Time To Buy A Franchise?

THE SUCCESS FORMULA

Generally, people buy a franchise because they want to share the franchisor''''''s know-how and success formula. This reduces their risk. What does a reputable franchisor company provide to franchisees? In brief, and we will expand on this later, the franchisee gains access to a range of essential items, including: a pro-motable brand and a system for operating the business. The franchisee usually receives comprehensive training, ongoing marketing support and management advice. When you're thinking about going into your first business, a franchise is often a better choice. Yes, there are fees involved but there are usually many benefits to justify them.

Independent research into small business in Australia, undertaken by the University of Newcastle over more than 20 years, demonstrates that franchised businesses have a much higher success rate than independent businesses. This should not be a surprise. Franchisees have an 'older brother' -the franchisor who has experience in the industry, understands how to operate the business and has a capacity to help franchisees through all of the issues associated with establishing and running a franchise business.

One way to describe a successful franchise system is that it offers 'a business in a box'. So, when you purchase the franchise, you are provided with everything required for success. Let's take a more detailed look at what's 'in the box'.

THE BRAND

Many people are keen to operate a business that has a recognised brand. Often, the franchisor has already invested millions of dollars, over many years, in generating market awareness of their brand and particular image. This means that the franchisee, operating under an established brand has a 'flying start'. Potential customers already know what the business is about and have greater confidence when doing business with the franchisee.

THE SYSTEM

(If you have not already done so, please refer to the article in this Directory entitled 'What is a Franchise?' for an explanation of the business format franchise.) A business format franchise offers a proven, successful system which provides operating methods and procedures that work. In signing a franchise agreement, the franchisee undertakes to follow the system. This eliminates the expense of trial and error approaches. It also reduces the risk of failure for those who do not have extensive experience. Typically, franchisees receive full training in all aspects of the system before they commence, and further training as time goes on.

Most franchisors monitor franchisees' activities, and offer ongoing management support and advice. It is in the franchisor's best interests to assist franchisees in the development of their businesses to full potential. The franchisee and the franchisor usually work as a team. So the franchisee is in their own business, but they are not alone. If problems arise, the franchisor's management team is there to help, drawing on their experience and resources to find a solution.

A franchise typically provides professional marketing programs geared to promoting the brand and the products or services offered, attracting new customers to each franchisee. A small business on its own will always have a very limited marketing budget. The franchise system provides a means of pooling the available marketing funds of all franchisees, so that a far larger, network-wide marketing spend is possible. This benefits all franchisee business units. Many franchise systems involve group purchasing of products, materials, business equipment and services. The combined buying power of a large franchise group enables each franchisee to buy at the best price and, usually, this will significantly improve their profitability.

THE AGREEMENT AND THE MANUAL

The franchise relationship is often described as a 'commercial marriage'. The franchisor and the franchisee sign a comprehensive franchise agreement which, amongst other things, specifies that the franchisee will operate according to the system, as described in the agreement and the operations manual. In these documents, the roles and responsibilities of the franchisor and the franchisee are explained in detail. Each party then knows what to expect from the other. The operations manual spells out the essential standards, procedures and operating practices to be followed by franchisees. It usually also provides guidance and advice on how to build and manage a successful business. In a franchise relationship, a long-term commitment is required from both parties, for the benefit of each. The franchisee who follows the system maximises the value of his/her business.

Some people fail to understand the reason for the documented rules and regulations of a franchise. Yes, these rules and regulations may reduce individuality and flexibility, but the reasoning is straightforward. A franchise business is not a standalone operation - it is one part of a much larger network. All franchisees follow the same practices and present a united offering to customers. It is imperative that standards are adhered to and that there is consistency across the network, so the value of the brand is not diminished. Individual franchisees may, quite rightly, be outraged when a particular franchisee chooses to make changes without agreement. Such practices dilute the impact of the brand and, therefore, may also devalue other franchisees' businesses.

THE TERRITORY

Different industries require different approaches but, typically, the franchise agreement will offer some benefit to the franchisee in terms of territorial definition. In some franchise systems there is an undertaking to provide the franchisee with exclusivity, so the franchisor forgoes any right to open another franchise or company operation within a defined territory. The franchisee is protected from having competitors with the same brand.

In other industries, where it is impractical to offer exclusivity, there are arrangements made so that business leads are passed to the territorial franchisee. Franchisors commit to ensuring that each franchisee succeeds. They develop a network plan which identifies where the market opportunities are. They recruit capable people and make sure that there is a viable business opportunity for each franchisee.

THE CONCLUSION

When going into your own business there many issues to face. Do you have sufficient experience and skills to go it alone? Would you prefer to enhance your prospects and reduce your risk by joining an established franchise network?

For many, the investment in a franchise business offers major benefits. As you research the franchise opportunities available, you'll soon realise that many of the most successful small businesses in Australia operate under a franchise system. In most cases, the success of these businesses is due to the branding and backing of a professional franchisor organisation and, of course, the sustained effort and commitment of the franchisee.

By Robert McComb of Which Franchise? Magazine