Having worked with Australian small businesses for almost 30 years, I’ve seen both the good and bad of franchising. Franchising can offer the business owner so many things. They will teach you how to operate the business. They will often do your marketing. They will have a great documented process on how you deliver the product or service and they will offer you the support in growing and expanding your franchise business.
Franchising can be a brilliant business model if you do three things well:
- Know your limitation and expectations and the limitation of the franchise.
- Do your due diligence well when buying in.
- Follow the franchise system.
Your questions when franchising
Franchising will frequently not work for you if you believe that it’s just a money printing machine and you just pay your fees and the dollars roll in. Like any other small business, it requires a lot of hard work. It might be that your proposed business requires lots of people contact which is not going to work if you are not a ‘people’s person’. It might be quite a physical job and if your knees are going then are you planning on having others working in your franchise? Are you considering buying a franchise purely to buy yourself a job? Are you strapped for cash? Once you make the purchase, expect to allow for 6 months to make no or little money. Do you have a financial buffer to cover this or will your family not be eating for several months? Do you need to factor in time to learn a whole new industry or skill? If the business is somewhat technical and you have never worked in that industry, you will need time to learn the skills of the trade. And let me say, any new business often doesn’t show a profit in the initial few months despite the hours being invested, regardless of the owner’s skill set.
Do your due diligence before buying in! I cannot emphasise this enough. Buying a franchise can be one of the biggest investments in your life; probably second to your house purchase. Get in a solicitor who specialises in franchises. YOU need to have read, several times, the Agreement and list your questions. If you don’t understand a clause, ask your solicitor. Discuss with him/her your understanding of the Agreement. Often franchises offer a guaranteed income period, but when you read the fine print you discover you have to pay it back. Some franchises have the right to take back the franchise from you after a period of time, with no compensation or you have to buy their stock at massively overpriced rates. Also be sure to do your maths. If stock costs you a price, plus there are percentages to pay to the franchise, plus advertising levies, general overheads and possibly a bank loan to repay – check that at the end of the day you are expecting to make a wage and some profit. Seek assistance from your accountant if you need help with this. Do not rely on anything someone from the franchise has told you verbally unless you can see it in writing. Remember this – someone selling franchising is interested in earning their income or commission, not necessarily your best interest.
Staying in the franchise system
One of the challenges that some franchises have is keeping franchisees in the system. They leave for various reasons usually because it’s not working. If you’ve done your due diligence before buying in, then there should be no unpleasant surprises. From the franchisor’s perspective, it’s best actually that this occurs; losing franchisees or their good reputation is not in their best interest either. This brings me to my final point. You need to follow the system. I know myself, all my businesses are systems and we have set systems and processes. When something goes wrong, it’s frequently when someone has chosen to do it their way, not the system way. When you buy a franchise, you are buying systems and processes, built by a head business which has been doing this for (presumably) ages and has ironed out all the creases and wrinkles so that when you follow the system you are using a method which is tried and true. If you know you are not a follower, or have a rebellious nature, or like to do things ‘your way’ then possibly a franchise is not for you.
As I said leading in, franchising offers a business owner so much with systems, knowledge, experience, support. As Ray Croc (founder of the global food chain McDonalds) said “In business for yourself, not by yourself”.