Which franchise should you choose
It can be tough to know where to start when you’re looking to invest in a franchise – do you go with a global, big name outfit like McDonald’s or do you select a smaller, home grown operation such as dog grooming franchise HydroDog? What industry should you select? Do you buy an established outlet or start a new franchise.
Here are some tips from Phil Blain, franchise expert and the co-author of The Franchisee’s Guide, about how to select the right franchise for you.
Phil says a great first port of call is the web site www.franchisebusiness.com, the Franchise Council of Australia’s official directory of franchises.
“With around 1,000 different franchises in the market this is a great place to start. You can use the site to search by industry type, the amount of money you want to invest and location. If you’re interested in, say, running a coffee shop you can do a search and it will produce the different options available, giving you a snippet of information on the opportunities that are available, a link to the franchise’s web site and contact details,” he says.
Franchise code of conduct
The Franchise Council of Australia’s own web site is also a great resource and gives potential franchisees a full list of its members. You can also download The Franchising Code of Conduct from the Australian Competition and Consumer Commission’s web site. The Code was established in 1998 and is designed to protect franchisees from unscrupulous franchisors. “It’s a very easy document to read and understand,” says Phil.
Good and fun
Another tip is to honestly assess what you enjoy doing and what you’re good at. “You need to be brutally honest because what you like doing isn’t necessarily what you’re good at. If you want a second opinion ask a business mentor or friend – but not your spouse because they tend to be too brutal,” says Phil.
Selling your business
As a franchise expert, Phil says almost every day he is asked what is the best franchise around. “But what will be right for one person won’t necessarily be right for another. You also need to ask yourself whether you can sell, because every franchise needs sales skills and if you can’t sell you will need to employ people who can.”
The acid test
It’s also essential to talk to other franchisees who are already working in the system you are considering buying into. “That’s the best measuring stick,” he says. Ask them all the same questions – are they making the money they thought they would, how much support do you get and if they had their time again, would they still become part of the system? This is the real acid test. If seven out of 10 says they would, then it’s likely it’s a good business,” he says
Fees and royalties
Another factor to consider is the potential fees and royalties you will pay. “Most systems charge a royalty which is a percentage of turnover. Often people make the mistake of comparing the royalty fees of franchises in the same industry, but what you pay and what you get in return can be very different. So find out what you get for your money and whether other franchisees think they get value for the fees they pay.”
Big or small
As to whether it’s better to buy into a big or small franchise, Phil says a big franchise can often appear to offer franchisees better security, but there may not be the same opportunity for capital gain.
“You might find you can grow a newer franchise more substantially than one that is part of a larger system. But this will vary significantly from franchise to franchise. You need to assess the risks you are taking, the individual benefits of the franchise and the support you will receive before you make a decision.”