Business Supermodel
The franchise business model is still responsible for kick-starting business careers all over the country. Patricia Moore has this update for franchise buyers.
The franchise business model is still responsible for kick-starting business careers all over the country. Patricia Moore has this update for franchise buyers.
Owning your own business โ itโs the Kiwi dream. And with franchising itโs possible to โownโ a nationally, even internationally, known brand with a proven system, marketing expertise and ongoing support that allows the business owner to get on with growing the business.
The franchise sector plays a significant role in our economy. Results from Franchising New Zealand 2012, a survey conducted by Massey University in conjunction with the Griffith Business School in Brisbane, indicate an estimated annual turnover of around $20 billion for the sector. With a population of just 4.4 million, we support 446 franchise brands and around 22,400 franchisee businesses employing something like 100,000 people.
According to WHKโs National Business Advisory Group, the franchise sector continues to improve, albeit slowly. โProperty-related franchises in many parts of the country are seeing positive growth and new franchise groups are emerging.โ
Advisory group consultant Tracy McElroy-Rivett says theyโre also seeing franchise investors and employees changing franchise groups. โThis is because theyโre seeing more potential in another brand and want to be best placed to take advantage of the continuing upswing.โ
The post-earthquake recovery in Christchurch means new franchises are finding plenty of opportunities in retail, property and construction. In Wellington activity has increased in the past six months, particularly in the hospitality/retail area. (Wellington it seems, has a vast number of franchisors but not a lot of franchisees.)
In Auckland, industry specialists report an upsurge in activity, particularly in the hospitality and service/maintenance industries. โOffshore franchises are coming into Auckland and establishing their first franchises,โ says McElroy-Rivett. โThe banks continue to look favourably on the franchise model for funding.โ
Finance isnโt really an issue for the stronger, better known brands, or for potential franchisees who do appropriate due diligence, says Westpacโs national franchising manager Daniel Cloete. โWhere a brand does not have the figures to prove debt servicing (the banksโ primary interest) the way we structure the funding might be different. Weโre still keen to do the lending.โ
Cloete says recent franchise confidence surveys and their talks with franchisors and franchise specialists indicate โcautious optimism about the prospects for growth this year.โ
He also highlights Christchurch opportunities. โMark Schrader, the local Westpac franchise manager, has noted a lot of increased activity as the city enters the construction phase. It all means lots of opportunity for people looking to buy into new or existing franchise businesses.โ
Where to begin?
Thereโs a lot more to becoming a franchisee than liking the taste of the coffee or having an affinity with kids or pets. Making a wise franchise buying decision depends on the answers to a number of questions, says Cloete. He suggests starting with a copy of Westpacโs step-by-step โGuide to Franchisingโ or attending one of their franchise-related seminars.
The autumn Franchise NZ magazine and website highlight key areas editor Simon Lord believes potential franchisees should address. โThe process starts with finding out about yourself โ what are your skills and aptitudes?โ
The industry and the options within the industry come next, then the particular franchise.
At that point, says Lord, a potential franchisee needs professional advice. โYou need to talk to a specialist franchise banker โ all the main banks have franchise teams โ and you need to talk to an accountant and a lawyer with franchise experience. All these people will bring an additional perspective to the business and to your decision.โ
Existing franchisees are a valuable source of information too, says Lord. โTheyโre living the life you want.โ
Buying a franchise is a complex decision and one you want to get right, says Dr Callum Floyd of Franchize Consultants. โItโs a decision that has long-term consequences for personal life and wealth.โ
Floyd, whose doctorate was awarded for his research into franchising, says if he was buying a franchise heโd look at the following:
โข Financial returns โ how much money can be made from operating profits and future resale, commensurate to the investment required.
โข The business model โ is it configured to deliver the customer value proposition and ultimately produce profit? Is it well organised and will it withstand the test of time? Some franchise brands are much better organised and provide more valuable support than others, says Floyd.
โข Marketing โ will the franchise help you acquire and keep customers, cost-effectively? โYou may be surprised to know that only a small proportion of franchise systems have mastered the marketing function within their business,โ
โข Initial and ongoing support โ is the infrastructure there to get you established as fast as possible to run a profitable operation? โAsk lots of questions to determine whatโs provided and compare the answers with those provided by different franchises.โ
โข Franchisor viability โ โThe successful franchising journey involves franchisee and franchisor being there at the beginning and at the end. I would want to be confident itโs going to be around long-term. As with business viability generally, franchisors of new concepts and small franchisors have a greater risk of failure.โ Bigger isnโt necessarily better either, says Floyd. โBusiness models need to be able to adapt to a changing environment to remain relevant and profitable.โ He cites video rental, pizza delivery and book stores as โchallengedโ business models. He also advises potential franchisees to ensure the franchisor is a member of the Franchise Association of NZ.
The great thing about buying a franchise is that the model already exists and has elements of consistency, says McElroy-Rivett. โYou can turn this to your advantage by studying almost identical businesses in similar locations โ but you need to get access to the right information and the right people to do this; the right accountant should be able to help you.โ (Itโs worth noting that given modern technology โ particularly cloud systems โ specialist advice need not be sourced locally. It can come from almost anywhere in the country.)
Advice invaluable
Diane Gurney, who recently opened the first of the new style Muffin Break franchises in Pukekohe, says the advice from her accountant, Craig Weston at Inspired Business Solutions, has been invaluable.
It was important to her that the business advisors she chose had franchise skills โso that we were talking the same language.โ With no business background she chose a franchise that would provide the necessary in-depth training (two weeks in Sydneyโs Muffin Break โshop-typeโ environment) but says โthe real training comes when youโre actually in the business and running it yourself.โ
Gurney spent a lot of time on due diligence. โI really dug deep. If youโre investing a lot of money itโs too late further down the track to say โOh, I didnโt know thatโ.โ Franchisees also need to fully understand the rules that apply within the franchise โ โwhat you can and canโt do.โ
Simon Lord says after 20 plus years of publishing advice on franchising, heโs still frustrated by the number of people who admit they didnโt do enough due diligence. โThat doesnโt mean theyโre not successful or that theyโre unhappy. But they recognise they may not have done enough research before buying.โ
Spotting opportunities
While a lot of successful brands depend on caffeine for their buzz, franchise opportunities come in all shapes and sizes. And, in spite of recent reports suggesting coffee may be losing its froth, Lord doesnโt believe the market has gone flat. โBut itโs changing and the fastest growing part of the cafรฉ market at present is mobile.โ
Lordโs magazine and website list a number of areas he believes are worth the attention of potential franchisees. Waves of opportunities continue to emerge, he says โbut the big difference since franchising took hold here in the 1980s is the way people are shopping, communicating and interacting.โ
Becoming part of a franchise operation can, even in the current challenging business environment, see the Kiwi dream come true. But due diligence is essential โ regardless of the brand. It wonโt guarantee success, but it will give you the confidence to sign on the dotted line or walk away.
And, says Dr Floyd, the outlook for franchisees is positive with Franchize Consultantsโ most recent Franchising Confidence Index (April 2013) demonstrating much improved optimism across many key franchising growth drivers.
โWeโre most buoyed by franchisorโs increase in sentiment for franchisee profitability. The net positive 44 percent reported by franchisors is the series record and an indicator that franchising could be set to deliver growing returns to franchisees.โ
Patricia Moore is an Auckland-based freelance writer.
Email mch@xtra.co.nz
Websites to visit:
www.franchize.co.nz
www.westpac.co.nz
www.franchiseassociation.org.nz
www.franchise.co.nz
www.refreshrenovations.co.nz
www.muffinbreak.co.nz
Case study: Building Business
Richard Wood arrived in New Zealand from the UK in 2009 and had barely put his feet on the ground before he established his own building company. The work flowed in but just 18 months later he signed on as a Refresh Renovations franchisee.
So why the change of business model?
โI realised I could have spent years building my business, built a lot of houses and done a lot of renovations, but I wouldnโt really have had anything to sell. I was only really as good as myself.
โWhen youโre buying a franchise youโre buying and growing an asset. That was a big thing for me.โ
Being part of a national brand was also a huge attraction, says Wood. โRunning my own small business I could never have found the resources to create a national brand.โ
Nor could he hope to enjoy the marketing power and the group buying power that comes with a franchise.
Wood says he knew little about franchising โ itโs not big in the building sector in the UK, he says. He carried out as much market research on the renovation market as possible โ using the Internet, talking to people he knew, then meeting the people who were behind the actual franchise, before getting to the stage where his lawyers, who had franchising expertise, began โgoing through the franchise agreement with a fine tooth comb.โ
Importantly they were asking questions of him as well as the franchisorโs lawyers. โWas it truly what I wanted? Did I thoroughly understand the obligations I was signing up to?
โTheyโre good obligations but you need to make sure itโs exactly what you want.โ
Spend some time with an existing franchisee, he says. โOne that has been trading for some time. And try and find a franchise owner thatโs in a similar career position. Suddenly youโre going to be a business manager. You become your own sales person. You need to understand the systems and processes. And donโt rush into it.โ
Wood rates the quality of the training and support offered by the franchise as more important than relevant business skills or experience, and says buying a franchise can be the ideal solution for someone wanting to escape the corporate sector.
โWith franchising youโve got head office holding your hand and showing you the right direction. You have flexibility of working hours โ mind you, your own business can soon become seven days a week, franchise or not!โ
Wood owned two Refresh Renovations franchises and was their 2012 Franchisee of the Year. However he recently recognised he was โin danger of spreading myself a little too thinlyโ and is moving on to another franchise opportunity within the building industry.
Call him a serial franchisee, but his experience has convinced him itโs a great business model. โItโs your own business. Youโre pretty much in charge of your own destiny. And, with so many people dreaming of owning their own business, franchising is only going to grow.โ
Showing their stuff
Potential franchisees can check out whatโs new and happening at the annual Auckland Franchising Expo this October. โBookings are good, and weโre also doing more of a push on providers of business services to the franchise industry,โ says organiser Brett Rodger.
In April the companyโs โboutiqueโ expo in Christchurch โ back for the first time since the earthquake โ was very successful, he says. โThe Christchurch visitors were well qualified and the exhibitors happy with the number and quality of the leads which came out of it.โ
A couple of new franchise opportunities were so pleased with the Christchurch event theyโve signed on for Auckland, he says.
โWeโre expecting between 70 and 80 franchise opportunities to exhibit in Auckland, plus 30 to 40 service providers.โ He says in the apparent absence of any other business-to-business events this year, extra space has been allocated in what is effectively a โbusiness-to-business zoneโ.
All exhibitors are listed on the expo website
www.franchisingexpo.co.nz โ giving visitors an opportunity to check them out before they visit.
Site activity soars during the expo says website manager Andrew Moses. โOn average we get around 6,000 unique browsers a month. Over the period of the expo this almost doubles. We also get close to 50,000 page views over that time.โ