing support is given; find out the financial reality of the business and how long it took for franchisees to break even. Ask if there is a centralised accounting system and if the franchisor requests a budget each year.
Discover how strict the franchisor is with standards. Ask what is the communication like from head office and how many meetings are held with other franchisees. The answers to these questions will give a very good indication of how far the franchisor is prepared to go to support their franchisees.
Franchise growth rate
Warren Wilmot leads convenience store 7-Eleven, the MYOB Franchisor of the Year 2008 in the FCA awards.
While there is an obvious attraction to a high growth rate, there is no absolute right answer based on how fast or slow a franchise system has grown. A slow growth system could mean a franchise is conservatively developing a sound business which may be the best approach or that it is too slow, allowing other brands to own the space.
If a business is growing fast (especially in outlet numbers) it could be that it is dynamic, on target and meeting the needs of customers. On the other hand, it could be a flash in the pan and burn itself out quickly. High growth systems would be deemed to be more of a winner if the growth is sustainable for both the system and each operating outlet. The question you need to ask is really about that sustainability from the system’s strategic plans and in terms of customer needs.
Training
Corina Vucic is a director of Melbourne-based human resource consulting firm Franchise Careers.
Franchisees think long and hard and finally come to the conclusion that they want to own and operate their own small business. These small business owners come to the franchise with an array of different skills and it’s up to the franchisor to ensure that they are equipped with the required nuts and bolts of how to own and operate a successful franchise for three, six, 12 months and beyond.
Operational training is essential for all new franchisees. The hands on approach including how to ring up a sale, count stock, manage day to day inventory and provide exceptional customer service is a necessity for any business, not a luxury.
Every franchisor should have a structured franchisee induction program which consists of classroom and on the job training, ensuring integrated operational and managerial learning outcomes. A complete franchisee induction program will be competency-based. This means case studies and assessments will be completed by the franchisee to ensure they have understood and acquired the skills throughout the induction program. Regular health checks throughout the induction program will assist the facilitator in monitoring the new franchisee and their understanding of the environment within which they will be operating their business.
The franchisee induction program should include leadership and management modules for a new business owner. Regardless of whether the franchise system is service, retail, mobile or food, a well executed training plan is a business objective which contributes to the business’ bottom line.
If our team members are well presented and trained, this will result in greater customer satisfaction and subsequently, greater sales. A franchisee buys into a brand and in return should acquire a business system which includes an education arm that will support and guide them in setting up and growing their business.
Choosing a franchise with a distinct brand, product or service
Nick Hudson is national franchise manager of Snap On tools, which last year celebrated 30 years in Australian business. Irrespective of the product or service that we may want to buy, there are inevitably many choices available in the market place. Brand will influence us more than any other single feature as the brand typically qualifies quality, experience and variety, which provides perceived security.
Once the decision to buy a franchise has been made, the prospect’s selection process as to which franchise to invest in applies. With some 1000 franchisors in Australia to consider, there is no better example of the power of a brand in that selection process.
When a brand projects and communicates emotionally with a prospect then that prospect will connect with it. A product recognised as the benchmark within the industry is a good start; look for a brand that defines quality and reliability. The perception is that those values synonymous with the brand and products are reflected in the franchise offering.
In-depth financial information
Nick Prohasky is a consultant with franchise-experienced consultancy DC Strategy.
Quality financial information is a must have when looking at any business opportunity. Prospective franchisees must demand of franchisors a level of information which completely satisfies their (including advisors) queries about the businesses financial performance.
When buying an existing business, historic financial information helps build an understanding of potential returns and investment attractiveness. However, don’t just rely on data from the business for sale; ask to see a range of results from within the network.
Greenfield franchises have to rely on information from comparable businesses to assist in making projections about potential financial returns. New business financial projections should be based on a range of historical network data. Ask to see an example of low, medium and high performance within the network. This helps build a conservative position with limited downside risk.
The bottom line — if you’re not comfortable with the level or quality of information or willingness of the franchisor to share data, be prepared to walk away.
Location, location
Warren Billett, regional development manager, Retail Food Group which includes bb’s cafe, Brumbys, Donut King and Michel’s Patisserie.
In retail, what you offer as a product, and who your target consumer is will set the major parameters for your starting point for a site.
A strong brand with a destination product can be located in the second or third best site or in a quieter mall than a brand that sells a product that feeds off the impulse purchaser. A brand that does not have a strong drawing power is better located in a higher traffic area to maximise its chances of optimum performance.
High frequency retailers generate higher traffic which other specialties can leverage. Supermarkets, newsagencies, bakeries, McDonald’s, and chemists are examples of key tenants that can help your business in a shopping centre.
Once a franchise system has a significant numbers of sites, benchmarking sales performance against particular anchors can better identify future sites.