As with any business venture, franchising represents an element of risk and significant financial investment.For some people it is either their biggest ever investment, or their second biggest behind their home.
You may feel overwhelmed, but fear not, you aren’t expected to understand all elements, however it is your responsibility to seek clarification on the sections that seem foreign, or that you may not have knowledge.
Whether you are considering a low-cost option, or multi-million retail opportunity, it pays to have some key advisors in your corner.
There are some key stakeholders that you want to ensure you have with you in the process of buying any franchise.
Very important, ensure that you get the advice from experts with a background and strong knowledge of franchising. As franchising is a specialised area in itself, ensure that the experts you use, have a sound grasp of franchising, otherwise the process of buying a franchise business can be more lengthy and cumbersome, and importantly, could cost you more in fees.
Before you even consider a franchise opportunity, it is pivotal you take a look at your financial stability.
How much can you afford, what costs are associated with your potential venture and how much will you need to make in order to stay afloat are questions an audit of your finances could help answer.
It isn’t enough just to speak to the family accountant. Franchise models are unique opportunities that present a series of sector-specific challenges. For this reason, it is imperative that you visit an accountant with franchise experience before buying a franchise.
As you launch your business, this relationship becomes all the more important. Avoid the temptation to conduct book-keeping yourself, a franchise-specific accountant who has been there from the start will be able to look over the business growth and determine issues before they arise.
When you first receive the franchise agreement and disclosure document, you may find yourself overwhelmed. there is a lot to take in.
These documents are expansive, detailed and often filled with legal jargon that may confuse the average reader. Take the documents to a franchise-specific lawyer with experience in franchise documents and contracts.
While a franchise lawyer can help alleviate any concerns you may have over your chosen model, they can also provide a wealth of information on the sector as a whole.
If you are unsure as to how the Franchising Code of Conduct applies and protects you, or what documents you can expect to receive, consult your franchise lawyer.
The franchise advisor and their professionalism, should be considered an investment rather than a cost. They can save you in the long run and ensure the Franchise documents you receive from the franchisor, align to what you have been told and expected.
“Before you commit to purchasing a franchise, it is important to understand the key protections and requirements contained in the Code. An experienced franchise lawyer will be able to advise you on whether the franchisor’s documents or commercial practice is ‘standard’
One of the most revealing and informative conversations any prospective franchisee can have is with the franchisor themselves.
Prior to buying a franchise, ensure you have meetings with your franchisor and assess the relationship in regard to a long-term investment.
Does this franchisor seem friendly? Inviting? Flexible? Most importantly, you should quiz the franchisor over support structures.
Identify if support and training is ongoing, or just part of the initial on-boarding process. This will ultimately reveal the franchisor’s long-term goals.
Your interactions with the franchisor will provide you with an idea of how the relationship with the franchisor continues beyond the purchase of the business.
And finally, did you meet other people within the franchisors office, and was the messaging consistent regardless of who you spoke to. Did they demonstrate the type of culture that you want to be a part of.
Bank lenders or Finance Broker
Regardless of the business you have in mind, the issue of funding will inevitably arise. Will you self-fund the venture? Will you get a business loan? If so, will you seek an alternative lender?
The amount of money that each franchisee will need to launch their operation will different from model to model, based on location, brand and fit-out, or setup including equipment requirements.
Most lenders will require a certain level of your own equity.
Here are some key points to consider if you do end up getting a loan
The investment cost
The ongoing costs
The term of the loan
The right Finance Broker can be of huge benefit and make the process easier, as they can shop around for the best deal, and ensure that any application is prepared correctly the first, so that the loan process is not delayed. A good broker will also ensure that they have considered cost beyond just the business purchase price, including advisers cost, cash flow and so on.
Ensure that when choosing a Finance Broker, they specialise or have a very strong background in Business funding finance. A broker specialising in home loans for example, will just not be able to provide you with the same support.
The most important person to question is yourself!
Have a think about the opportunity. Why are you looking to get into business for yourself? Is it a question self-fulfilment or monetary gain?
If you are motivated by financial gain, you must remember that like all businesses, franchises take time to develop and mature. Don’t expect to turn a massive profit within the first 12 months.
Similarly, think about what kind of franchise you would be willing to work in every day. The most successful franchisees are those who commit to being present, particularly in the early days. And consider the location of the franchise. If you have to travel great distances daily to your business from home, that can put a strain on your personal life.
Certainly, there are a number of franchise models that lend themselves well to the silent owner structure, however staffing, payroll and training costs can stack up.
Set clear business objectives before buying a franchise and be sure to target your operation towards these goals. Pick an industry you are passionate about and refine your business identity.