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Australian first for franchising

For the first time in Australia, independent business reports on the best franchise opportunities in the country have been made available to the public. Adrian McFedries of DC Strategy talks about why he and his team have spent the last 18 months compiling them.

The region’s leading franchise specialist is about to roll out a new initiative that will provide the opportunity for prospective franchisees to purchase independent franchise business reports containing independent information on individual franchise systems.

After two years of research, analysis, focus groups and interviews, the reports by DC Strategy will provide the most wide-reaching research and factual analysis of franchising ever completed in Australia.

Backed by leading bank

A proud supporter of the initiative, Commonwealth Bank has been working closely with DC Strategy on the project. Rod Nuttall, national executive manager (franchising) for the bank, says: “A key risk for any franchisee when entering into a franchise agreement is the depth of understanding they have of the business they are considering investing their capital into. We’re dedicated to supporting best practice in the franchising sector and support the practices that further educate franchisees in the business investment they are about to make.

“Commonwealth suggests that a significant due diligence is performed by the franchisee on the business they are considering investing into. We consider that the franchisee should not only seek information from the prospective franchisor, but also from reliable independent sources for both advice and information. DC Strategy is constructing well-researched, independent business reports on individual franchise systems. We have agreed to partner them in this initiative due to the growing need for better educated franchisees on their capital investment.”

He adds: “Importantly, DC Strategy is a leading firm with vast experience in the franchising sector as well as being an arm’s length independent party. This type of independent report will assist the franchising sector move closer to best practice.”

Why do the research?

DC Strategy MD Adrian McFedries, says: “There were two key catalysts for this business decision. First, as a specialist consulting and legal firm, DC Strategy has a detailed understanding of what aspects make a quality franchisor successful and how a business needs to evolve over many years to remain relevant to the consumer and franchisees. We’ve developed the bank accreditation frameworks over several years for ANZ, CBA, Westpac and BankWest which has also ensured a detailed understanding of franchise finance practices in Australia.

“As a result, we receive a significant amount of calls every week from prospective franchisees who are seeking to gain commercial advice as to which franchise to purchase which we have never commented on.” He adds the preparation of factually based reports provides a constructive channel to communicate independent, detailed and factual information to franchisees that are interested in making an informed decision.

Too many bad franchisors

“Secondly, our detailed analysis of the 1,000-plus franchisors in Australia has reinforced our professional perspective as a specialist that there are too many businesses and franchisors that should not be in franchising,” he says. “As a consequence, there is a genuine concern over the next few years that there may be unnecessary future regulation that seeks to curtail the poor practices of a very, very small sample of ill-equipped franchisors or franchisees that would have an unhealthy impact on the highest quality franchisors that account for the majority of franchisees in Australia.”

The success of franchising is built on the back of sustainable, profitable growth as a quality business which has been achieved on a wide scale in Australia. The success of franchising in Australia is not built on a measure of the number of franchisors but the depth and quality of the business and success of the franchisees. Franchising operates in the most regulated environment globally with the introduction of the Code in 1998, which has had a profound and positive impact in shaping many of the best practice standards in franchising and banking anywhere in the world.

Independent information

“The objective of the reports is to more easily identify the highest quality franchise systems in Australia and make quality information more accessible to the highest quality franchisees,” says McFedries. “As a result, those prospective franchisees that are serious about an opportunity now have a trusted and independent source of information to contribute towards making a fully informed decision about which franchise to purchase and make a commitment of five-plus years.”

He adds: “These reports have been prepared by DC Strategy drawing on experience that has actually built networks and brands around the world and as a result we have a detailed and specialist understanding of what to look for in a high quality franchise system.”

The response from franchisors towards the business has been extremely positive and viewed as a great opportunity to ensure franchisees make as fully informed a decision as possible.

Why not a ranking system?

A straightforward ranking system however would be totally inappropriate and not capable of being done in a manner that is actually meaningful to a franchisee decision-making process. “Any ranking is subjective, no matter whether it be franchisee, franchisor or independent,” says McFedries. “More importantly, a ranking system by its nature infers people are better the higher up the ranking they are and this could not be further from the truth in franchising in Australia.”

A ranking system is inappropriate not least because franchisees have predetermined levels of capital they can afford to invest and franchisors are all at different stages of their growth cycle. “When you have a detailed understanding of what makes a franchisor successful in start-up, growth, maturity and reinvigoration or decline, any ranking system can simply not encapsulate the variety of issues and the differing levels of capital investment that automatically categorises the groups a franchisee may consider even without a ranking system,” he says.

DC Strategy will only be preparing franchise business reports on around 120-to-150 franchisors based on pre-established criteria. This is because the objective is to make detailed information available for sale to franchisees for the highest quality franchisors. There is no intention to become a directory or facilitate enquiries direct to the franchisor as there are already well established and respected directories, broker channels and direct franchisor access that achieve this.

The reports

The business will operate under the brand DC Strategy Research and the reports will be available for sale online and range in price from $350 to $700 plus GST, depending on the size of the investment and consequent detail in the report.

The report contents will cover key detail and information on the organisation, key management, franchise system structure, performance, industry commentary, resale activity, disputes and current franchisee feedback.

Over the past two years, DC Strategy has researched and analysed each franchise system in significant detail and run a series of discussion forums with past, current and prospective franchisees. It has combined a commercial, legal, and financial understanding of franchising from both a franchisor and franchisee perspective to detail information and build the website in a manner that provides high quality information to those who are prepared to purchase a report. The team has personally sat down with each and every franchisor that has had a report prepared to ensure there is a clear understanding of what is being achieved and that information is accurate. This has been done on a completely independent basis.

They’re available online at www.dcsreport.com

Franchising in Australia

McFedries says franchising in Australia is in a very healthy state.

“The vast majority of Greenfield and secondary resale activity of franchises in Australia is accounted for by 150-to-200 of the highest quality franchisors. There are around 600-to-700 franchise systems that have not scaled sufficiently to warrant adopting a franchise strategy that can still have one, two or three successful franchisees, but overall they are not driving a proactive, well-structured growth strategy.”

There is a significant amount of misunderstanding about franchising in this country. McFedries says that while around 600-to-700 franchise systems have insufficient scale, that is not to say they have extensive amounts of disputes or should not be in business. “The issue is there is a profound difference between a franchisor that has built a quality infrastructure, business and franchise system and continues to scale, and those which are an independent business but have usually sourced a legal agreement as the basis of franchising and not developed the necessary infrastructure for quality growth.”

The expected impact

Based on DC’s detailed research and analysis there are some clear expected impacts:

§  Franchisees will now have a choice to purchase independently prepared information in a consistent format as part of their final decision-making process in acquiring an existing or Greenfield franchise

§  Franchisors now have an independent source they can point to and ensure franchisees are aware there is a high quality and trusted independent source of information

§  There is now a factual and accurate resource of information relating to the highest quality franchisors in Australia in a trusted and respected forum

§  The material and independent reports will play an important role in making franchising more accessible to people as franchising continues to grow in Australia.

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Jen Bishop

Jen Bishop

Jen was the publisher at Loyalty Media and editor of Dynamic Business, Australia's largest circulating small business magazine, from 2008 until 2012. She is now a full-time blogger at The Interiors Addict.

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