Franchises - Things To Consider
By: Richard Parker: President of The Business For Sale Buyer Resource Center and author of How To Buy A Good AUSTRALIAN Business At A Great Price©
Franchises are becoming more and more popular in Australia. In fact, most North American franchisors are now focused upon Europe and Australasia as their next growth markets. The franchise concept is an incredible one. Gather all of the ingredients specific to a business and formulate a recipe that can be duplicated over and over again by anybody.
When someone refers to a "turn key' operation, the most likely example is a properly orchestrated franchise. Although the recipe has been set, it still requires the input and management of the right owner to ensure an individual location is successful.
Improve Your Chances And Buy A Resale
You will greatly improve your chances of success if you buy a franchise resale. Why not take advantage of one that's already established and successful? It just makes more sense. A new franchise can take a year or more to build or launch while an existing one gets you into business quickly. Master Franchisors will do a load of demographic and marketing studies evaluating potential customer base, drive by traffic. etc., etc but the only thing that they cannot do is guarantee your success nor can they promise specific revenues or profits; it's illegal for them to do so.
New franchises are to some extent a "build it and pray they will come" strategy. While it is not always easy to locate resales, there are plenty of them around. The best way to find one is to address your search on two levels: call the Master Franchisors and ask if they can provide you with a resale listing in your area. Second, approach any current owner and ask him/her if they know of any that may be for sale. They will probably tell you that theirs is "for the right" price. In either case, you will get leads to pursue. Of course, you can always go through regular channels such as your local paper, business brokers and online listings.
The Investigation Advantage
Probably the most attractive feature of buying a franchise from the buyer's point of you is that you can investigate any franchise much easier than an existing non-franchised business. The reason for this is because you will be able to look at other franchises under the same banner. You can speak with other franchisees in your area and they will be a wealth of information for you.
There is also a disadvantage when investigating and conducting Due Diligence on a franchise as you have to do it on two fronts. You have to check out the business itself of course but of equal or greater importance you have to evaluate the Master Franchisor to be sure that they will deliver everything they are supposed to do.
Your Partner is Your Competitor
The Master Franchisor's agenda is to open up as many locations as possible. While they may all say that they will not dilute the market, rest assured that unless they are contractually obligated to do otherwise they will keep compacting the territory. As they open more and more locations you may wind up competing with your own brand. Once a customer of yours finds another location to be more convenient unless you have a rock solid relationship with that individual you will lose their business.
How To Make Money in Franchising
The best way to accumulate wealth in franchising is to keep opening up or buying other locations. If you can, stick with one banner or within an affiliated group of companies. This way, your leverage with the Master Franchisor increases and you can also focus on running one particular type of business. You can't dance at all of the weddings so opening up new locations too quickly can cause growth problems. However, as soon as you get the first one on track, look to acquire another one.
Each country has different laws related to franchises that are usually quite intricate. Additionally, the agreements between the franchisee and franchisor may differ between companies and many contain clauses that you would never even think exist. As an example, if a franchisee wants to sell their business, most often the franchisor has the first right to buy the business. The reasoning is that they want to be sure that the market doesn't have too many resales available (it hurts them when trying to sell new ones if potentials buyers see too many other franchisees selling). Secondly, they want to protect themselves if they don't feel the potential buyer is right.
The best advice is to hire an attorney who specializes in franchise law and before you take a second step with any resale franchise, get a copy of the contract between the franchisee and franchiser to properly evaluate what you will be faced with.
This article represents a fraction of what you’ll learn on this topic in How To Buy A Good AUSTRALIAN Business At A Great Price© - the most widely used reference resource and strategy guide for anyone thinking about buying a business. Read a detailed listing of what you'll learn .