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the price is right franchises you can afford
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“What can I afford?” Over the many years that Business Franchise magazine has been involved in franchising in Australia and New Zealand, we have dealt with hundreds of different franchise systems on a regular basis. From the newest up-and-coming ‘must-have’ to the ‘old-timers’ established and successful over many years, franchising has never been so diverse. So, where do you start? One of the questions that we get asked all the time by people researching the purchase of a franchise is, “Which one would you buy?” but surely the first question the potential franchisee should be asking is of themselves and should be “Which one can I afford?” If you are lucky enough to know the industry you wish to join, the answer to this will help you decide which franchise systems to approach. If you have no idea of the industry type you wish to buy into, this is a helpful exercise as it will help to narrow down the wide range of 1600+ franchise systems available in Australia and New Zealand. So what is your price range? Following are some current franchise systems available, all categorised by price bracket to give you some helpful information on where to start. For contact details refer to pages 102 and 103.
Up to $50,000 Exa Web Solutions Get the competitive advantage. The success of our customers is what fuels our obsession with innovation. Our unique digital strategies give clients an advantage that no other company can offer, and when we develop something that works, we immediately ask ourselves how we can take that competitive edge to a whole new level. To meet the growing demand in digital and online solutions, Exa decided the best way to service the needs of Australian businesses is to develop a customer service/sales based franchise model.
Fastway Couriers Australia Run your own rewarding business and take control of your future as a Fastway Courier Franchisee. As a market leader in nationwide courier services, our multi-award winning franchisees enjoy • • • • • •
Guaranteed income package* Low start up costs No weekend work Ongoing business support and training Exclusive territories A perpetual franchise agreement with no ongoing fees
No prior business experience is needed, just a great attitude and an ability to talk to people.
Fastway Couriers New Zealand Run your own rewarding business and take control of your future as a Fastway Couriers Franchisee. As a market leader in nationwide courier services, our multi-award winning franchisees enjoy: • • • • • •
Guaranteed income packages* Low start up costs No weekend work Ongoing business support and training Exclusive territories A perpetual franchise agreement with no ongoing fees
No prior business experience is needed, just a great attitude and an ability to talk to people.
Inspect my Home As a leader in the property inspection industry inspectmyhome is fast becoming a recognisable brand across Australia and is now franchising its business model and systems. We Offer • • • •
A generous exclusive territory area Computerised booking system and database Electronic reporting systems Full onsite training to obtain Pest Inspectors License • Telephone Support/IT Support/Marketing Assistance • Personalised web pages linked to www.inspectmyhome.com.au • National 1300 number Inspectmyhome is looking for current property inspectors to join our team as we grow our network of professionals across Australia. Or if you are a Licensed Builder looking to join the industry this franchise opportunity is ideal for an enthusiastic and motivated person
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looking to grow a successful property inspection business.
Snap-on Tools Australia Snap-on tools have a heritage spanning more than 90 years and is a brand that defines quality. The range of more than 19,000 products are the choice of professional technicians from NASA to Formula One. The primary customers for franchisees are the professional technicians who service and repair cars, trucks, motorcycles, boats, aircraft and earth moving equipment the people who make their living using tools and demand the best. With more than 4,700 franchisees around the world, 160 of them in Australia and New Zealand, the franchise programme has been developed over decades.
The Financial Review Smart Investor magazine has chosen Snap-on in their last three surveys and the Best Value franchise system. Franchisees, who operate from amazing custom built mobile stores, have protected territories that have been surveyed to locate and profile the customers before they start. Extensive training and ongoing support is provided and no previous mechanical/trade experience is necessary. Franchisees need to be motivated business minded people with a desire to be successful and enjoy the sales environment while building professional relationships with their customers. No royalties, no advertising levies and Snap-on finance packages available.
Spray Pave Australia Earn up to $3,300 per week. That’s right, up to $170,000 per year! Our service decorates concrete. We Spray Pave, Polish, Epoxy and Stain. Jobs are inside and outside. Customers are domestic, commercial and Government. Our license structure allows you to choose when, where and how you want to work! This is a sincere “Be Your Own Boss” system. You genuinely keep all the profits!
• Learn a range of new lifelong trades. • Guaranteed work available anytime after training. • Head office training plus follow-up on your own job. • Customers contract and interest free finance. • Lifelong support from 6 Head Office trainers. • Low deposit + Support Payment Plan (SPP) Established in 1991, Security with Australia’s largest and oldest network. The name of the industry.
Interested in real estate? Passionate or keen to learn about photography? Then a Top Snap property photography franchise could be for you! We are a professional real estate photography franchise, with territories available across Australia and New Zealand. We are renowned for the outstanding quality of our photographs, which thanks to powerful custom-built technology, are professionally retouched and delivered direct to our clients by next day. We are currently looking for positive, enthusiastic, customer focused individuals to build their own professional photography business, with the support of an established franchise system behind them. As a leading and fast-growing property photography franchise, we have photographers located across the country servicing the real estate industry’s growing demands for professional property photography and marketing tools. Our franchise start-up costs are competitive, and no photography experience is needed, as comprehensive training and ongoing support will be provided, along with ongoing marketing and technical support.
V.I.P. Home Services Australia V.I.P. was the first company to start franchising in home services in 1979. Today V.I.P. has over 1100 franchisees across Australia and New Zealand. V.I.P. is a professional Home Services franchise with opportunities available in Home Cleaning, Commercial Cleaning, Carpet Cleaning, Window Cleaning and Lawns and Garden Maintenance. In 2009 and 2010 V.I.P. Home Services was ranked number one Best Value Franchise under $50,000 by Financial Review Smart Investor. V.I.P. offer franchisees comprehensive training, a solid support system, exclusive territories and an established customer base along with the chance to be their own boss and choose the hours they want to work.
From $50,001 to $100,000 Energis Help residential and business customers save with smart energy solutions & products for Solar, Hot Water, Heating, Cooling & Lighting. Own your own extensive distribution franchise with low initial investment and high income opportunities from large territories. Low cost Mobile & Retail store formats available. Training, Marketing and Installation support provided. Secure your future in this high growth industry with an Energis franchise that gives you personal and professional flexibility in developing your business and your work environment.
FROOTA We all want to be healthy but making healthy choices can sometime be difficult. With so many fast and pre-packaged foods to choose from, it can be hard to know which are good for you and
which are not. Imagine owning a business where you sold a product that looked like ice cream, tasted creamy and delicious like ice cream but instead was made of healthy 98% fat free yoghurt. This is exactly what Froota Frozen Yoghurt provides.
Our Goal is to be the best tasting frozen Yoghurt Supplier in Australia; High turnover, low cost product; Comprehensive ongoing support; Low Overheads; Great Profit Margin.
development. Kwik Kerb® business owners work for themselves, building their own business from strength to strength and determine their own income level. With Kwik Kerb® YOU keep all the profits! We have Kwik Kerbers earning $500 to $1000+ in a day. If they can do it, so can you! Owning a Kwik Kerb® proven system is all about creating a lifestyle that suits you. You choose the hours of work that match your financial and lifestyle goals.
Listen to Read
Hairhouse Warehouse is Australia’s leader in the hair and beauty industry, with over 140 stores across Australia. Our culture and business has developed from over 21 years of success and mastery. Hairhouse Warehouse has been built through the passion and creativity of all our people.
A belief in your ability to change your life and courage to do it is all you need. Work for yourself, not by yourself. Come and join our community of leaders and start your new future today. We’d love to hear from you.
A home tutoring system for reading with proven results. Using a unique curriculum plus multisensory home study tools, Listen to Read repairs the gaps in reading ability. The comprehensive curriculum simplifies the reading process by breaking it down into 14 areas of critical development. Small group tutoring combines with a home study system using an App and workbook for self-regulated multi-sensory study. The program has been developed by a literacy expert and a team of specialists in multi-sensory learning. Co-founder and Director Catherine McLennan has 26 years of teaching experience specialising in teaching reading. Individual training with Catherine ensures success for all franchisees. Early trials show students making gains in their reading age of up to two years, in just 12 weeks. A proven system combining a unique reading curriculum with Sound Therapy and multi-aensory programs for I-pad or computer.
Jim’s Fencing franchise opportunities were launched in 1997, initially in Melbourne; to date Jim’s Fencing is Australia wide with approx 150 franchise owners of which includes contractors (who work for the franchise owners) building fences every day of the week. Due to the over supply of work which we cannot service Australia wide, Jim’s Fencing needs more franchise owners to service our customers.
Established more than 18 years ago, TeleChoice is Australia’s largest independent MVNO retailer of mobile phones, telecommunications and energy products. Telecommunications and energy products are everyday necessities and non-discretionary expenses. TeleChoice now uses the most reputable networks in Australia packaged in ways that help Australian consumers make substantial savings and reduce the costs burdens. For example, TeleChoice uses parts of Telstra’s 3G Network to offer the most competitive mobile phone rates and bundles with home telephony and internet. A TeleChoice Licensed Store operator has the delightful task of saving money for our customers.
• • • •
Extensive and ongoing training programs A proven turnkey operation A focus on world class service Multiple revenue streams, including retail, salon, piercing and beauty services • Exclusive stockist of world leading brands with the most lucrative merchandise trading terms worldwide
Some of the benefits of joining our Jim’s Fencing team are: • • • • • • •
8 weeks paid for training @$1000 inclusive p/w 3 month bookkeeping assistance package Work availability GUARANTEE Ongoing support and personal mentoring Strong brand recognition Over supply of work And much, much more
If you are looking for a self-employed business opportunity and enjoy working outdoors, then why not join the team here at JIM’S Fencing.
Kwik Kerb Kwik Kerb® is the world leader in continuous concrete edging and can now be found in over 20 countries. We are looking for motivated people right around Australia who want to improve their lifestyle and take control of their financial future. As a Kwik Kerb® business owner you will be supported every step of the way with our knowledge and experience in marketing, a full training program and on-going product
You too can make money by saving people their money. Our industry is very dynamic and is only suited for smart energetic investors. If you have the passion for business and the drive to succeed; we would like you to be a part of our team.
The Concrete Cutter The Concrete Cutter makes sound business sense. Established in Melbourne in 2001, The Concrete Cutter has nine long running franchises in operation. We now seek to expand in Melbourne and duplicate the Melbourne success interstate. If you are a smart ‘hands on’ person with good health and you are easily understood on the telephone we welcome your enquiry. The purchase price of $45,000 + gst covers equipment, sign writing, uniforms, stationary, training and initial book-keeping setup and early accounting support. You will need
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to provide a suitable white vehicle such as a ‘one tonner’, a van , or a small truck, it need not be new. Most established franchisees are regularly taking over $2,500 per week.
The Interface Financial Group The Interface Financial Group franchisees provide shortterm working capital for small businesses by purchasing their invoices at a discount. In the current economic climate small businesses need working capital but banks are unwilling or unable to provide it. Many of these small businesses are turning to Interface for a solution. Interface has been in the ‘invoice discounting’ business since 1972, is the leading alternative funding source for small business, and employs its franchise network in Australia, New Zealand, Canada, the Republic of Ireland, Singapore, the United Kingdom, the United States, and Mexico. The new IFG 50/50 franchise offers the opportunity to get started quickly and with a more modest capital base. Why? Because we syndicate all transactions with our franchisees 50/50. Franchisees do the ‘people work’ - we do the ‘paperwork’ – a great combination to achieve an above average return.
Unscratch the Surface No longer is it necessary to replace damaged glass. Unscratch The Surface franchises are the solution that all commercial, construction and residential industries have been without. Saving them $1000’s in replacement costs and critical time wastage. Never mind the environmental advantages by preventing yet more glass being broken up into landfill worldwide. Key benefits:
• Low entry costs • Low running costs • Low on-going fees • Full training & unlimited support Franchisees will receive: • Extensive advertising • Leads supplied by head office • Professional sales website • Powerful CRM website • High-grade trade tools & supplies • Uniforms • Complete corporate branding We are looking for people with a positive attitude and are dedicated to providing great customer service.
From $100,001 to $250,000 Bright Eyes Franchising Established in 1985, BrightEyes Sunglasses is one of Australia’s largest sunglass retail networks, with over 46 locations nationwide. Our genuine passion towards enhancing Australia’s active lifestyle makes us the experts on fashionably functional eyewear. At BrightEyes we’re not simply selling sunglasses; we’re selling an enhanced way of life. The BrightEyes Sunglasses product range is extensive and showcases the latest styles from leading
international brands such as Ray-Ban, Oakley, Arnette, Revo, Maui Jim, Bolle, Prada and Vogue (to name a few). We are also proud to market our unique house brands including Mangrove Jack’s, Stiletto, Nicole’s, Attitude and Urban. If it’s a fantastic franchise opportunity you are looking for, backed up by proven operational, product and marketing support contact us now.
Cafe2U Cafe2U is Australia’s first and most successful mobile café system. With over 200 franchises worldwide the business is rapidly growing due to a simple and proven business model. Cafe2U franchisees now have access to the unique “Acceleration Package” which fast-tracks success. This includes an experienced Franchise Development Manager to launch the business alongside the new franchisee in their own exclusive territory. Cafe2U builds a customer run that delivers a minimum of $500.00 a day before the Franchisee operates solo. The business is HACCP certified and has a ‘no compromise’ attitude when it comes to quality. This includes the Mercedes vehicle, commercial equipment and fitout, branding and marketing strategies and dedicated events co-ordinator. If you are ready to take control and enjoy working with people, a Cafe2U franchise provides you the perfect system to create your own destiny.
Coffee Guru Coffee Guru is Australia’s own locally owned and managed coffee chain with over 25 stores across Canberra and New South Wales. With our quality coffee and dedication to customer service, we are proud to be Australia’s Own Gourmet Coffee Company. Our professionally trained baristas will make you the perfect cup of coffee every time using our Coffee Guru exclusive coffee blend that is roasted to perfection. Featuring a strong support network and supply chain, a Coffee Guru franchise is the perfect investment. with new franchise business opportunities available, new stores will continue to open throughout 2014. If you are passionate about coffee and want to become your own ‘Coffee Guru’ contact us now.
Just Cuts Don’t just buy yourself a Job! Discover how you can easily run a “Genuine Business System”. Did You Know? Most of our Just Cuts™ Franchise Owners are not Hairdressers. Plus, the average Franchise Owner goes on to own multiple stores. Why? Because proven systems, support and training means your hairdressers become the technicians and easily run the business for you. At Just Cut Cuts™ Franchise Owners have been free to grow to own multiple sites. Just Cuts™ do over 66,000 Style Cuts™ a week! Just Cuts™ operate on a no appointment, no request system, quality style cut at an affordable price. Contact us today to find out more. Join the largest Hairdressing Network in the Southern Hemisphere.
Lava Carts Lava Carts offers specialty Espresso coffee and
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freshly made accompaniments. Our vision is to position the finest coffee possible into strategic locations delighting the customer and retailer in terms of satisfaction and success. A coffee cart strategically placed at the front entrance of a busy regional hospital proved a winning formula for the original Lava Cart and founder Simon O’Brien. Today the latest in design innovation has upgraded the cart to a modern and functional shopping centre kiosk whilst maintaining the grass roots cart like qualities of cost consideration and position. Our winning formula means our turnkey franchise package is a fraction of the cost of our competitors with no compromises on quality. We currently have excellent high profile opportunities in super and major regional shopping centres, particularly in Qld, Victoria and WA. Having already experienced proven national growth Lava Carts has erupted onto the stage with a vibrant difference. Discover the substance behind our brand.
Sleepy’s Sleepy’s unique selling proposition is ‘The Mattress Experts’. We focus on • providing the right mattress for our customers • backing our sales with peace of mind: 60 day comfort exchange guarantee • creating a superior customer experience Sleepy’s offers our franchisees high quality initial and ongoing training, national marketing programs, local area programs and support from the management. With Sleepy’s low entry costs, simple business model, and proven selling system you too will become a mattress expert! Sleepy’s currently has 23 stores and has embarked on an aggressive national growth plan. Make an enquiry today.
The Australian Drug Detection Agency The Australian Drug Detection Agency PTY Limited wants highly motivated and independent people to join the team, as either Master or Regional Franchisees. The NZ operation was established in April 2005 and consists of 15 regional franchisees throughout New Zealand, 18 offices and over 30 specialised onsite testing vehicles, employing over 65 staff and is recognised as the Market leader in the field of on-site drug, alcohol workplace testing and education services. The ADDA is based on the NZ business model, and will provide excellent financial rewards for those who are prepared to work hard and fit the criteria. This is a huge opportunity for business-orientated individuals, to get in at the ground level and grow their own enterprise. Are you ready to join our experienced group and secure a lucrative future? Our guess is Yes, you are!
Xpresso Mobile Café Starting a new café is daunting especially with overheads and expensive shop leases etc. A fixed cost and great value alternative is an Xpresso
$250,001 and above Battery World Count the number of households in Australia? (Currently 9,117,033 private households in Australia - 2011 Census Data). Now count how many batteries each household will need over the next year? That’s the potential of a Battery World Franchise. Offering a world of batteries for everyone, the Battery World network is national and sells a range of portable power products and accessories throughout Australia. Battery World Australia Pty Ltd, as franchisor, provides the marketing and operations support to assist franchisees and strong brand recognition. Battery World is committed to helping franchisees build a successful business supported by experienced support office professionals. 80 stores Australia-wide and growing! After over tenyears of operation, Battery World continues to be one of Australia’s most powerful retail battery franchises.
Brazilian Beauty Welcome to the Brazilian Beauty franchise model where beauty and brains meet. Proven to have successful franchisees from an array of backgrounds embracing the beauty industry and the Brazilian Beauty brand to create profitable lifestyle businesses that engage, challenge and motivate. Proven operational systems, award winning marketing and advertising; team and individual guidance; training and personal development; weekly in salon and monthly group meetings are all part of the package. “At Brazilian Beauty we work together to share our knowledge, ideas, passion and goals to gain a competitive advantage over all other beauty competitors.” Francesca Webster, founder.
Fasta Pasta With our authentic Italian background and 30 year success story, Fasta Pasta is now Australia’s largest, independently owned group of ‘fresh pasta’ Italian restaurants. An innovative everchanging menu, with healthy options and a commitment to outstanding service, have all contributed to Fasta Pasta being voted Roy Morgan’s ‘Quick Service Restaurant of the Year’ in 2012. Loved for our affordable, fresh, family meals in relaxed fully licensed surroundings,
this is a great opportunity to be part of our winning national organisation. Extensive initial training and ongoing support is provided. New franchisees undergo 12 weeks training in one of our company restaurants covering areas such as, front of house, kitchen (all areas), necessary bookwork, PPS, and Management skills.
Noodle Box An Australian success story. Noodle Box’s goal is to be the first choice noodlebased restaurant concept in every market in which they operate. Franchise partner relationships are paramount and are built on integrity, respect and trust. The Noodle Box Franchise Support Centre is focused on ongoing Franchise Partner profitability and success. With a competitive entry level investment and new restaurant design concept, the Noodle Box brand represents excellent value for money. Noodle Box is healthy, fresh and fast and made right in front of their guests by friendly, well-trained team members. With a relaxed atmosphere – it doesn’t get tastier than that!
Red Rooster Red Rooster is an Australian owned icon brand. The Red Rooster franchise mission is “Be in business for yourself, but not by yourself”. Red Rooster supports each franchisee with proven commercial, promotional and operating systems, all designed to minimise risk and maximise potential for success. Specifically, you will get: • An Australian Icon brand • Proven systems and comprehensive operating manuals • Assistance in finding a location, negotiating contracts and lease arrangements • Full structured training programs • Planning assistance for the opening and operating of your store • A full suite of merchandising and point-ofsale material
Red Rooster is Australia’s most successful Australian owned Quick Service Restaurant chain. Its success has been built on great tasting, high quality, freshly prepared food, delivered using proven systems.
Rent the Roo Rent The Roo specialise in the rental of any household appliance or furniture product available. There is simply NO LIMIT to the development of product ranges on offer from Rent The Roo, because franchisees can purchase from any retail outlet or accessible supplier – giving us the flexibility to satisfy every customer enquiry. If we can find it, you can rent it…!
With over 36 years of trade and development and our continued focus on customer satisfaction, Rent The Roo continue to grow with over 60 franchise territories covering every state & territory in Australia. Franchisees have access to ongoing training and support as well as an extensive range of marketing tools to help drive the business forward. Rent The Roo’s homebased, simple and productive business model
combines low running costs with the highest possible returns.
Snooze Sleep Well As one of Australia’s longest-running, most successful and innovative franchised business, Snooze’s experience in the bedding industry is second to none. Boasting more than 70 stores across Australia and a goal to reach 90 stores by 2014, Snooze is looking for ambitious and passionate people to join the business’ exciting future. Snoozes offers a personable, flexible business solution with expertise and support every step of the way, including:
• • • • • •
Vendor finance assistance NAB & ANZ accreditation Sales and product training Business management support A national marketing program IT services
To take the first step towards a prosperous future contact us now.
Taco Bill Mexican Restaurants Taco Bill is the longest established Mexican family restaurant in Australia and has built a loyal following since its inception in 1967. Taco Bill’s Mexican food is fun, fresh and affordable and presented in a casual, relaxed environment. The menu consists of a variety of fresh, authentic Mexican cuisine cooked daily on site, including Taco Bill’s special salsas, quesadillas, fajitas, rice and frijoles, enchiladas, burritos, nachos and tacos. Thirty brands of tequila are on offer at the various restaurants as well as Australia’s largest Margarita – Pancho Villa (fishbowl) - giving the restaurant even more flavour and authenticity! With 35 Taco Bill restaurants in Australia and 28 franchisees, Taco Bill Directors Tom Kartel and Stan Teschke are keen to increase Taco Bill’s Mexican wave with expansion plans nationally in metro and regional areas. If you’re interested in becoming part of the Taco Bill family contact us now.
Zarraffa’s Coffee Award winning Zarraffa’s Coffee is a specialty coffee company that roasts and delivers the freshest coffee to its 62 stores across south east Queensland, northern New South Wales and Western Australia. The business is founded on the mantra ‘to create an individually perfect cup of coffee – every time!’ and, just like the giraffe on the logo, aspires to be ‘head and shoulders above the rest.’ Great service is the practice and fresh, quality coffee the business. Since the opening of the first store in 1996, the Zarraffa’s Coffee experience has become something of an icon to many Queenslanders and since late 2012 has served coffee drinkers in Western Australia. The business has maintained a steady pattern of growth, as is evident both in gross turnover figures and a consistent increase in profile. Applications are open now for various locations in South East QLD, NSW and WA.
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Mobile Café franchise. Xpresso Mobile Cafés have exclusive licensing to use the Di Bella Coffee products and branding. Our Mercedes Benz vans are fitted with quality custom fit-outs and commercial high grade espresso coffee making equipment. An Xpresso Mobile Café is also fitted with a coffee bean display showcase where a franchisee can display, custom grind, bag, heat seal and retail. Franchise partners primary income is earned Monday to Friday in an exclusive territory and they may choose to earn secondary (considerable) income from various events and markets on weekends. Franchisees are supported by our fully integrated website and social media and internet presence coupled with our national call centre.
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E x per t Advice
How to buy a franchise when funds are tight. 62 Business Franchise Australia and New Zealand
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“Before you do anything else, be clear on what the full costs of the transaction really are as franchisors and vendors often package the pricing in different ways.”
Found the franchise you want but you are short on money – there are many ways you can potentially complete the purchase. THE WORLD HAS CHANGED POST GFC There are some great business concepts and franchise systems on the market and following the GFC both banks and franchisors have adjusted their requirements and techniques for approval and financing new franchisees. The bad news is that banks have reduced their preferential arrangements for many franchise systems and are still applying fairly tough criteria for franchise funding. In most cases unless you have sufficient equity in a property to cover the loan and an impeccable credit history, it is very hard to get finance approved and when you do the fees can be disproportionate to the loan amount and the terms can be very onerous. The good news is many franchisors have recognised that without the ability to help new franchisees into their network, their franchise will suffer, so they are now more creative and more receptive to negotiating or demonstrating some flexibility on terms that pre-GFC many would not have considered.
CONSIDER CONTINGENCIES In this article we will explore how you can still buy your preferred franchise business
even if you don’t have all the money. Before sharing these techniques and insights we point out that for any business purchaser it is important to be sufficiently capitalised – to have enough money and have some spare money to cover the unexpected contingencies that often arise in business. If you don’t have the money you should have access to emergency funding or assets you can sell in a worst case scenario.
IDENTIFY THE FULL COSTS So you have found the franchise business you really want but the price is higher than you can afford. Before you do anything else, be clear on what the full costs of the transaction really are as franchisors and vendors often package the pricing in different ways. Some lead with a low headline number to attract interest but then it is plus plus plus for various related expenses and fees. Others lead with a fully costed package price but even many of these fail to mention amounts that need to be factored in such as rental bonds for landlords, vehicle leasing costs and working capital needed to support the business as it builds. The Disclosure Document will list all the costs you may incur in buying or running the business so get a copy as early as you can and go through it carefully. Most franchisors will list a low end and high end cost for many items. For example, fitout may cost $60,000 - $120,000. You need to be realistic about where your business will fall in these ranges. If you cannot get the Disclosure Document early, then ask the franchisor/vendor to give you a full breakdown and itemisation of costs – they have the information but it is their choice when they release it to you as some will hold back until they are certain you are a genuine buyer. However from your perspective you need the full numbers as quickly as possible to know what you need to finance.
Robert Graham - Managing Director, CEO Consulting
DETERMINE YOUR BORROWING CAPACITY Even if you have most of the funds sitting in your bank account it is helpful to know your borrowing capacity and options. Interest rates are historically low so in this current rate cycle you may wish to borrow rather than use liquid funds. For those without funds in the bank you need to know if you can redraw monies from your existing home or investment property loans or how much you can raise against the assets you have. Pre GFC there were over 150 of the 1100 franchise systems in Australia that had preferential lending packages in place with banks. Post GFC the number is closer to 50, so unless you are buying in to a longstanding franchise system, the likelihood is you need to raise finance under normal small business lending criteria – which is still tough. For the few franchises with bank packages, you can fund anywhere between 40 – 70 per cent of the total price secured against the assets of that franchise business. The remainder comes from property backed funding or savings. As such these packages can make a big difference to whether you can buy the business. So whether you can raise bank lending or not – be clear on what you can and can’t do as this sets some important boundaries for your purchase and financing decisions.
OTHER FINANCING METHODS Leasing, equipment finance and rental are useful alternate financing methods. When you have the breakdown of the full
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E x per t Advice
“If a franchisor is going to negotiate with you, first you need to demonstrate to them that you are a desirable candidate and likely to be a successful franchisee. You need to make them want you.” Within the package of inclusions in every franchise there are some things that can be negotiated on and others that cannot. Here are some typical inclusions where you may be able to negotiate a reduction or variation to the payment terms:
Franchise License fee
Most franchises are for a fixed term of 5 - 10 years. Most franchisors seek to charge this full fee upfront. You may try to reduce the amount or pay some over time, or both. If it is a startup franchise you are likely to see more negotiability on this fee than for an established franchise – but it is definitely worth testing.
costs of buying and running the business there are usually certain assets that can be rented or leased. If your business requires any fitout or special equipment then talk to financiers such as Silverchef, Go Getta or Flexirent – these companies specialise in financing franchise assets. Some have rent, try, buy options as well as traditional lease or rental arrangements. Then there are also a range of vehicle finance specialists who can do standalone leases for business vehicles. Interest costs are often not that much more than bank finance and it can be a lot quicker and easier to get approval and release of the funds.
POSITIONING FOR NEGOTIATIONS WITH THE FRANCHISOR So you now know the total buy in and set up costs and you know your borrowing capacity and options…but it looks like you might still be short of funds. What else can be done? Now it is time to explore concessions with the franchisor/vendor.
If a franchisor is going to negotiate with you, first you need to demonstrate to them that you are a desirable candidate and likely to be a successful franchisee. You need to make them want you. Taking an aggressive approach to the negotiation will not work. Instead, focus on why you are right for this business and the things you will do to grow it. Typically a franchisor will be assessing you for skills, track record, motivation and attitude. Get on the front foot and prepare a short Business and Marketing Plan. Highlight your skills or track record in this industry or similar roles. Prepare a proper Resume and always come across in a professional and business-like manner. They want people who can largely be self-sufficient in the business, not people who want everything done for them.
SEVEN CREATIVE NEGOTIATION POINTS WITH FRANCHISORS You want the business, the franchisor wants you, now you have the right environment to test the franchisors flexibility on terms.
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It is fair for a franchisor to recoup their costs of training you and your staff. However some franchisors also make training a profit centre and charge a margin on top of costs. Get a feel for this but either way it is something a franchisor can easily negotiate on as it is a cost controlled by them and often it is a sunk cost as they will be incurring the cost of their trainers and premises anyway even if you do not buy.
Marketing funds and other regular costs
Within many Franchise Agreements are a range of smaller ongoing costs payable by a franchisee. They may be for contribution to a Group Marketing Fund, payment for use of systems or for various support services. Whilst you do not pay these upfront they can quickly add to your monthly expenses and if cash is tight in your early trading period it is worth asking if some of these expenses can be deferred.
Like training, this can be an area where franchisors make a profit margin, so try and find out the real costs of stock and pay the cost price not retail price.
the pr ice feature is r ight “Taking an aggressive approach to the negotiation will not work. Instead, focus on why you are right for this business and the things you will do to grow it.”
Franchisors may not tell you the real prices but test them on this as a one-off concession.
If the franchisor is handling your fitout we call this a ‘turnkey fitout’. Within the total costs of the fitout will usually be the actual cost for materials, equipment, permits and contractors – all of which are reasonable for a franchisor to charge. However there may also be a loading for a Project Management Fee or approval fees. If there is, then this is an area where you may seek a concession. Most franchisors will rightly want to be compensated for their knowledge, connections and time associated with your turnkey fitout but it is an area which may allow some reduction in the context of the overall negotiation.
A franchisor must disclose if it receives rebates from any supplier. The rebates usually relate to stock or fitouts. Ask how much the rebates are and whether they can be applied in reduction of your costs.
Landlord fitout contribution
If you are setting up a new site with a fitout, you may be able to negotiate a full or partial contribution to fitout costs by the landlord. Depending on the size of the contribution, the nature of the work and the attitude of the landlord, they may do it for free or they may do it in exchange for you paying a higher rent. Your franchisor may be better placed to handle this for you but it is always worth exploring as it can make a large difference to your upfront outlays. Each franchisor is different and each deal is different but if you really want a particular business and you have presented yourself as a desirable franchise candidate then it is still possible to negotiate and craft a purchase solution that works for all parties. If you are not confident with raising these issues or being able to handle the discussions that will follow, seek professional support.
CEO Consulting specialises in developing, launching and growing franchise systems in Australia and international markets. Services include Strategy, Feasibility, Analysis, Franchise Model Design, Franchise Development, Marketing, Sale & Purchase negotiations, Franchisor and Franchisee Mentoring & Support. Robert is one of Australia’s leading Franchise experts and an authority on Franchise start ups. Formerly the Australian Head of Franchising for both ANZ Bank and Westpac as well as CEO of RAMS Home Loans. For further information contact Robert Graham, Managing Director at CEO Consulting: Phone: 1300 764 484 Email: firstname.lastname@example.org Web: www.ceoconsulting.com.au
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Buying a Franchise?
Debbie Pham - CEO, Kids Korner
If I had a dollar for every time I was asked the question “Which franchise should I buy?” I would be very rich indeed. If I had another dollar for every time I was asked “Which franchise would make me the most money?” Well let’s just say I would have retired long ago.
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Below are some of the factors you should consider when working out the best franchise choice for you:
Consider lifestyle when choosing the best franchise for you
What do I want to do? If you could do anything what would it be? Owning a franchise takes a lot of work and dedication so you may as well buy something in an area you enjoy working in or are passionate about. Your love of caring for children, nutrition, real estate or the great outdoors might be the key to choosing your next franchise. Remember, most franchisors will provide training to new franchisees so don’t let a lack of experience put you off your dream job.
Where do I want to do it? Make sure you give some serious thought about where you want to work as this could affect the franchise you buy. If it has always been your dream to work close to home, then you need to consider a franchise that meets the needs of your local area. You may need to think outside the square a little to find something that suits the local market, but it will be worthwhile once you have halved your commuting time.
What hours do I want to keep? The hours you want to work are a huge consideration when determining your ideal franchise. One of the reasons I bought into childcare was the hours are much more family friendly than those of retail. As a mother, it was important I had weekends and public holidays off and I didn’t want crazy busy periods around Easter, Mothers’ Day and Christmas either. While this won’t matter to some, it was something important to me. Identify the hours you want to work and always consider them when choosing a franchise. The truth is there are so many franchise options available that I couldn’t even name them in this article. There are big brand franchises. There are small brand franchises. There are franchises best suited to cities. There are franchises best suited to the country. Some are retail. Some are in consulting. Some are business-to-business and some are business-to-consumer. The best franchise for anyone to buy is the
franchise that suits their lifestyle – or the one they want to have. With no two people and no two lifestyles the same, it is fair to say different franchises suit different people. If you are really serious about buying a franchise, stop asking the question “which franchise should I buy?” and start considering “What is the best franchise for me?”
How important is a steady income? You should also identify how important a steady income is to you. Some sectors are more influenced by economic changes such as interest rate rises, the strength of the Australian dollar and changes to CPI, than others. These changes could mean serious variations in your monthly income. Make sure you know and understand the effects
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Only then will you find your perfect franchise.
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E x per t Advice “By recognising the lifestyle you have and the lifestyle you want, you should be able to get a much clearer understanding about which franchise is right for you.”
of economic changes on your particular franchise sector.
How much money do I want to earn? When thinking about how much money you want to earn, weigh the benefits you want from your franchise against your projected income. It might turn out that you are prepared to earn less money in exchange for working close to home and having weekends off. Income v lifestyle is a very personal decision and one you cannot take lightly.
Do I like working with other people? Think about the environment you prefer to work in. Do you like to work alone or would you rather be surrounded by a team of people? Do you love the face-to-face contact you get with retail customers or do you prefer working with children? The arrival of the online business means you can even choose to work solo, from home, if you want. Identify the type of people you like to work with and keep referring to that when making your franchise choice.
What are my strengths and weaknesses? Identify your strengths and weaknesses and weigh them against the skills you will need for a particular franchise. Are you good at managing people? Can you handle stress? Do you like early mornings? Make sure the franchise you choose to buy plays to your strengths and not to your weaknesses.
How much money will I need? Different franchises can vary in price considerably. Establish how much money you can afford to invest as this will determine the type of franchise you can buy. You will also need to look at the ease of securing finance to buy a particular franchise. Depending on the sector, you may find securing finance far more achievable in one sector than another.
How much help will I need? As a potential franchisee, find out how much support you’ll receive to open and successfully run your own business. This will be especially important if you are buying into a new industry where you have little, or no, experience. Look for a franchisor with extensive experience in owning, building and operating successful businesses as their knowledge and real life experience in site selection, staffing, marketing and customer care will allow you the greatest chance of success.
Are there opportunities in my franchise sector? As a potential franchisee, do your research around the opportunities that exist in that particular sector. I built my first childcare centre following a baby boom and in response to a chronic shortage of places and centres. Look for areas that present a current – and future - growth market.
Accept that things change As things change you may need to revisit the above checklist to make sure your
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franchise choice is still relevant to your lifestyle. I used to own a successful Australia Post outlet. However, after I had children, my situation changed and I eventually made the choice to move into childcare. If you accept that things will change in business, you will be more open to opportunities that present themselves later. Franchise businesses are a proven safer business model that enjoy a 2-3 times greater chance of success than other small business start-ups. Apart from deciding what you want to do, when you will do it and where you will work, you will also receive other benefits that include being your own boss, increased flexibility and greater tax breaks Buying a franchise is a long-term lifestyle choice that comes with huge opportunity and rewards – both financially and personally. However, deciding which franchise to buy will be one of the biggest decisions you will make. By recognising the lifestyle you have and the lifestyle you want, you should be able to get a much clearer understanding about which franchise is right for you. Award-winning franchisor Debbie Pham created Kids Korner as a way to ensure state-of-the-art childcare centres for Western Sydney. Debbie is seeking potential franchisees to meet the ever growing demand for highest quality childcare in Australia. The Kids Korner long day care franchise offers quality childcare with a focus on a balanced and educational curriculum. Our extensive experience and support network will help you grow and achieve in business. For further information contact: Phone: 1300 909 901 Email: email@example.com Web: www.kidskorner.com.au
DONâ€™T MISS OUR NEXT ISSUE!
Home-based v Mobile franchises Which oneâ€™s for you?
Want to learn more about trends and growth industries in franchising? Need help making the big decisions? Every edition we feature advice from the experts to help you on your franchising journey.
Find out more about home based v mobile franchises in the March / April edition of Business Franchise Australia and New Zealand. On sale 7th March 2014.
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Franchising for Financial Stability:
Bakers Delight’s Franchisee program makes owning a successful business a reality “Buying into a franchise business is a good option for those looking to reduce risk and increase the likelihood of their business being a long term success.”
Gerry Gerrard - General Manager, Bakers Deight
The New Year brings with it renewed confidence across the business community. As the retail sector shows further signs of growth, consumer confidence is also strengthened. Market buoyancy offers new opportunities for potential new business owners looking to embark on their own venture.
Starting your own business is a significant decision, requiring substantial investment. As Australia’s most successful bakery franchise, Bakers Delight is well placed to answer key questions asked by potential owners at the start of any new business venture. There are many things to consider. What are you passionate about? What type of business best fits your skill set? Do you need to undertake training? What sort of business will be a solid investment for the future, and how can you increase your chances of the business being prosperous? Then there is the question of financial capital – can you do this on your own, or will you need financial support? Should you start out independently, or invest in an established franchise business? New business owners want a long term and sustainable investment that can thrive during good times and bad. When embarking on a new business opportunity, it is important to consider a range of factors to best reduce risk and increase likelihood of success.
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The signals of success A great starting point for potential business owners is a recent research report by Griffith University entitled ‘Survival of the Fittest’. The study compared the performance of franchised versus independent small businesses during times of economic uncertainty and recovery. The findings of this study led to some interesting conclusions regarding franchisees in comparison to independent business owners. The report says: “What sets the experiences of franchisees apart from independent businesses is the role that the franchisor plays in providing pre-entry information and the ongoing support they provide in the day-to-day operations of the franchisee’s business”. While this added “support” comes at a cost, in the form of larger financial outlays at start-up and ongoing royalties, franchises are also more appealing to individuals as they mitigate the risks associated with starting a new business from the ground up. In addition, the findings revealed that franchisees are actually at an advantage
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when seeking finance, as they are much better recognised by financial institutions than independents. So while initial financial outlays might be higher for a franchised business, there is evidence to suggest this investment has definite advantages and can reap future rewards. A franchisor has the benefit of experience, tried and tested processes and business systems which can be shared with new franchisees. Also new franchisees benefit from established brand equity – a name and products that customers recognise, trust and love. For those starting out, investing in a franchise removes the work of building a brand from scratch. Buying into a franchise business is a good option for those looking to reduce risk and increase the likelihood of their business being a long term success.
Case study: Bakers Delight’s Franchisee Program Bakers Delight is testament to the benefits of a thriving franchise business model. It was established in 1980 as a single bakery on Glenferrie Road in Hawthorn, Melbourne. It now boasts over 700 bakeries employing more than 15,000 people, and serves two million regular customers per week throughout Australia, New Zealand, and Canada. The bakery franchise has decades of experience in helping make the dream of business ownership a reality for hundreds of successful franchisees, and is currently growing its pool of aspiring franchisees to support the business’ core long-term growth strategy across Australia. With access to proven management and operational systems, Bakers Delight’s franchisees are well positioned to establish profitable bakeries. By tapping into an experienced network, franchisees gain a greater sense of business security. Financial guidance is provided to franchisees in the form of disclosing group and individual bakery finance reports and other key performance measures, to identify areas of improvement. Bakers Delight also assists franchisees in negotiating bakery public liability, and offering national purchasing programs to assist in minimising operational costs. In addition, the network has established relationships with banks, which assists in decreasing the cost of franchisee finance.
Multi-site Operator Case Study Sam Dunlop, Bakers Delight Malvern Central and Toorak, Victoria
After completing a Bachelor of Business, Sam Dunlop worked for a dairy distribution company, but found himself in need of a new challenge. He didn’t want to start his own business, so franchising was a great alternative. After seeing an advert in the newspaper, and spending five months researching his options, Sam decided to buy into the Bakers Delight business. He underwent an intense four month training program alongside a current franchisee where he learned to bake, manage staff and manage his bakery on a day-to-day basis. The process to becoming a franchisee occurs in two stages: 1. The candidate goes through an interview process, bakery orientation and two day obligation-free trial. This process can take as long as needed. 2. Once approved, the candidate goes through a four-month training program in a bakery environment, learning everything from baking skills to effective management practices. Depending on the individual, this process may be fasttracked. Bakers Delight continues its franchisee recruitment drive due to the strength of its product offering and successful business model. Over the past 33 years it has refined
Fast forward seven years later and Sam had bought his second Bakers Delight bakery, now employing a team of 25 staff across both. Sam says the support provided by the network makes effectively managing a bakery less daunting. “You’re never alone because it’s likely someone else has been through the same problem, so you can give them a call and they’ll talk you through it. “In my own business I would have had to be the marketing, IT, industrial relations and food safety systems person. But with Bakers Delight I can rely on their proven systems to help me with elements that aren’t my areas of expertise.” its overall offering to provide a stable model for potential franchisees to embark on the prospect of business ownership. Gerry Gerrard is a General Manager at Bakers Delight, Australia’s most successful bakery franchise, established in 1980 as a single bakery on Glenferrie Road in Hawthorn, Melbourne. An Australian owned company, Bakers Delight boasts over 700 bakeries employing more than 15,000 people, serving two million regular customers per week throughout Australia, New Zealand, and Canada. For further information, visit: Web: www.bakersdelight.com.au
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Buying a Franchise:
How to Choose the Right Franchise for You What are the essentials to choosing and securing a successful franchise that meets my budget? Business Franchise asked Rod Young, one of the world’s leading franchise consultants and Chairman of the DC Strategy Group for his advice on buying a franchise. His advice has guided many franchise networks in establishing successful franchise ventures across the globe. Buying and operating a franchise is an exciting and adventurous process. For most people, buying a franchise will be the
most significant investment they make in their lifetime, akin with buying their first home. Imagine buying a house without looking in every room, getting a surveyors report or researching the value of similar houses in the area. At least the same level of due diligence should be undertaken when buying a business, even if it is part of a successful franchise network. The primal motivator for every franchisee is the opportunity to build an asset that has future saleable value and an asset for the future of the family. Franchising has created opportunities for hundreds of thousands of franchisees around the world. It has proven to be one of the most successful business models over the last 100 years and with the continual interest in people advancing their lives combined with the shrinking of the global labour force,
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franchising has many years of success ahead. Franchising however is not a guarantee of success. Like all businesses, franchises can, and do fail from time to time. When this happens, franchisees blame the area or territory, the location, their competitors, the franchisor or some other factor beyond their control. Rarely will franchisees admit that “I failed to understand my business before I invested and if I had done my research I would never have bought it”. In the future, don’t be surprised to see businesses, including established franchises fail. Blaming external factors or the economy for failure is glossing over the deeper issues of why the business failed. Good businesses should be able to withstand and weather the ups and downs that many businesses experience over the years
The average tenure of a franchisee in many networks is between seven to eight years. It is hard to find a period in history when we have gone seven years without some form of economic turmoil. Why then are people prepared to invest their life savings into a business which they should have known would not survive if revenue dropped by, say, 10 per cent? Avoiding failure in any business, franchises included, begins a long time before you sign an agreement and commit to a contract for a significant period of time. It begins when the idea of owning your own business first enters your mind. Given the financial and contractual nature of the franchising relationship, it is crucial that prospective franchisees thoroughly evaluate the business opportunity and the franchisor before committing to buy into a franchised business. Just because the anecdotal evidence strongly suggests that franchising is not as risky as an independent business where you are on your own should not be considered a guarantee of success.
Step One: Set Your Limits Assuming you have an open mind on the particular type of franchised business you would like to operate, the two key considerations in buying a franchise are: • What size of investment can you afford? • What are your criteria and industry/area of interest? With a wide range of franchised systems on offer, from mobile man-in-a-van, or service franchises, education franchises to large scale multi employee retail, food service or B2B service businesses, the prospective franchisee is faced with a seemingly endless range of opportunities. Assuming you’ve already culled out those systems which don’t interest you, those for which you are not suited or those that demand operating constraints you are unwilling to meet, the first step in filtering this range of potential opportunities is to be realistic about the amount of money you are prepared to commit to the business. Here, the smart prospective franchisee will determine what they can afford and then commit to no more than that - just like the rules at an auction, set your limit and stick to it. Other criteria to consider include:
“Your assessment should be conservative - err on the side of understating revenue and over-stating expenses to gain a conservative view of the business.” • Where will the investment funding come from?
• Do they listen to and learn from their current franchisees?
• What is the level of debt and the cost of debt service and principal repayment?
• Do they have a clear vision and growth plan?
• How much income do you expect in return for your investment?
• Do they have a good, solid growth history?
• In what geographic area should the franchise be located?
• How good is the induction and training program, especially if you are a novice in the product, service and/or business?
• How many days will your franchise trade? • How many staff are you prepared to employ and manage every week? • How many days/hours are you prepared to commit per week? • How many years are you expecting to be involved? • Do you have the support of your spouse or partner and what role, if any, will they have in the operation of the franchise?
Step Two: Ask the Right Questions You must reduce your list of potential franchises down to a manageable level - say, three or four. Take a good look at the list. Do you really see yourself operating any of those businesses for a period of years? Ask yourself these questions: • Does the business present well to you as a consumer? • Do you understand the business? • Have they proven their ability to secure quality locations or operate in multiple regions? • Are current franchisees profitable? • Are they seen in the media and portrayed well? • Are current franchisees happy? • What is the marketing and advertising program like? • Do they have strong relationships with the banks? • What is the quality of the management and leadership team? • Do they have company owned operations?
• How well developed are their management information systems? • Do they have an operations and procedures manual? • What level of ongoing support is provided?
Step Three: Make Your Application Most franchisors will ask you to submit a formal application form. Be wary of those who don’t - it’s a sign they don’t care about who becomes a franchisee or they may not fully understand the business of franchising. Take your time with any application. If you have to hand write it, do so carefully. Be honest and forthcoming with information, it’s not in your best interests to mislead anyone about your ability to operate or fund the franchise. A constant recurring issue for prospective franchisees is underestimating the amount of finance and working capital that is available. You should live within your means and invest within your means as an undercapitalised business is difficult to make successful. You may be asked to pay an application fee of some kind. Make sure you receive a receipt for the fee and a written assurance that the amount is fully refundable until you sign a Franchise Agreement. In Australia, the Franchise Code of Conduct can help protect you here in that the Code which is part of the Competition and Consumer Act which dictates that a franchisor cannot charge a non-refundable fee until the franchise agreement is signed and a cooling off period of seven days has elapsed but it is best to get the franchisor to acknowledge that is the understanding as well as the law.
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including the financial challenges that the world goes through from time to time.
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“There is perhaps no more telling test of a franchise system than to speak with a range of current franchisees.”
Obviously, the balancing factor is that you will not have the certainty of a proven trading history for that particular location. As an alternative to a Greenfield franchise, an established business enables you to take some comfort in the proven trading history so, in effect, it is generally perceived as a lower risk option. However, you may have to deal with the history of the previous franchisee. If the premises or vehicles are looking a little tired, a refurbishment or upgrade can restore the appearance. Don’t forget the current franchisee’s reputation in the market - which could be good or bad. Similarly, existing employees could be a positive or a negative influence. A key issue to consider is the potential for further growth of the business; is there more growth to be had or has it reached its peak? There is no substitute in business for having detailed and accurate historical financial information for the performance of a business. The quality of the numbers is crucial and frankly, some examples defy belief - they lack detail and in some cases, any semblance of accuracy.
Step Six: Do your Own Due Diligence Step Four: Talk to Franchisees There is perhaps no more telling test of a franchise system than to speak with a range of current franchisees. The validation of the franchise system by the current franchisees is a key test of the success of a franchised network. Don’t just limit yourself to those suggested by the franchisor - they will undoubtedly pick the happiest franchisees.
• What would they change? • Are the marketing campaigns delivering customers?
Step Five: New or Established
• Are they satisfied with their investment and the business?
Let’s assume for a moment that you’re the type of person who can tolerate a reasonable level of risk and as such, you’re prepared to venture into a new Greenfield franchise where the franchisor has not operated from a location in the area or within the territory. What should you look for, what are the questions to ask and how do you arrive at a commercially sound decision?
• Would they recommend this franchise to their friends and family?
Some of the benefits of taking on a new Greenfield franchise include:
• Would they sign up again knowing what they know now?
• No goodwill is payable to a previous franchisee
Speak to a range of franchisees and ask them:
• What support does the franchisor provide? • Is the franchisor reasonable? • Is the franchisor willing to listen? • What problems are other franchisees experiencing?
• It is a brand new operation and the local reputation of the business can be established as desired • If it is a site based franchise, the landlord may be prepared to make a contribution toward fit out and/or negotiate the lease terms to link rental to sales levels.
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By this stage you should have contacted and met with your target franchisors and secured a first meeting or, hopefully, some financial details about the offer. You may be asked to sign a confidentiality agreement. Regardless of the information the franchisor provides, you must develop your own view of the financial aspects of the business. There is no substitute for a thorough understanding of the establishment costs, revenue potential and operating expenses. Choose an accountant who is experienced in small business and franchising. Discuss how he or she can assist you in reviewing the financial information and advising you on the potential of the business. Your assessment should be conservative err on the side of understating revenue and over-stating expenses to gain a conservative view of the business. Ask yourself: • Are my assumptions reasonable? • Do any other franchises in the network achieve the levels of patronage I think I can achieve? • Are businesses close by achieving the level of patronage I think I can achieve?
• Is my cost of goods assumption realistic and consistently achieved by other franchisees? • Are the accounts of the existing operations accurate? • If it is a mobile or service franchise, are the running costs of a vehicle adequate for the territory? Present your assumptions and findings to your accountant and ask for his or her candid opinion.
Step Seven: Establish Finance Some franchise systems are accredited with major banks. This means the banks have done their due diligence of the franchise system and may be prepared to finance part of your establishment costs against the business. Be careful. You don’t want to exceed the limit you set for yourself originally. Test the financials again to see if the business can sustain the loan repayments required to fund the initial capital costs.
Step Eight: Use a Specialist Lawyer You will most likely be provided with a pro-forma copy of the franchise documentation. If you receive only a summary of the Franchise Agreement or just the Disclosure Document ask for a full copy. No reasonable franchisor should refuse this request. A franchisor that won’t provide a full copy of the franchise agreement should ring warning bells. If the franchisor refuses to provide one - walk away. The franchisor should provide you with a copy of a Disclosure Document as well as the Franchise Agreement. The purpose of a Disclosure Document if to provide information on the sector the franchise operates in, outline the history of the business of the franchisor, who the directors and shareholder are, the business history of the franchisor’s directors and key officers including any previous history of business failure they may have been associated with, the number of units granted, opened and the units that have closed or been terminated and importantly details of the capital costs including working capital needed to
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• Do my rental and wages expenses include ancillary costs like rates, utilities, employee benefits, holiday pay and health insurance?
establish the franchise and the profit and loss model based on the performance of current franchisees. The contents also should include items such as the intellectual property being licensed. You should engage a specialist franchise lawyer with experience in both business and franchising to review the proposed agreement, disclosure document and any other documentation the franchisor provides. There is no value in engaging a non-specialist to review the Franchise Agreement because such agreements are, by their nature, substantially different to ordinary business contracts. A specialist legal advisor is a must. It’s a worthwhile investment and importantly saves you the investment of paying a lawyer to learn franchising at your expense.
Step Nine: Keep Asking Questions A quality franchisor will be willing to answer all your questions and provide you with enough information on which you can make a fully informed decision. Don’t fail to ask simply because you think the question is stupid - ask it anyway. You must be comfortable with every aspect of the business, so ask, ask, ask and keep on asking until you are satisfied. Only after you have completed all these steps should you contemplate signing a Franchise Agreement. So, in summary: • Set your limits - know how much you can comfortably afford • Make sure the franchise meets your criteria • Ask the right questions - use key questions to shortlist three or four potential franchises • Make your application - complete it as thoroughly and accurately as you can • Talk to current franchisees - they are an excellent source of information about the franchisor and the business • Do you own due diligence - err on the conservative side and use an experienced accountant • Establish finance - evaluate the various banks with whom the franchisor is accredited • Use a lawyer with extensive franchise experience - only a specialist should review your legal documentation and advise you
Rod Young - Chairman, DC Strategy Group
• Question - ask all the questions you want until you are satisfied you understand everything. Only after completing these steps should you contemplate signing any legal documents that bind you in any way and commits you to investing your hard earned money. It’s your responsibility to understand the business and make a fully informed decision. And finally... Understand the franchisor is not responsible for your success or failure. That obligation rests with you as the proprietor of your own franchise. It will be your job as a franchisee to ensure your franchise is profitable. If you cannot accept that responsibility you are not yet ready to make the transition to being your own boss! Rod Young is considered to be one of the world’s leading franchise consultants. Rod has over 30 years’ experience in franchising, licensing and business development in Australia, Europe, China, South East Asia, India and the United States and is the founder and Chairman of DC Strategy, the specialist franchise consulting, legal and recruitment firm. DC Strategy is the region’s leading and longest established franchise advisory firm comprising consulting, legal, recruitment and brand and marketing divisions. Their highly experienced specialist teams have developed many of the region’s most successful franchise networks and brands creating well over a billion dollars of enterprise value for their franchise clients in the last decade alone. Phone: 02 8220 8711 Email: firstname.lastname@example.org Web: www.dcstrategy.com
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The Value in Service Franchises Where should I go, and how do I know my territory is sufficient to support me? Do I get what I am paying for? Service franchises have a great range of entry costs, from free entry and a high level of royalties, to a high entry cost with lower royalties, or a medium entry cost and a flat weekly or monthly payment.
SEIFA map of Sydney, showing the breakdown of areas into 5 quintiles
HES map of Household Services and Operations
No matter which model you are working with, over a period of time you can estimate the payments to your franchisor, and is this value for what you receive? In the service businesses, we often see large areas set out with very strict boundaries. The financial institutions such as ANZ, Mortgage Choice, Aussie and CBA all have models like this, as they then allocate leads, and it needs to go to the right franchisee (who has paid for that area). Often lower cost entry systems have less rigor around their territories, OR they have very well defined territories, and a more open policy in that only a certain number have ever been sold. This allows you to exclusively work your own patch, and then still work across any unallocated territory. The question comes though is what if they ever sold all their territories – would the franchisees actually have enough work to survive? Many of the multi-disciplinary franchise
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systems like Jim’s and V.I.P. tend to follow this model. Within service franchises, there are the indoor ones such as: • House cleaning • Ironing • Oven cleaning • Portrait photography • Befriending the elderly • And many more. Similarly there are a large number of outdoor service franchises which include; • Pool cleaning • Dog walking and washing • Building and renovating – whole houses if required • Antennas • Roofing • Paving • Kerbing • Gardening and landscaping • Junk removal • And many more. If you like the outdoors, think of yourself as a bit ‘macho’… sun, rain, wind as well as an occasional day spent in the beautiful outdoors, maybe one of these is for you?
The Demand curve The demand for these types of household services correlates closely to high economic areas. We look at this in terms of SEIFA
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“In the Service businesses, we often see large areas set out with very strict boundaries.” (Socio Economic Index For Areas), which is an Australian Bureau of Statistics product, and tells us a score for every area in Australia, centering around an average score of 1,000. I like to describe it as a line from Affluent to Effluent, and everywhere in Australia sits somewhere on that line! High SEIFA areas are typically ones where the housing price is high; most people are in employment, and in most cases in Professional or other well paid jobs. Typically of this are areas such as the northern suburbs of Sydney, Melbourne’s inner east and Perth around the Swan River. Lower SEIFA areas would be both Melbourne and Sydney’s western suburbs in general. The demand for household services is definitely stronger in higher Socio Economic areas according to our research and experience. To confirm this, we demonstrate the 20092010 Household Expenditure Survey (HES) which was conducted with around 10,000 households asked to fill in how they spent their money. One classification we can examine in the HES data is Household Services and Operations:
split their territories very poorly. Smart franchisors move away from what we call the “Beer and Pizza” map to a proper, statistical based system so we can give each franchisee similar opportunity within their territory. The “Beer and Pizza” map has traditionally been done with a black text on a large map, strongly influenced by some early entry, self centered franchisees drinking beer (or red wine) and eating pizza at the franchisor’s expense. The down side of the Beer and Pizza map is that no data has been used, just a keen eye, and normally a group of self fulfilling designers! The way we recommend is to firstly understand what makes for a good customer of this service franchise ie. who is going to be our customer? This can be done by creating a picture of who the ideal customer is, or if the business already exists, plot the customers, and look for areas (post codes ideally) of high concentration (penetration, or customers / 1,000 households) of customers. By then comparing to the demographics of the post
Peter Buckingham - Managing Director, Spectrum Analysis Australia Pty Ltd
codes of high penetration, we can see if our service franchise works best in high vs. low income, areas of older vs. younger people, areas high with families, or whether ethnicity may have some effect on the business. Once we know which drivers are good for the business, we can calculate a score for each post code. For example if one household was likely to spend $10 on your service on average, then a household in a high demographic area may be considered to spend $15 per household, and a household in a lower demographic area may spend $5 per household. If each post code was equivalent in the number of households, say 10,000, then the higher area would offer you $150,000 of potential sales,
These maps confirm the relationship the HES shows us to spending on Household Services, as compared to higher vs. lower economic areas, as shown on the SEIFA map.
Territory Design Smart franchise systems try and adapt the size of the territory so that each territory gives the similar amount of opportunity for a franchisee. As you would imagine, if we simply split up a market into territories each of 40,000 households, you would much prefer to have the service franchise for pool cleaning, gardening, or dog washing around Camberwell, Toorak, Double Bay, Hunters Hill or Claremont (WA), than around St Marys, Cabramatta, Sunshine or Broadmeadows. Some franchise systems wonder why some of their franchises are keenly sought after, whilst others seem to have no interest at all. Inevitably they have
Beer and Pizza map
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the pr ice is r ight
E x per t Advice
High vs. Low cost Franchises There is no rule to set the cost of entry, royalties etc for a franchise system, more a couple of models that are generally followed. If the system has some definite, exclusive IP, then there is an argument for a higher entry fee, as it probably has higher money earning potential. For example, if I had an exclusive product, very well priced that was in strong demand, then I would expect to be able to ask more for potential franchisees to come on board. Often these products may be some vertical marketing where the franchisor is also the exclusive supplier of the goods. If on the other hand, I was a very well organised house cleaning or lawn mowing franchise system, I would always be competing against an individual who felt they could do it themselves. This simply values the franchise as the value of gaining them work and a name they can use. (No doubt for example the Jim’s or V.I.P. names have good customer recognition). This does keep the entry cost down for a franchisee, and does create more franchisee turnover (churning) as there is less to lose if they leave the franchise system. Our experience is that outdoor service businesses definitely have more opportunity in higher socio economic areas than lower ones; however a good franchisor will balance the territories they create so that each area gives a similar amount of opportunity for the franchisee. Funny how some franchisors seek your commitment, but will not commit to their own system to set the territories up properly! Map showing territories of similar potential for the Franchisee
whilst the lower socio economic area would only offer you $50,000 of potential sales. Therefore if we decide to do this across the total market such as all of Melbourne, we may conclude the total market offers us 1,200,000 households at an average of $10 per household = $12,000,000. Being a good franchise system, we may have concluded we want 30 franchises across Melbourne, so we want each franchise to have $400,000 of potential. To balance the potential so each territory is similar, in a high socio economic area,
when we add the post codes together to come up with $400,000 of potential, it may take 29,000 households, and in a lower socio economic area, we may need 50,000 households to give the same amount of opportunity for the franchisee. This type of calculation can be done for any market, and rather than trying to adjust the franchise fee for a higher potential area, compared to a lower potential area, we believe it is better to keep the franchise fee constant, and adjust the area’s size, so each franchise area is considered to offer similar opportunity.
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If your franchisor is showing you a territory based on the ‘Beer and Pizza’ map, ask yourself whether you should trust your investment to this franchise system? Peter Buckingham is the Managing Director of Spectrum Analysis Australia Pty Ltd, a Melbourne based mapping and statistics consultancy, a Certified Management Consultant, and Victorian Chapter President of the Institute of Management Consultants. Spectrum specialises in assisting clients with decisions relating to retail location, using various statistical techniques. Phone: 03 9882 6488 Email: peterb@spectrumanalysis. com.au
Published on Jan 6, 2014
Appearing in the January/February 2014 issue of Business Franchise Australia and New Zealand, this feature will help you find the right fran...