Buying a franchise can be a great way to get into business for yourself, however just because a franchise works for the parent company (franchisor) does not mean it will necessarily work for you as the individual owner (franchisee). The benefits of franchising are you get to buy into a proven concept, following our steps below can help ensure your individual franchise is successful as well.
- Identify the franchise type that is the best for you. Operating a business can be an emotional experience and to remain motivated you ideally want to find the right model which is the best fit for you. There are various factors to weigh up here, including matching the franchise to your industry experience, budget, personality and lifestyle requirements.
- Research, not just the franchise in question (micro landscape) but also the broader industry (macro landscape). For example, you might be very positive for a specific business model, and a thorough review of the broader landscape might indicate a new market entrant or neighbouring competitor, which could materially impact your business.
- Believe in the product or service. At the end of the day, the success of your franchise will be driven by how much you can sell. If you truly believe in the product or service, that passion will help you sell more to your customers.
- Consider the total cost of your franchise in your financial forecasts. This includes not only the initial purchase price but also all ongoing royalty, product mark ups and other payments to the franchisor. Franchising can have many layers of costs, so it is important to have a firm grasps on the full financial position including costs that are external to your franchise agreement.
- Be honest with yourself about your return on investment in terms of both capital and time. You need to make an acceptable return on the capital used to purchase the franchise (typically 12-15% per annum once the business is established) and on the time taken to manage your business or investment (typically a market rate salary).
- There can be considerable risks or potential liabilities dealing with retail customers. To mitigate these risks you need to consider the use of legal structuring to purchase your franchise (such as trust structures) or insurance (including business and public liability insurance).
- A franchise agreement governs the long term partnership between the individual franchise buyer and the master franchise operator. These agreements can ensure the seamless execution of your new franchise because they are a road map of a business model that has been successfully deployed numerous times before. Despite this, you need to ensure the franchise agreement works for you over the long term. You do not want to spend years establishing your new franchise only to have a surprise in the contract significantly impair your economic return. Key areas to focus on here are the master franchise operator’s ability to control royalty or supply prices (including future cost increases) and their ability to introduce additional franchise locations in close proximity to your own.
- Get professional help. Buying a franchise can be a big commitment from both a capital and time perspective. If you are unsure or would just like the comfort of a second opinion, make sure you engage professional help (such as a lawyer, accountant, business broker or real estate agent). These costs may feel significant at the time but will be a small portion of your franchise purchase price and can save you a lot of money and headache in the long run.
- It’s all about execution. The franchisor has already proven that the business works, so the success of your business will be largely driven by how well you can execute on the pre-determined business model. The factors to take into account here are how well you can follow instructions, but also how much support and training is being provided to keep you on the path to success.
- Speak to people that have done it. The best research you can do is to speak to those with first-hand experience. The great opportunity here is that it is often easy to find franchise businesses (for example walk through any shopping centre and you will encounter dozens of franchise businesses). So locate an existing franchise you are interested in and introduce yourself to the owner. People like to talk about their business, so you would be surprised how helpful they can be.
Once you have identified the franchise that works for you, the team at GROW CAPITAL can help you finance your purchase. We have access to a number of innovative and competitive finance solutions, so contact one of our advisors today.
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