Franchising is successful – the franchisor and franchisee failure rates are stunningly low compared with non-franchised businesses where the failure rate is commonly quoted at between 50-80% – (source ‘Natwest British Franchise Association Survey’).
Franchisee failure rate is under 5.3% – (source ‘Natwest British Franchise Association Survey’).
Franchising is a process whereby a successful business owner, has developed a highly marketable, sustainable business, and creates an opportunity for others to own their own business, using the same successful formula trading under the same business name.
For franchisees, franchising is not,
- A licence to make money.
- A foolproof way to go into business.
- A way to own a business where someone else does all the work and takes all the risks.
There are responsibilities for both the franchisor and the franchisee for the business relationship to work.
There is no single way to franchise a business. Although the basic principles on which franchising is based do not alter, each franchised business must reflect that particular business and its nuances. There are far too many variables including a wide range of industries to have one system applied. It would make sense that a service franchisor wouldn’t run their business the same way as a retail chain when they are completely different business environments. In retail, shop leases can impact arrangements between the parties, but would not be a relevant consideration in a window cleaning or mobile franchise.
Franchising is just another way of doing business. Franchising is ‘working for yourself, but not by yourself’. Franchising in Australia has been very successful.
30 points to consider when you are looking at purchasing a franchise.
It’s important to do your research and ask about all elements of the business when you are considering purchasing a franchise. I also think it is very important to check if the franchisor is a member of the franchise industry body, the “Franchise Council of Australia” or a similar body in your country.
- When did the business start operating and when did it become a franchise?
- What franchising and business experience do the franchisors support team have?
- What is the total franchisee financial investment in purchasing the franchise?
- What are the ongoing franchise fees?
- What will your total outlay be in actually establishing the business?
- Does the franchise operate a marketing fund, how is it operated and funded?
- Who owns the intellectual property and are the trademarks registered?
- When was the last brand refresh?
- Does the franchisor provide any financing arrangements, or do they have any funding arrangement with a particular bank?
- How many company-owned outlets are there in the system?
- How many franchisees do they have and have any renewed their agreements?
- Who will be the main point of contact for you as a franchisee and what is their franchise experience?
- How do franchisees and the franchisor liaise, and do they run regular conferences?
- Does the franchisor provide help to underperforming franchises?
- How often do you need to refurbish the store, or update vehicles, uniforms, equipment, etc?
- Is there a call centre or website for leads and how are these dispersed?
- Is the franchise territory exclusive to you?
- How much control will you have over any ordering and choice of suppliers?
- What initial training and ongoing training is provided?
- Will you get any help with staff recruitment & training?
- What minimum targets, orders or benchmarks to you have to meet?
- Is there a specified time limit for you to commence the business?
- Who finds the site?
- What is the criteria they use to select franchisees?
- Do your own research, develop a business plan and cashflow budget prior to signing on the dotted line.
- Carefully review the Franchisors disclosure document and franchise agreement before talking to your lawyer and accountant.
- Always seek professional business advise from a franchise lawyer and accountant before signing on the dotted line.
- Check blogs out to see if the business is getting any negative feedback from customers?
- Make sure you speak to existing franchises and potential customers before signing on the dotted line?
- Do you feel comfortable going into business with the Franchisor? If you have any doubts, don’t do it.
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