New Zealand has embraced franchising, with more franchise brands and franchised units per capita than any other country. So what makes franchising so attractive to Kiwis – and when does buying a franchise make good financial sense?
Franchising is a business model that can be applied to all sorts of industries. Consider how a tree reproduces itself: the tree produces fruit which contain a seed, and the seed has a DNA code embedded in it that, in the right environment, allows the tree to reproduce and multiply. So it is with a franchise: the franchise format contains the seeds of success for many new businesses, each of which only needs fertile ground (the right territory) and careful tending (by the franchisee) to grow. Think of a company called Pete’s Subs, which contained the DNA of a business model that became very fruitful indeed under a different name. Today there are over 40,000 Subway stores around the world.
It’s often said that franchising allows people to be in business for themselves but not by themselves. By offering structure, systems and a brand to new franchisees, it can significantly reduce the risk of going into business. That’s why you pay an initial franchise fee, and take advice from a specialist accountant and lawyer first.
A franchise is a business in a box. You are provided with the elements, the DNA of a potentially successful business – it’s now up to you to use your own efforts to apply the formula as laid out in the operating systems and make them work in your area. Remember, you’ll have support and mentoring from the franchise – that’s part of what your ongoing royalties pay for, so listen to good advice.
As the cover story in this issue explains, buying power can offer franchisees many benefits. Think about it: every expense line in your operating budget has the potential to have a group price negotiated, whether ingredients or electricity. The scale of a franchise network creates critical mass which can be leveraged to the benefit of the franchisee.
That applies to marketing, too. Once a franchise network is established, it can fund national campaigns to create a powerful brand. Simply put, the power of a franchise means that working as one brand with many individually-owned outlets can provide a formidable business advantage.
Faith & Fortitude
Buying a new business can be fun and rewarding, but like anything worthwhile in life, it’s a challenge which will take effort and consistent application. You have the seed of a business but growing it takes time, money and effort. Don’t expect instant results. Franchisees need fortitude (inner strength) to stay the course and, if the results aren’t coming as quickly as you would like, faith in the system and the advice you receive. As Rachel Hunter used to say in the Pantene hair advertisement: ‘It won’t happen overnight, but it will happen!’
When you join a franchise, you become part of a network of other interdependent business owners. Although you are all operating in different geographical locations, you have a common brand, systems, processes, service and products. That means you’ll have shared experiences, shared problems occasionally and shared solutions. This provides a peer support network that is unique to franchised businesses, which is why many franchisors talk about their ‘franchise family’.
Another ‘family’ aspect is that many franchises are well suited to being operated as mum-and-dad or family-run businesses. This can be a great way to work with loved ones, get the next generation into business or create a succession plan. And, of course, all the profit the business generates goes back to the family.
Be clear about your goals and how the business can help you meet them. One couple we worked with wanted to buy a house but their salaries were not sufficient to enable them to save up a deposit or service the mortgage required. So they bought a franchise, their income almost doubled and they were able to secure a home.
Of course, for there to be profits, you have to choose the right franchise for you in the first place. Before you buy, do your homework as to the sort of skills you have, the type of business you want, and, vitally, the size of investment you can afford. Understand if the financials work for you and your circumstances and, vitally, seek professional advice from a franchise-experienced accountant. There is always some risk with any business, so seek out wise counsel on the numbers, no matter how much you’re looking at investing.
Understanding all the 6 F’s of franchising is important when you’re looking at buying a business. Franchising is a popular option for those who want to move away from a wage to operating a business, but not all franchise opportunities are created equal – and not all franchisees are created equal either.
You don’t know what you don’t know, so invest in taking informed advice from franchise-experienced advisors to help mitigate the risk. Talk to our award-winning team before you make your decision.