THE BUYERS TOOL How do you work out whether a business opportunity is right for you? Here’s how to get all the help you need
Did you know there are over 37,000 franchised units – that’s franchised shops, restaurants, mobile businesses and more – in this country? Or that some 27.6 billion dollars is spent in New Zealand franchises every year? Franchises make up a massive part of our economy, and help many people to get into their own business. So if you’re looking at becoming your own boss – whether you want a one-man-and-a-van operation that makes the most of your practical side, a million dollar restaurant that rewards your people skills, or a building business that
me, myself and I
allows you to put your management experience to good use – you might consider buying a franchise. But with over 600 different franchise brands in every industry you can imagine, how do you work out what will suit you best? It’s a big job and, as with any job, you need specialist tools to get the right result. But in this case, the tools are people and information. Here’s our guide to what should be in any franchise buyer’s toolbox – and how to use those tools to ensure that you really do get the business you want.
money money money
The first thing you need to do is decide what sort of business you are looking for. You need to work out what would best suit you and what you would want from it. For a start, you need to think about what sort of business you actually want. You’re going to be spending most of your waking hours thinking about and working in your business, especially in the first couple of years, so it needs to be something that you enjoy. That might be something related to your previous experience, or it might involve a complete change. If it’s related to your previous experience, great – you know the industry and know you want to go on working in it. Of course, owning your own business is very different from working for someone else, and may mean learning more skills – business management, for example. A franchise is a good choice, because it will give you training, support and systems in those areas. If you’re going for a complete change, you might want to follow a passion (eg. for food or photography) or you might be motivated by a change of lifestyle (eg. getting out from behind a desk to mow lawns). Again, a franchise will help you. Either way, you want to look for a business where your skills will become real strengths. Do you prefer working by yourself or leading a team? Are you a ‘handson’ person or a ‘hands-off’ person? Are you a night owl or an early bird? If you’re an early riser, a late night pizza business isn’t for you. If you like a lie-in, you won’t enjoy being a baker. Of course, finding what you want to do is one thing – funding a business is another. You probably don’t keep money in your toolbox, so where will you find it?
Franchises are available in a huge range of industries, and vary in cost accordingly from under $5000 to over $1 million. You may have savings or investments to draw upon, an inheritance, a redundancy payment or a Lotto win. In many cases, though, franchisees require some sort of additional finance. This could be funding from a family member or, in most cases, funding from a bank. What matters is not how much you have to spend, but how much debt your new business can afford to service. Don’t try to borrow more than your business can repay – lack of capital kills a lot of businesses. Many franchises will insist on your having, say, 50 percent of the start-up costs in cash. Believe them – if they say you can’t afford their franchise, you can’t. They don’t want you to fail any more than you do. Decide what your financial goals are. What do you realistically want to achieve in terms of an hourly wage, a return on your investment and a potential capital gain when you sell? Can your chosen franchise deliver these? A new business will not make money from day one – it may take several months or even longer to reach break-even. How long can you support yourself before you need to earn an income from it?
the franchisor Finding a franchise is easy – there are hundreds of them in the Directory at the back of this magazine. To make it even easier, you can search the Directory by investment level or industry on our website. But finding the right franchise for you is more difficult. After working out what suits your personality and your pocket, you need to talk to individual franchisors to find out which particular brand is going to be the best fit. It’s important to realise that a franchisor is not just interested in selling you a business. They and their team are going to be working closely with you for a number of years, so they want someone who fits into their culture – they want to know you not only have the drive to succeed, but also the ability to work with them to build the best possible business in your own area.
Meeting franchisors is therefore a two-way process. They want to learn about you, and you want to learn about them. In many industries, you’ll have a whole range of franchises to choose from. Through open and honest communication with the franchisor, you give yourself the best chance of finding the one where you will feel most at home. For this reason, you shouldn’t hesitate to ask questions. Prepare for every meeting by making a list of the questions you want to ask, and write down the answers. Speak up if you don’t understand anything - the better informed you are, the more likely it is you will make the right decision. As a starting point, look at our list of 250 Questions to Ask Your Franchisor at www.franchise.co.nz/article/77. Go through this and mark the questions most relevant to your own situation. The six most important areas to
be covered may be summarised as: 1. How long was the business running before it began to franchise, and how successful was it? 2. How strong is the franchisor’s financial position? 3. If the franchise is new (or new to New Zealand), was a pilot franchise run here and what were the results? 4. How many franchises have been opened? Have any closed or changed hands? If so, why? 5. How successful are existing franchisees? 6. Does the franchisor provide the levels of training and support you will need? How? Once you’ve found one or two franchises where you feel comfortable, you can start to examine them in more detail.
Franchise New Zealand
Year 27 Issue 01