Buying a Franchise: Is now good
How has franchising come through the recent economic downturn? Patricia Moore checks out the state of the industry and gathers advice for future franchisees from the nation’s franchise experts.
|How has franchising come through the recent economic downturn? Patricia Moore checks out the state of the industry and gathers advice for future franchisees from the nation’s franchise experts.
In a somewhat tumultuous year for business, interest in becoming a franchisee rose considerably. Redundancies, and the realisation by many people, that while they still had a job, it was by no means secure, were big drivers.
“The number of people interested in franchising, and the quality of those potential franchisees, was probably the best many of our members have experienced for some time,” says Franchise Association executive director, Graham Billings.
Simon Lord, publisher of Franchise New Zealand magazine and website, says the demand for free copies of the magazine is also an indication. “By the end of August last year we’d had as many requests for copies of the magazine as we did for the whole of 2008.” And, he’s seen a “quite dramatic increase”, since around October last year, in the level of interest in specific opportunities on the website.
Interest has also been high at Franchise Expo Australia and New Zealand, says owner Elton Williams. “The New Zealand website was launched just on a year ago and has attracted 47,000 unique visitors.”
And if that doesn’t demonstrate the level of interest enough, the Franchise New Zealand website, which has been around a lot longer, has approximately 100,000 visitors per year.
However, the excitement and interest is not necessarily converting to the appointment of new franchisees. Finance – or lack of it – is still a stumbling block. Potential franchisees are also a little less confident about taking the plunge, says Lord – a point echoed by Westpac national franchising manager Daniel Cloete, who believes potential franchisees are a lot more risk averse and are looking longer and harder before making a decision.
That’s not a bad thing. Taking your time and doing the homework is vital when considering becoming a franchisee. Win Robinson, MD at Franchize Consultants (NZ) Ltd, says he’s constantly surprised at the number of people who do not seek professional advice before buying a franchise system. “They don’t see a lawyer or an accountant. They don’t even talk to a real estate consultant about the sort of site they’ll need. Then when it all turns sour they blame franchising.”
Due diligence is essential, regardless of how much you like the product. Take off the rose-coloured glasses, says Billings, who recommends people start with a copy of the latest NZ Franchisees’ Guide “And buy from a member of the Franchise Association. Members have gone through a process of documentation checking, subscribe to best practice and are expected to provide a significant amount of disclosure information.” He also advises checking to see if franchisors allow for a seven day post-purchase ‘cooling off’ period.
Buying a franchise offers a number of advantages and these are well documented.
(Search dos and don’ts or tips for franchisees on the Internet and literally millions of results are at your fingertips – such as ‘Over 200 questions to ask your franchisor’ at www.franchise.co.nz.) A proven concept greatly reduces the risk; an established and recognisable brand brings competitive advantages, and training and on-going support will be part of the system.
“Then there are the advantages gained through bulk purchasing, marketing and co-ordinated promotions, the use of established intellectual property – you’re not learning by your mistakes – and territorial guarantees of exclusivity. In some cases finance may also be available from the franchisor,” says Robinson.
Finance is the new F word for many potential borrowers and Robinson would like to see the government put in place something similar to the Small Business Administration system that exists in the US and guarantees loans to SMEs. “The interesting thing is that the rate of failure is so low it’s hardly costing the government and it’s stimulating the economy.”
Business as usual
A checklist for franchise wannabes: