If you are considering purchasing a franchise, this is for you. In the following article we cover some crucial questions about buying franchises such as “why buy?” and “how do I know if I am qualified to run a business?”. It’s in your best interest that before making any purchase decisions, take time to consider this advice based on our experience and knowledge.
If you are looking for legal or financial help, please contact a franchise lawyer and accountant.
And, our new program, Insider’s Guide to Buying a Franchise is coming up soon! Express your interest!
Why would you buy a franchise?
The main reasons to buy a franchise may be that you want to get into business for yourself, but don’t want to reinvent the wheel. So you want to start with a solid system, to begin with, rather than starting from scratch. It could take years to design and build your own business. Whereas with a franchise, you’ve got that sort of ready to go sort of system in a box. There are systems, processes and support in place as a recognised brand. When you’ve got the system and the support behind you, you’re off to a flying start.
What research should you be doing?
Our COO, Soula Van Kooy, when working for the Franchise Council of Australia, would sometimes receive calls from distressed franchisees. When she dug deep she found they hadn’t received legal or financial advice and hadn’t conducted any detailed research before purchasing a franchise. You need to conduct extensive research on your chosen franchise before purchasing. Are there any red flags? And another thing is to make sure that you find a franchise that’s right for you because you’re going to be in it for a while.
Most franchise contracts in Australia franchise go for about five years. You’ve also got to ask many, many questions to current franchisees, and also to previous franchisees, but it’s your research, you’ve got to do it. It does depend on how much you’re spending as well. Because if you’re putting the family home on the line, then you have to make sure that your decision is sound.
Remember, the franchisor must be transparent with everything. If they’re not coming forward with the answers, then that’s where I ask myself, what are they hiding? No question is too small or too big.
Where do you find those current and former franchisees?
In franchising, there are two key documents that you will be given at a certain time in the process of buying a franchise. One is the franchise agreement, which outlines all the legal requirements and your commitments in terms of that franchise. And the other one is the disclosure document.
The disclosure document is very important because it lets you get under the hood of the business giving you some vital information on the background of the franchise and financial information. But one of the important things is that it will give you the contact details of former and current franchisees. So that means that you can go out and contact these people. Then when you’re ready to go to the next step, you must get financial accounting and legal advice on those documents before you sign anything.
How do I know which is the right franchise to buy?
That comes down to self-reflection and understanding yourself. Ask yourself; can I see myself day in day out doing this business? You might be spending many hours a week in this business, so you’ve got to love what you’re doing. The other thing is how much money do you have to spend? What can you afford to buy? How much time are you going to commit? Maybe you only want to work when the kids are at school? So it’s really about knowing yourself first, what you love, what time you have to commit to the business.
Should you buy an established franchise?
There are two ways to buy a franchise, a brand new one, that doesn’t exist in that territory or one where it does exist, and you’re buying it off another franchisee. So there’s pros and cons to that. If you’re buying off another franchisee, you will have a track record in terms of the revenue, you’ll be able to get the profit and loss statements, so you’ll have a track record of how that business has been performing. That may help you with getting finance from a bank.
Alternatively, what they call a Greenfield site is where nobody else hasn’t been operating in that territory. So you’ve got to try and work out, how many customers you may attract and what sort of revenue you will generate. What is a low performing franchise? What’s an average performing franchise? This data can help build up a picture of the business and assist with your business planning. So again, it’s doing a lot of research.
What’s the available mentoring to help someone select a suitable franchise?
We’re launching a new program called the Insiders Guide to Buying a Franchise. There’s a couple of parts to it. First, there’s group coaching. So we’ll go through a whole lot of educational sessions about what you need to do to understand when you buy a franchise. We’ll also have weekly live Q&A’s and office hours where you can ask your questions. A private Facebook group will support you too. You’ll also have access to an amazing online course called “How to Choose a Franchise that’s right for you’’. Express your interest here!