Top tips for choosing the right franchise

Written on the 22 November 2009

Australia is the most heavily franchised nation per capita in the world. There are more than 1,000 franchise systems nationally, spanning industries ranging from fast food to financial services. With myriad options to choose from, how do you determine where to invest your money?

Across the country, many people are turning to franchising for greater job security and earning potential, as well as renewed stability and to determine their own work/life balance.

Senior corporate affairs manager for Mortgage Choice, a successful franchisor of 15 years, Kristy Sheppard explains, “Australia’s franchising sector is worth over $130 billion and can provide an appealing alternative to standard working hours and traditional pay caps.”

“Findings from the 2009 Mortgage Choice Potential Franchisee Survey showed that among those considering purchasing franchises, the top reasons for doing so were: income potential (54%), job satisfaction – people seeking stimulation, a challenge and personal achievement (46%) and flexibility, with the ability to control their own time and movements (50%). For the 41% who said the economic downturn had influenced their decision to buy a franchise, 48% said the primary reason was ‘it seems safer to run my own business than have my job in someone else’s hands’.

“Appealing elements aside, potential franchisees must consider the wider realities of purchasing and operating a small business. It requires hard work, drive, determination and commitment. Owning a franchise is one thing, but making it successful not only requires working capital, it requires many key personal attributes. A franchisee needs to have a ‘fire in the belly’, be entrepreneurial with good business acumen and possess quality communication and customer relationship skills. Also, any large financial decision will often require you to step outside your comfort zone which is why researching and consulting quality expert advice is paramount.”

According to 10 THOUSAND FEET’s Franchisee Recruitment Report, the average new franchisee takes nine months to research and decide upon a particular franchise system.

Ian Krawitz, Head of Intelligence at 10 THOUSAND FEET and topfranchise.com.au said, “In knowing whether you have what it takes, it’s important for you to understand whether you have more of an entrepreneurial mindset or more of a salaried employee mindset. If you have more of a salaried employee mindset you will need a franchise system that has a great deal more structure, support and marketing to help you win new clients."

”A franchise company with a strong brand will also allow you a faster start in gaining new clients. Having a brand behind you means you don’t have to do as much work educating the market that you exist and are trustworthy, and can concentrate spend and effort on lead generation.”

Mortgage Choice has maintained a top 10 ranking on topfranchise.com.au since the industry award launched in 2008, ranking franchisors as to the satisfaction of their franchisees. It has compiled these seven steps to choosing the most suitable franchise:

Step 1: Do you have what it takes?
Running a successful franchise requires motivation and passion. A strong desire to provide superior customer service is essential, as is attention to detail and a commitment to continually expanding your skill set.
Step 2: Research via a wide range of sources.
Although often daunting and time consuming, research will help you find the small business ownership career path that’s best suited to your individual needs and goals. Mortgage Choice’s 2009 Potential Franchisee Survey determined the majority of those looking to buy spend up to 12 months researching before purchasing. The main resources identified were 1. professional advisors, 2. current franchisees, 3. franchisors and 4. franchise expos.
Step 3: Ask your top franchisors the key questions.
Questions you could ask to help you create a franchise shortlist may relate to: projected market growth; initial investment required; projected return on investment; scope for income growth; additional franchise purchase opportunities; and the franchisor’s solid reputation and brand strength.
Step 4: Speak at length with the franchisor.
Ask your franchise recruitment contacts the questions in Step 3 before discussing the support provided such as training, mentoring, lead generation, marketing, public relations and business development. Reputable franchisors observe the legal requirements for disclosure and the franchise agreement will contain all the terms and conditions under which the franchise will operate.
Step 5: Speak with other franchise owners.
Talk with people at the ‘coalface’ of the franchise group you are seeking to buy into. Observing a franchisee at work is a great way to experience what your routine will be once you have become a part of that franchise system.
Step 6: Ensure you have enough working capital.
Some franchisors suggest you need six to 12 months’ working capital behind you before buying a new or existing franchise, in addition to franchise purchase costs. Discuss the financial and legal implications of your purchase with your accountant, financial planner and solicitor.
Step 7: Consult experts and make your decision.
Carefully review the paperwork and enlist your advisors to do the same. Then step back and consider whether buying your chosen franchise will provide everything you are looking for.