Why a franchise can be a great investment (part 2)
As we said in our introduction to franchises as a potential investment opportunity, you don’t have to build a business or a brand from scratch when you join one. Here we 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.
Ensure you have sufficient start-up funds and are prepared for ongoing fees
When you invest in a franchise, you need access to sufficient funds for the initial fee to pay for set up costs that can include training, store lease and fit out, insurance, legal costs, stock purchase, and staff hire fees.
Many franchise companies also require ongoing costs, or Royalty Fees, which cover requirements such as training, advertising and marketing, new equipment and store upgrades. Basically, the more the franchisor does, the higher the ongoing fees.
The Franchise Council of Australia states that ‘franchise fees can range in price (for up-front franchise fees and set-up) from as little as $5,000 to as much as $1 million, or more’ and ongoing costs, such as fixed monthly payments, may range from $50 per month while percentage fees can be anything from 2 per cent to 15 per cent.
For example, the initial fee for a Swimart franchise varies and is largely based on what type of franchise you buy and whether you buy a new or existing store. Each Swimart franchisee sets the price of their existing store, while the cost of a new store is determined by factors such as size of premises and fit out costs and, according to Swimart, ‘typically costs between $150,000 and $220,000 to establish’.
The initial investment for a Subway franchise in Australia ‘ranges from $195,000 to $360,000 for a traditional location’ (a traditional location is commonly chosen, such as a shopping centre or on busy retail strip).
“With our Subway franchise, we pay a monthly fee to the franchisor to contribute to operational costs such as training and marketing,” says Emma who has owned a Subway with her husband for eight years. “All the franchisees contribute and we all benefit in different ways.”
Ask about support and assistance from the franchisor
Swimart, which has grown to 73 franchises and a fleet of over 250 mobile service vans since 1983, recognise that the support they provide their franchisees throughout the year is key to their enduring success.
“We provide franchisees with training in products, customer service, sales, and marketing through our Swimart Academy and also face-to-face support whenever it’s needed,” says Chris Fitzmaurice. While these support services are paid for by the franchisees, they ultimately benefit from them.
“More than 60 per cent of small businesses cease operation within the first three years but Swimart bucks the trend,” says Chris, who believes that for a franchise to succeed in today’s highly competitive retail market it needs motivated, competent teams that offer high quality customer service and products.
Swimart’s support system also includes a yearly week-long conference with presentations and workshops in business operation strategies and industry legislation that provide training, direction and support. They also host an annual awards ceremony to reward and recognise franchise owners for operational excellence.
Ask whether there’s any benefit as a franchisee
Benefits can include a stronger buying power, which translates to reduced wholesale costs, a bigger advertising and marketing budget to promote the business (which is created from contributions from the franchise owners) and a choice of operating models.
Some companies like Swimart offer a choice of operating models, including the choice of setting up a new store, taking over an established store, or operating a mobile business. They also have strong buying power as they are a subsidiary of Waterco, the largest manufacturer and distributor of water filtration products with a reputation for innovation and quality. Swimart franchisees also have direct access to Waterco products, which means no wholesale agent adding a mark-up.
Be aware that you will play a role in the franchise company’s success
As a franchisee, you play an active role in your own business’ success and, together with the other franchisees, a role in the franchise company’s success by maintaining the brand’s reputation and helping to grow the business and market share.
A brand’s reputation is one of its greatest strengths and one of the main ways to maintain it is by ensuring consistently high quality products and service. Reputable franchisors maintain their brand’s good reputation by providing the latest quality products at competitive prices and great customer service – often lacking in many stores nowadays – such as product information, advice and even demonstrations.
Emma and her husband have been very happy with their decision to invest in the fast food franchise. “Subway have been very hands-on and supportive. They provide all the training in store management and food safety and service and are willing to help us with any issues. Our Area Manager has even worked in our store when we’ve been down a staff member!”
Aware that tastes change and new food trends evolve, Subway frequently introduces new items. “They regularly add new items to the menu to keep customers coming in,” says Emma.
As with typical franchisees, Emma and her husband have to adhere to Subway’s procedures and protocols. “All the stores have to be run the same way, look the same and offer the same products to achieve continuity and maintain and protect the brand, and I understand and appreciate that,” she explains. “I think customers buy Subway’s subs not just because they’re hungry but because it has a good reputation!”
Swat up on the day-to-day responsibilities and challenges
A franchise business operates like any small business, with targets to reach, staff to oversee, customers to serve, stock and finances to manage and issues to deal with. Emma’s biggest challenge is finding reliable employees, particularly ones that don’t call in sick at the last minute. “I often have to fill in for them, which means my day is even busier than usual,” says Emma, who is thankful Subway provides uniforms as it reduces the problem of staff turning up inappropriately dressed.
Emma, who owned a store prior to investing in a Subway franchise, agrees that owning and managing a franchise is similar an independent small business. “Essentially, both business models require a hands-on approach and a willingness to be involved in every aspect of the business.”