So you’ve decided to make the jump into the world of franchising… Now all you need to do is chose the perfect business from more than 1,300 franchise systems operating in Australia. Piece of cake, right?
There are a number of factors to consider when researching franchise systems. Perhaps most important is the question of whether the business will still be successful ten years down the track. Here are five ways to make sure you aren’t about to buy into the next Myspace.
Does your franchise offer something different from the competition?
If there are a bunch of other franchise systems out there the same as yours, ask yourself if the world really needs another one. What does your franchise system offer that is different from others operating in your area? Does it offer sustainable, lower prices for good quality products? Maybe there is great in-store technology that lures customers away from your competitors. Or perhaps it appeals to a niche group of potential customers who would have difficultly finding another business which meets their needs. A good business shouldn’t try to appeal to everybody.
Research, research, research
Before you get caught up in the idea of owning a franchise selling your favourite frozen yogurt, use your head to research the market. Ask why the franchise is up for sale. Is a franchisee trying to opt out of a shrinking market, or is the franchisor capitalising on a growing industry? Investigate if the business model was successful a few years ago, or whether it could be a fad which will quickly die out. Think about the potential returns and the lifestyle offered by the franchise. I’m the Chief Operating Officer at specialist bedding franchise, Bedshed, and our Franchise Calculator can help prospective franchisees independently compare different options.
Put yourself in your customers’ shoes
All economies go through periods of boom and bust, and good business models should be able to weather the tough times. Imagine you are a consumer in a difficult economic period. What do you cut back on and what goods and services do you continue to purchase? Are you providing a necessary service, or inexpensive indulgences after a hard day’s work? If you can’t think of a good enough reason to spend money at your franchise in a downturn, chances are your potential customers won’t either.
Talk to the franchisor about their long-term plan (and where they’ve come from)
All good franchise systems should have a long-term plan for where the business will be in a decade’s time. Organise a time to sit down with the franchisor and discuss their plans for the future. Do they have a strategy to address the challenges of online shopping for example? A franchise that’s prepared to alter plans based on the current market conditions is much more likely to survive. Another good question to ask is how long the franchise system has been around. Does it have a record of success?
Have an exit strategy
As you would with any business, you should ensure you’ve given consideration to an exit strategy. Understand what happens at the end of the franchise agreement and site lease and how that fits with your plans. This is a good discussion to have with the franchisor upfront as part of doing your due diligence.
About the Author
Gavin Culmsee is Chief Operating Officer of Bedshed, one of Australia’s largest specialist bedding and bedroom furniture franchises with a network of more than 30 stores across the country. A robust industry in Australia, franchising takes a lot of the risk out of starting your own business. Bedshed has grown steadily since it started in Western Australia in 1980 and is currently expanding on the eastern seaboard. Follow Bedshed on LinkedIn here.
