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Franchising – a perfect opportunity or perfect disaster?

Proven ideas, recognisable brand names, exclusive rights to a territory and shared risk pose tempting arguments to jump into this thriving business model. However, like all good money making ideas, franchises are not for everyone. Higher than expected costs, restrictions on how the business is run and even facing a change in business ownership can all impact on the success of your franchise.

Recent months have seen a lot of blows for franchises, both in Australia and worldwide. Borders and Angus & Robertson bookstores closing down could be attributed to the decreasing demand for print media – however, what else were they doing wrong?

There’s no simple answer, and like any business, franchises are sometimes less than successful. But the right people, the right business and the possession of good business sense will help determine the outcome of a franchise. The following tips should help you to decide if franchising is a good choice for you.

Only look into franchises that you will enjoy running

When you research a franchise to purchase, search by industry rather than investment level. By doing so, you will find options that suit your area of expertise or interest rather than what you can afford.

If you truly enjoy the business then you will be eager to learn, and the enthusiasm for your product or service will be evident to your future customers. If the business area interests you then you will naturally put in the extra effort required without it seeming like a chore.

Starting a franchise business generally requires long hours and hard work, at least in the beginning. As with any job, you need to find the balance between profitability, enjoyment and satisfaction.

Limit your selection to a maximum of two different sectors and no more than five or six different opportunities. When you start expanding beyond this you will only confuse your decision-making.

Research extensively

Website usage statistics on FranchiseBusiness.com.au show the average user looking to purchase a franchise will contact at least four franchisors in the process of making a decision. This research can be the difference between you starting a successful franchise, and ending up in a business that isn’t right for you.

Take the necessary time to research. Use all the avenues available to make an informed decision – ask friends, do some market research, look online, talk to existing franchisees, ask customers their opinions and even talk to your bank manager. Seek professional advice from the Franchise Council of Australia. Combine all of these perspectives with your business knowledge when making a final decision.

Assess your own business knowledge

Assess whether you will be a good business owner. Ask yourself whether you are suited to being your own boss. Are you committed to the ‘sell’ for the business? Do you have the stamina to work hard to bring the customers in? What businesses do you have expertise in? What parts of the business will you need help with?

While experience in managing people or managing a business (or both) are not essential for running a franchise, they are always an asset. Consider whether your career so far has equipped you with a skill set suitable for running a business.

When you apply to become a franchisee, in most cases the franchisor will ask you a series of questions to find out who you are, what your skills are and what experience you have. By first self-assessing, you will be prepared to answer the questions.

Sustainability of the business model

As with any business, to be successful the franchise needs to be supported by a sound business and profit model. When researching franchises, review the track record – have any businesses failed and if so, why? Is it a strong brand? What level of competition will you be facing?

Assess consumer demand for the product or service offered. You want to invest in a franchise with a strong future, not a product that is in decline.

By taking into consideration elements such as whether the brand has distinct advantages over competitors and whether the product has staying power you will avoid becoming involved in franchises that capitalise on trends or fads that won’t last.

The dollar question

Before signing anything, it is essential to know whether you are making a sound investment. Understand what level of investment is required, what you get for it and how long it will take to recoup your money. What percentage of fees goes to marketing?

Do you have to pay additional money to localise the messages for your market? Will you be expected to contribute more for planned product development? Don’t forget to factor into the equation figures such as running costs, working capital requirements, your loan or borrowing capabilities and any ongoing management fees.

Sign on the bottom line

Understand the contract and seek legal advice. This agreement will form the basis of your relationship with the franchisor, so ensure you are happy with the way it is going to work. Franchising is a specialised field of practice so before you sign anything, you should speak to accountants and lawyers who understand franchising.

Finally…go with your gut instincts

You need to be able to work with and trust the people behind the franchise name, so take time to see if you believe in the integrity of the senior management team. If the relationship doesn’t feel right then it is not the right fit for you.

Above all, you are signing a contract so read the fine print. Ensure you are not swayed by the marketing hype or promise of high returns. If you are honest with yourself and understand fully what you are entering into, you will set yourself up for success.

Essential Resources

The internet

FranchiseBusiness.com.au is the official online business directory of the Franchise Council of Australia, listing franchises and service providers. FranchiseBusiness.com.au provides a comprehensive central online source of franchise opportunities and industry updates and news. Search franchises for sale and read essential legal and financial advice from experts. www.franchisebusiness.com.au.

The regulators

The Franchise Council of Australia represents both franchisees and franchisors in Australia. If you are serious about buying a franchise you might like to attend their events or call for advice.

The experts

It just makes sense to consult lawyers and financial planners before signing a franchising contract. Don’t wait until the last minute; get expert advice early and often.

The experience

Talk to as many franchisees as possible, both in the business you are looking into, and other businesses. Ask as many questions as you need to determine whether the franchise is right for you.

–Raffael Fernandes, Account Manager at FranchiseBusiness.com.au, the official online business directory of the Franchise Council of Australia.

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Lorna Brett

Lorna Brett

Lorna was Dynamic Business’ Social Web Editor in 2011/12. She’s a social media obsessed journalist, who has a passion for small business. Outside the 9 to 5, you’re likely to find her trawling the web for online bargains, perfecting her amateur photography skills or enjoying one too many cappucinos. You can follow her on <a href="https://twitter.com/#!/dynamicbusiness">Twitter @DynamicBusiness</a>

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