Why a franchise can be a great investment (part 1)
Ever dreamed of owning your own business? By investing in a franchise, you don’t have to build a business or a brand from scratch and, depending on the franchise company you choose, you can receive valuable support and ongoing assistance. From fast-food to pool care businesses, discover the many benefits and considerations of becoming a franchisee.
With the high number of franchises in Australia, it’s not surprising that many small business owners are franchisees, selling a diverse range of products and services from fast food and take-home meals to pool care, car parts, and lawn mowing.
The Franchise Council of Australia says that ‘franchising is by far the most successful form of small business’, which isn’t surprising considering the franchising sector in Australia comprises almost 80,000 individual franchise businesses and has an annual sales turnover of over $1.4 billion.
Some of the major benefits of investing in a franchise is that you receive an established and known brand, a business operating model that’s been fine-tuned and proven to ‘work’, and products or services that come with a track record of market performance.
Swimart‘s Australasian Franchise Manager Chris Fitzmaurice says a proven franchise system provides a franchisee with a greater opportunity for success and longevity in business.
“A new franchise without a track record of performance is more difficult to assess and therefore more risky to invest in than an established franchise like Swimart, which has 30-year track record of performance and a healthy market share in the pool and spa sector.”
Choose a franchise with your head and not your heart
Investing in a franchise involves many of the same considerations as buying any business. While business management experience and/or business-related qualifications will no doubt stand you in good stead, many franchise companies provide the training and ongoing support in all areas of running the business. And it’s support that helps make a franchise a suitable investment for first-time business owners. For advice and tips on buying a franchise, and a list of considerations and ‘must-ask’ questions to pose to franchise owners, visit Inside Franchise Business.
Before investing in a franchise, it’s recommended you consider the following:
The right franchise business for you
While it’s good to be passionate about a particular product or service – like your favourite brand of fast food or flavour of juice – it will require a financial investment and become your main source of income, so it’s wise to choose a franchise with your head and not your heart.
The Franchise Council of Australia advises to carefully consider whether you’re suited to this type of business and to perform thorough due diligence, such as assessing market performance and position, and initial and ongoing costs (more on this below) before committing to buy a franchise. The Council provides a handy checklist of considerations plus a list of their member franchises who are committed to following their ‘Franchising Code of Conduct’ which, in addition to common law rights, ‘increases protection for franchisees from unscrupulous operators’. Information on franchises in Australia and opportunities for investment are available on the Franchise Business Directory.
Another important consideration when choosing a franchise is the potential for growth. With approximately one million private swimming pools in Australia and over 15,000 new pools built each year, there’s a continued and growing demand for pool care products and services – a demand that has helped the Swimart franchise grow from a single store in 1983 to 73 stores and over 250 mobile service vans in Australia and New Zealand.
Location, location, location
As your franchise’s location can significantly influence its success, it needs careful consideration, whether you’re buying an established franchise or opening a new outlet.
Many retail outlets ‘cluster’ in either shopping centres or along busy roads to benefit from the high foot traffic. If you’re considering investing in a franchise outlet in a shopping centre, their statistics on foot traffic (such as how many people walk past the store each day, month and year) and data on the takings of comparable businesses (this is often how retail centres set their lease and conditions fees) will help you with your location decision. Directly asking owners of a similar businesses can also give you insights into how their locations influence their takings.
Perform due diligence on your chosen franchise business
The Franchise Council of Australia recommends those considering investing in a franchise perform thorough due diligence as a franchise ‘is still a business venture with many of the same risks inherent to any other business’ and to receive professional advice from qualified and experienced advisors such as accountants and lawyers.
It’s important you know what you’re getting into, so don’t hesitate to ask the franchise company lots of questions (remember, many other franchisees have done the same) and request all documentation relating to becoming a franchisee, such as financial commitments and liabilities, for you and your lawyer or accountant to read and assess.
It’s also wise to investigate a franchise by simply talking to current franchise owners to get insights into the day-to-day responsibilities, challenges, costs and takings. It’s best to talk to more than one owner to get a balanced view as everyone has different expectations, experiences and opinions and each outlet performs differently.
Keep in mind, however, that throughout this process the franchisor will be assessing you too as you will come part of their business and play a role in its future success.
Next week we’ll look at the types of support and assistance you can get from a franchisor, and the important role you need to play in its ongoing success.