Owning a franchise

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MileHighKiwi

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#171737 29-Apr-2015 13:58

An opportunity to purchase a franchise has arisen and I am seriously considering it. It is a really well known organisation with a product range that is in demand and lots of potential for growth. No business is fail safe but the skills required in this role match my background and I believe I can be successful with this company.

There are lots of questions I will be asking and I'm yet to see the disclosure document, but I was wondering if there are any Geeks who own or have owned a franchise?

Moving from a fixed income to being self employed with potential cash flow ups and downs is our key concern.

Working for myself is hugely appealing, but I realise it's not all rosy and there will be tough times - but I believe the good outweighs the bad.

Do you have any experience with franchises?

Cheers!

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#1293578 29-Apr-2015 14:04

I know someone that had a franchise doing lawn stuff.

It was dire. Had to pay heaps for marketing that was done by incompetants. Had restrictions on what useful marketing they could do themselves. Had to pass on leads in other areas to other franchisees that they knew were useless and wouldnt follow up etc, which reflected bad on him. Had a vaslty smaller area that he was allowed to do compared to others because although geographical area was similar, the afluence and property size was totally skewed against him.

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mattwnz

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#1293579 29-Apr-2015 14:05

My impression of franchises that I have seen, is that they work out better for the company that sells them, than the people who buy and work for them. I would suggest you talk to other franchise owners, to see how they find them. You will obviously need a lawyer to talk you through all the fine print.

MikeB4

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#1293588 29-Apr-2015 14:13

Some questions I always ask those seeking to go it alone.

1. Ask yourself are you in a financial position to support yourself from your own resources for at least 6 to 12 months and not need to draw from the business?
2. Do you fully know the industry, the products, the competition?
3. Considered the market potential in YOUR area?
4. Aware of the second year tax burden and the need to prepare for it, it is a primary killer of start ups.
5. What autonomy do you have and what franchise control is there?
6. do you have franchise exclusivity in your area?
7. What support and guidance is available from the Franchise holder?
8. Will you earn at least 2.5 to 3 times what you would earn doing the same role working for an employer when your business is established.

It is important that you ask yourself and the Franchiser these questions and no doubt many more.

wasabi2k

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#1293595 29-Apr-2015 14:25

And make sure you have sound legal, business and accounting advisers - that are not people posting on forums.

MileHighKiwi

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#1293611 29-Apr-2015 14:48

richms: I know someone that had a franchise doing lawn stuff.

It was dire. Had to pay heaps for marketing that was done by incompetants. Had restrictions on what useful marketing they could do themselves. Had to pass on leads in other areas to other franchisees that they knew were useless and wouldnt follow up etc, which reflected bad on him. Had a vaslty smaller area that he was allowed to do compared to others because although geographical area was similar, the afluence and property size was totally skewed against him.

That sounds horrible. I know two people who have owned lawn mowing franchises; one did well for themselves (relatively speaking; they mow lawns ffs) and one completely flopped. Thankfully I'm not looking at buying a lawn mowing franchise, lol.

MileHighKiwi

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#1293612 29-Apr-2015 14:49

wasabi2k: And make sure you have sound legal, business and accounting advisers - that are not people posting on forums.

Absolutely. I've been doing research the past few days and its apparent I know bugger all about setting up a business. I will get the documents reviewed by a professional for sure.

MileHighKiwi

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#1293623 29-Apr-2015 14:51

mattwnz: My impression of franchises that I have seen, is that they work out better for the company that sells them, than the people who buy and work for them. I would suggest you talk to other franchise owners, to see how they find them. You will obviously need a lawyer to talk you through all the fine print.

Definitely stacked in favor of the franchisor. I was given some figures on a 'succesful' franchise and they are doing REALLY well. Circa $200K profit last year, but I know that is probably at the upper end and applying the 80/20 rule very few will make that kind of money.

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Inphinity

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#1293633 29-Apr-2015 14:58

Some franchisors are fantastic, and really offer great support and resources to their franchisees. Clarify what you can and can't do, and what you must do - depending on which franchise you may, for example, have to participate in any promotional offers the franchisor decides to do (and some don't always compensate you for losses incurred in doing so), or you may NOT be allowed to do your own independent promos. SO, understand clearly what you are getting in to. But, being a franchisee can be very rewarding (mentally and financially) with a good franchisor backing you with a good business method. It can also be a nightmare, if you don't have these things.

sep11guy

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#1293640 29-Apr-2015 15:13

Plus dont forget to consider the no of hours you have to put into the business as such. For eg if its something like Robert Harris or Dominos., you would need to be working long hours, weekends etc, will the business give you good return on investment considering the capital and hrs put into it, and mainly if there is market demand for it on a constant basis.

richms

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#1293644 29-Apr-2015 15:18

I know of people that are self employed and think they are profitable, but really they are not.

If you are not getting a decent return on all you have invested in the business after you have paid yourself a salary that you would have to pay to anyone that you hire to do the same stuff, then you are not profitable. Accountants might tell you that you are, and you may have to pay tax, but till you are getting a positive return after paying for _all_ your labour at the proper rate, and what it would be paying you to invest your money into something else then you are not actually profitable.

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surfisup1000

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#1293646 29-Apr-2015 15:24

MileHighKiwi:
mattwnz: My impression of franchises that I have seen, is that they work out better for the company that sells them, than the people who buy and work for them. I would suggest you talk to other franchise owners, to see how they find them. You will obviously need a lawyer to talk you through all the fine print.

Definitely stacked in favor of the franchisor. I was given some figures on a 'succesful' franchise and they are doing REALLY well. Circa $200K profit last year, but I know that is probably at the upper end and applying the 80/20 rule very few will make that kind of money.

Uhh, 200k does not seem enough for the risk.

I'd be expecting 300k minimum. Just me though.

And it depends on the upfront capital you need too. If something only costs 100k then 200k np would be good.

MileHighKiwi

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#1293673 29-Apr-2015 15:48

surfisup1000:
MileHighKiwi:
mattwnz: My impression of franchises that I have seen, is that they work out better for the company that sells them, than the people who buy and work for them. I would suggest you talk to other franchise owners, to see how they find them. You will obviously need a lawyer to talk you through all the fine print.

Definitely stacked in favor of the franchisor. I was given some figures on a 'succesful' franchise and they are doing REALLY well. Circa $200K profit last year, but I know that is probably at the upper end and applying the 80/20 rule very few will make that kind of money.

Uhh, 200k does not seem enough for the risk.

I'd be expecting 300k minimum. Just me though.

And it depends on the upfront capital you need too. If something only costs 100k then 200k np would be good.

The initial one off cost is $60K; that does not include leasing/buying a vehicle, insurances etc...that's just to get the license. I'm waiting for the info on the monthly costs, i.e. 'marketing support'.

richms

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#1293675 29-Apr-2015 15:51

I would also suggest that get a friend to put a sales lead thru one of their other franchisees and see how well it is handled by the lead generators and what sort of service they get so you know if they are professional or just a bunch of cowboys. That would have saved my friends brother a lot of hassle getting into the mowing one.

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MileHighKiwi

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#1293691 29-Apr-2015 16:09

richms: I would also suggest that get a friend to put a sales lead thru one of their other franchisees and see how well it is handled by the lead generators and what sort of service they get so you know if they are professional or just a bunch of cowboys. That would have saved my friends brother a lot of hassle getting into the mowing one.

I've had personal experience with these guys two years ago. We purchased a product and the whole experience was really good.

Good suggestion though, it can't hurt to 'mystery shop' them again.

dipper

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#1293746 29-Apr-2015 17:04

Hi,

As an Accountant I have had many clients that approach me with the view to purchasing a franchise.

In purchasing a franchise you are buying the rights to access a system or process and use the name attached to it i.e. their IP. So with this have they documents their processes well and provide a manual or do they just provide you with a name? Do they provide you with any training, it sounds like your job is in this area but in your job you may never of had to generate sales, balance the bank, pay suppliers and complete GST returns (be prepared to spend up to five hours a week just on admin)

With franchises you have to be careful of the ties attached to it as the franchisor will always be trying to protect their interest so they can sell more franchises. With this check to make sure that you have no minimum requirements to purchase or sell items and if you do be careful as to the ramifications of not adhering to the requirements i.e. forfeiture of the franchise without financial recourse.

Other areas to check:

Is the franchise for a fixed term or do you need to outlay further $ in the future?

On selling the franchise (we all want to retire one day and an exit strategy is needed as soon as you start a business) can you openly sell it or do you have to sell it back through the franchisor whom take a cut of the price or have control over who purchases it what can cause delays.

Check to see if you can add third party items to the product list without the franchisors approval

You normally have to pay a royalty and marketing levy, with this what do you get for the $

Do you have a set area from which you can sell, if so can this area be changed and what happens if you sell to someone outside the area?

Check the terms of trade for purchasing items

From a financial perspective you need to consider the working capital requirements i.e. how money do you need to cover say three months of expenses without selling anything

What are the terms of trade for selling item …i.e. what are the typical debtor days or is it all “cash”

What is the capital requirement for the purchase of equipment and do you have a requirement under your franchise agreement to replace equipment that is of a certain age?

I hope that some of these points help you.

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