Getting it right when buying a franchise opportunity

First are questions you can ask yourself and second are questions more specific to finding the right business. Early on you may consider whether you are suited to franchising. While you may possess the drive and enthusiasm required you also need to be prepared to work within the framework of the franchise. Some find following methods and procedures provided for running the business irritating and too restrictive.

What to consider when buying a franchise

When looking at franchise opportunities it's important to consider your interests, goals and aspirations, as well as the level of personal and financial commitment you are prepared to make. Are you prepared to cope with the reality of operating your own business, including the hours, stresses and the risks?

Deciding on the right business also requires a number of considerations. The key to choosing well is research. Franchise New Zealand magazine is a good resource for understanding franchising generally and it lists numerous opportunities. Evaluating many before narrowing your choice is a good strategy as any decision carries long term consequences. Your personal tastes and financial circumstances may assist this process as different franchises involve different products and services and carry a range of price tags.

Evaluating specific franchise opportunities is a difficult and complex process. This is because it is important to consider the products, services and prospects of not just one business, but two: the business (or franchise opportunity) and the franchisor. There are too many questions to list here but these points should help. Pertaining to a particular opportunity, consider the business you are looking at and the wider industry it is operating in. For example, what products and services does the opportunity offer to customers, who are the competitors and what do they offer? How is the brand perceived? Is the concept proven? Is there enough demand in your location for the businesses as well as profit margins to support you (and the franchisor) over the long-term? Is the franchisor a member of the Franchise Association of New Zealand? If not, why not?

Evaluating the franchise package is also paramount as franchisors vary in the extent and level of supporting services and structures they provide. Assistance may cover numerous areas and depending on the type of franchise could include help with site selection, design of physical layout, training programs, provision of standard operating manuals, field operation evaluation, ongoing advice, information bulletins, regional and national meetings, franchisor-franchisee advisory councils, book-keeping, centralised purchasing and inventory control, marketing research, and advertising and promotion. Comparing more than one franchise gives you the opportunity to evaluate whether you are getting value for money.

One factor that can not be stressed enough is the importance of obtaining specialist professional franchise advice. By this I mean accountants and lawyers who specialise and/or are intimately familiar with franchising. Franchising is a complex relationship so choosing well can result in better advice at lower cost. Major banks also provide managers who specialise in franchising. Franchisors will often provide performance information based on existing franchises or company-owned operations. Experienced accounting advisors can assess these and, in view of your personal circumstances can assist you in determining the prospects of the opportunity. Obtaining specialist legal advice is prudent for understanding the terms and conditions of the franchise agreement and assessing its fairness. There are a number of issues here such as, the term of the agreement, exclusivity, territories, performance criteria and so on, which need to be included in your evaluation of the business.

Callum Floyd - Franchise Consultants (NZ) Ltd

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