This is the final of five modules in the Pre-entry Franchise Education Program, sponsored by the Australian Competition and Consumer Commission and developed by Griffith University’s Asia-Pacific Centre for Franchising Excellence.
Module Five: Questions to ask, due diligence & business skills will take 45 minutes to complete, and is combination of informational videos, audio and short written documents, to help you with your decision processes when deciding to enter into a franchise business.
It follows on from the ideas, concepts and information provided in Module One: Overview of Franchising, Module Two: Understanding franchise disclosure, agreements & finance, Module Three: Franchisee support, site selection & marketing funds and Module Four: Franchise operations, relationships & dispute resolution. If you haven’t yet completed these modules please contact us and we will email you the appropriate module/s.
You may like to take notes while working through this module to assist you down the track, and we’ve also included a list of further resources you may like to explore for further information.
At the end of this module is a self-assessment quiz to test your understanding of the information provided in this module and is the final assessment of the pre-entry franchise education program.
Module Five will provide you with a basic understanding of:
- Questions to ask Franchisors & existing and a former Franchisees: Assessing the Franchisor; and assessing the franchise offer by contacting current and former franchisees.
- Additional Due Diligence: Other factors to assess in considering the franchise offer; and how much time and cost to allocate to your due diligence.
- Useful Business Skills: A summary of desirable skills or training, that may not be provided by the franchisor; and financial literacy, business reporting, HR, etc.
- Assessing your suitability as a Franchisee: Understanding the commitments and compromises for franchising; and methods of assessment.
Each franchisor is required to provide a list and contact details for current and former franchisees in the Disclosure Document.
Franchisees and ex-franchisees can be a valuable source of information for how the franchise business operates, and with ex-franchisees why they decided to leave the franchise. Some franchisees will have left due to dissatisfaction, and others may have left for commercial reasons such as receiving an attractive price for the sale of their franchise.
Prospective franchisees are strongly encouraged to ask lots of questions to existing and former franchisees, which in turn may result in further questions for your franchisor.
Questions strongly recommended that franchisees ask are outlined in two documents, accessible through the following links:
After reading the above documents you may have additional questions you think of to ask franchisees or the franchisor. The more questions you ask the better informed you’ll be and the more likely you’ll have a positive franchising experience as you’ll have realistic expectations.
As we have heard in previous units of this pre-entry franchise education program, it is essential to get professional advice before signing a franchise agreement.
Additional due diligence tips and information is provided by Asia-Pacific Centre for Franchising Excellence Adjunct Lecturer Jason Gehrke in the video below to help you with your franchise selection process.
As you should already be aware from the first pre-entry module, the Franchising Code of Conduct requires a minimum 14-day period from when the franchisor provides you with a disclosure document before you can legally sign a franchise agreement.
If you feel you are not yet ready after the 14 days, or need more time to obtain advice and undertake other research into the franchise offer, then don’t be afraid to tell the franchisor you need more time.
Remember – a broken engagement is better than a messy divorce.
Here are some further due diligence suggestions you can do in your assessment of a franchise offer:
- Get advice from experienced advisors
- Read everything
- Speak to current and former franchisees
- Talk with current or potential customers
- Verify the information you have received
- Undertake web searches
- Engage your partner/spouse, family and friends
- Assess your own living costs
- Do a business plan
- Take your time
(Note: This is a sample list of tips and you may well think of other things you can do to research a franchise before signing on the dotted line.)
There are no short cuts, and the more thorough you can be with your due diligence, the less surprises you will have after signing the binding franchise agreement.
Many people who think about buying a franchise may have never operated a business before, and therefore expect that training provided by the franchisor will totally prepare them for everything involved in running a business.
As Jason explains in this next video, this may not always be the case and the training provided by the franchisor may concentrate more heavily on the specific technical or operational aspects of the franchisor’s business model, rather than on generic business skills.
For this reason, you should try to learn general principles of business even before you have found a franchise to buy.
Key among these is a basic understanding of the financial aspects of a running a small business.
Useful Finance-Related Business Skills:
- Setting a margin
- Cash flow
- Working capital
- Managing costs (ie. expenses), both fixed and variable.
- Profit and Loss Statement
- Provisioning for Tax
- Balance Sheet
It may also be highly desirable to learn about:
- managing staff
- selection criteria
- job description
- key performance indicators
- employment award or Industrial Relations structure
These are just a few suggestions of useful business skills that you could start learning even before you have bought a franchise.
Retail Services franchisee Darren Andonovski shares his experience of becoming and succeeding as a franchisee and offers tips for prospective franchisees.
- Before becoming a franchisee write a list of pros and cons and work out what things you’re good at and what things you may need to work on.
- Having franchisor support as a franchisee is fantastic.
- It’s extremely important that you get support from family and friends beforehand and that they are understanding you may have to work longer hours, especially at first.
- You need to be extremely thorough going through the information provided by the franchisor, and get a solicitor to look through it as well. This not only gives you peace of mind but may also prevent you from making a mistake.
- It’s super-beneficial to talk to current and former franchisees. They’ve already been involved in the system so they have got a fair idea how things work and there’s a lot that you can learn from them.
- It’s beneficial to work in the system before becoming a franchisee.
- Don’t’ try and buck the system, although a good franchisor will listen to their franchisees.
Suitability as a Franchisee: Brett Roveda
Franchise partner with a national retail franchise organisation, Brett Roveda, who currently owns two franchise units, already had a lot of business experience, and entered the franchise with his wife.
- He recognised the big limitation was that neither he or his partner had worked in retail before. This was actually one of the big attractions for the franchise model.
- He thought that buying into a franchise with its systems and processes would help get over that usual hurdles that small businesses experience during that first six to twelve months of operation.
- One of the key benefits of the franchise model is that you’re actually buying into many years of combined experience.
- There should be no limit to the amount of research you do.
- Completing some sort of business course before entering franchising will be hugely beneficial.
- It makes a lot of sense to talk to family members because it is going to have an impact on everyone. Make sure everyone’s aware that it is going to be a stressful time, it’s going to be time consuming, in fact it’s going to be all consuming for the first little while.
- The single biggest leap of faith is “how is this business going to trade once we open the doors” and that’s the thing that you still have to take a punt on.
- Australian Competition and Consumer Commission (ACCC)
- Australian Bureau of Statistics (ABS)
- Australian Securities & Investment Commission (ASIC)
- Australian Stock Exchange (ASX)
- Australasian Legal Information Institute
- IP Australia
- Search Engines: Google, Bing and Yahoo
- Asia-Pacific Centre for Franchising Excellence
- TAFE Queensland, TAFE NSW, TAFE South Australia, TAFE Victoria, TAFE Western Australia
If you successfully complete the quiz with a score of 85% or higher you will receive a Certificate of Completion.
Opportunity to have your say
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