How do I compare two franchise systems?

In fact today, I received a call from a potential franchisee who had been undertaking our franchisee pre-entry program and is now weighing up two different café options, I’ll call them Café Franchise A and Café Franchise B.

He was worried by two points.

The Café Franchise A would not provide any profit and loss for any store as they said they were all company owned. This to me, raises some alarm bells. Why would a franchisor with an established brand have only company owned stores? And, if they do, why could they not provide some indicative figures (based on actual historical results) on profit and loss in a range of their stores (with the usual caveats)?

Café Franchise B was an ongoing concern, but with almost $840,000 in revenue, was experiencing a loss of $10,000.

My caller was wondering how to weigh up these options.

My recommendation is to always dig as deep as possible and to ask as many questions as possible to existing franchisees. If you speak to a number of franchisees and the vast majority are unhappy with their business, then my suggestion is to run the other way.

In the case of the ongoing concern, again dig deeper to find out more about the figures. Has the franchisee put expenses such as lease of cars, school fees, overseas “business” trips or other such expenses against their business? This may not be an uncommon practice to reduce taxable earnings.

Or, is the loss due to the high cost of goods so that the gross profit is not enough to cover all of the other expenses in running the business. Is the franchisee using too much labour, for example, so that the business is run inefficiently? Labour is often one of the highest expenses in franchise businesses, and you need to monitor the costs carefully to ensure you are using it efficiently.

My advice is to always speak to a lawyer and accountant who knows and understands franchising in Australia. Take your time, don’t rush as you are putting hundreds of thousands of dollars on the line. Make sure you are really comfortable with your decision. You and your family’s future may hinge on this decision so be sure you think it through.

We also have an online program which teaches you how to weigh up a number of systems when research your franchising.  It called “How to Choose a Franchise” and you can read more about it here.

Do you want to make the wisest and safest decision before entering a franchise agreement? Then our Franchise Opportunity Assessment and Advice service might be for you.