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Five things to look for in a franchise

Written on the 2 December 2014

By Nigel Bowen

The Franchising Australia 2014 report, collated by Griffith University and sponsored by the Franchise Council of Australia, found there were 1160 business format franchisors operating in Australia, with the sector employing 460,000 people and having an estimated total sales turnover of $144 billion. Impressively, between 2012, while the overall number of Australian businesses has been in decline, the franchise sector grew by an estimated 6000 franchise units, representing a net increase of 8.2 per cent.

That noted, not all franchises are created equal. Based on information supplied by the Franchise Council of Australia and a straw poll of franchisees in the trenches, here are the five things you should look for before investing in a franchise business.

The franchisor doesn't have to have been around for a set period of time but you want to see some sort of track record.

1) A resilient business model

"The franchisor doesn't have to have been around for a set period of time but you want to see some sort of track record," say Craig Bruty, owner of Flinders Lane, Melbourne, Bakers Delight. "I was confident about buying a Bakers Delight because they'd been around for 30 years and because they sold a product there's a demand for every day of the year."

"Every business is trying to sell something," says Maria Varkevisser, owner of the PACK & SEND franchise in Chemside, Queensland. "But some products or services are in greater demand than others. I was confident investing in PACK & SEND because people will always need to have items packed up and couriered places."

2) Training and support

"Much of the appeal of franchising lies in the pre-existing support network," says Kym De Britt, general manager of the Franchise Council of Australia. "A good franchise brand will consider product and service training paramount and offer franchisees induction training and ongoing refresher courses. On top of that, a good franchise brand will provide ongoing support in the field, working with the principals to make sure their business is a success."

While established systems are useful, Catherine Gerhardt, who launched the first Australian Kidproof franchise in Melbourne in 2010, warns against getting involved with overly rigid franchisors. "Kidproof is a child and family safety education business that started in Canada and therefore used North American spelling and idioms," she says. "Understandably, franchisors always want to keep things as consistent as possible. However, if you are trying to make a go of a franchise business in a different culture, there needs to be flexibility to make the necessary adjustments that suit that culture's ethos."

3) Brand awareness

"An established brand should be well-recognised in the industry, while an emerging one should have a clear strategy for increasing brand awareness,"  De Britt says. "As a franchisee you'll be contributing to a joint marketing fund and it should be made clear how those funds are going to be allocated, as well as how franchisees are expected to market to and engage with their local communities."

"You're handing over a certain percentage of your earnings, so you want to be giving them to a smart franchisor who is going to be making intelligent decisions," says Melburnian Briony Vince, owner of preschool exercise business Ready Steady Go Kids. "Are they spending franchisees' money in a way you as a franchisee would approve of? Are they building a strong brand that's going to drive customers to the individual franchisee's businesses?"

4) A franchisor you respect

Brothers-in-law Kunal Shah and Mohit Patel co-own two franchises, a 7-Eleven and a Beaumont Tiles store in Blacktown, Sydney. They believe trust is central to the franchisee-franchisor relationship. "There will always be instances of franchisors doing things that may not seem beneficial to franchisees, but you need to trust that the franchisor knows what it is doing, that they have the resources to do the appropriate market research and forecasting," Shah says.    

"If you select a franchisor that shares your values you are less likely to have clashes down the track," Vince says. "You've got to be confident you'll fit in as part of the network," Varkvisser says. "Are you going to be comfortable working with the people you'll be dealing with? Do they have similar standards of integrity to yours?"

5) Happy franchisees

"If you're going to make a commitment to a franchise business, you want to make sure it's a smart investment from a financial and lifestyle perspective," De Britt says. "A franchisor should encourage you to speak to their franchisees and you should take that opportunity to understand what your day-to-day life will look like if you proceed and how that fits with your expectations."

It's a lot easier to pass on a franchise business than it is to extricate yourself once you've bought one, so make sure to do your research and walk away if your criteria aren't being met.

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