Size of the Franchise Industry
One of the ‘most franchised’ countries in the world
Around 1,160 franchise systems in 2014
...
Franchising Trends
Massive growth in the number of franchise systems in past 10
years (from 850 in 2004 to 1,160 in 2014)
...
Franchising Trends cont.
Where are the franchise opportunities;
 43% in retail (17% food and 26% non-food)
 15% in domes...
Franchising Trends cont.
Strong growth in ‘outsourcing’ household activities
 Meals (food retailing)
 Cleaning
 Gardeni...
Franchising Trends cont.
Strong growth in ‘outsourcing’ non-core business
activities;
 Building / cleaning maintenance
 ...
Purpose of the Workshop
Help you make a more informed decision on
whether to buy a franchise
Help you to determine the rig...
The Business Format Franchise
A Franchise has the following key elements;
an agreement
the right to use a brand / trademar...
What are the Advantages?
Access to an entire ‘proven’
business concept
Franchisor’s knowledge and
experience
Access to a k...
What are the Challenges?
The control of the franchisor
Having to abide by the
Operations Manual / Systems
Frustrations of ...
Step 1: Evaluating Yourself
What is your Motivation?
Job satisfaction
Independence
To make money
Improve Lifestyle
To provide jobs for the
family
Care...
Franchising might not be right for you if you . . .
1. think franchising is the same as running your
own business
2. are n...
Have you also considered . . .?
Affect on lifestyle / hours of work
Financial risks – there are no guarantees of success!
...
Franchise ownership vs
Independent business ownership
4 Questions to ask yourself:
Can you operate in the industry success...
What industry do you want to be in?
More than 40% of opportunities are in the Retail Sector
 Is retailing for you?
 Do y...
What funds do you have available to
invest?
Set a budget and stick to it
Are you willing to put the ‘house on the line’ (i...
How much do you need to invest?
Anywhere from $20,000 - $500,000 +
 65% of franchise opportunities are under
$100,000
 2...
How much do you need to invest?
(cont)
Investment Required Type of franchise
Up to $20,000 * Supplementary Income Business...
How much do you need (or expect) to
earn from the franchise?
Everyone will be different
How much are you earning now?
Can ...
Step 2: Evaluating a Franchise
Proposal
Page 12
Typical Fee Structures in
Franchise Systems
The initial investment in a franchise will generally include
a one-off ‘Franch...
Typical Fee Structures in
Franchise Systems - cont
Royalty fees in retail businesses generally vary between
5%-8% of weekl...
Key Elements of Successful Franchise Systems
Saleable and attractive
franchise package
 Well presented
 Well developed m...
Key Elements of Successful Franchise Systems
cont.
Strong / successful management team
Proven track record in the business...
Key Elements of Successful Franchise Systems
cont.
Well developed manuals and systems
Adequate resources dedicated to trai...
Other Considerations in Evaluating a Franchise
System
Speak to franchisees
Visit sites – see how it works
Spend time in th...
Other Considerations in Evaluating a Franchise
System
Try to be objective, not emotional
Research, Research, Research
(web...
Step 3: Seeking Professional
Advice
Page 18
It is essential …
Preferably from people experienced in
franchising
That you seek professional advice from
suitably qualif...
Important Documentation
Franchising Code of
Conduct
Disclosure Document
Franchise Agreement
Key People
Solicitor
ACCC
Industry
Associations
Existing
Franchisees
Financial
Institution
Accountant /
Franchise Advisor
Franchising Code of Conduct
Introduced in 1998 to regulate the franchise sector
Administered by the ACCC
Know your rights
...
Disclosure Document
Must be given to a prospective franchisee. It
provides;
 Franchisor details
 Franchisee details
 Po...
Franchise Agreement
 Initial services
 Continuing services
 Trade names, trade marks
and copyright
 Territorial rights...
The Franchise Recruitment Process
The recruitment process is governed by the
Franchising Code of Conduct
A Disclosure Docu...
The Franchise Recruitment Process cont.
Carefully consider;
 How professional is the franchisor? (eg franchise
kits, webs...
The Franchise Recruitment Process -
cont
Just because you have the money doesn’t
mean you have the right
Speak to Franchis...
Retail Leasing
The Retail Leases Action 2003 is the major governing
legislation for retail leasing in Victoria
Landlords m...
Retail Leasing cont.
The lease may be held by the franchisor or the
franchisee
Generally, the franchisor will have discret...
Before signing a lease consider the
following:
The term of the lease
and options to renew
Rent and the basis of
rental rev...
Taking the Next Step . . .
Complete the;
Evaluation Checklist
Personal Action Plan
Buying a Franchise Flow Chart
Prepa...
Don’t forget …
…Don’t forget to fill out the evaluation
sheet at the front of the book!
See the Participant Workbook for S...
Small Business Mentoring Service
Business mentors help you to identify a clear direction
for you and your business.
Busine...
Questions?
Thank you for attending
Check out
business.vic.gov.au/events
for more workshop information
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Resources from the Business Victoria seminar on the pros and cons of buying a franchise.

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  • It's great that you included the challenges as well. A lot of franchise businesses offer great advantages, which you mentioned, but franchises may not work for someone who doesn't want to always work along with a group. There are also the ongoing fees, which, if you are not careful with reading the contract, the franchisor might be able to raise at any time at their "sole discretion"
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Interested in Buying a Franchise seminar

  1. 1. Size of the Franchise Industry One of the ‘most franchised’ countries in the world Around 1,160 franchise systems in 2014 Estimated 73,000+ outlets Generates $144 billion in sales revenue (2014) Page 1
  2. 2. Franchising Trends Massive growth in the number of franchise systems in past 10 years (from 850 in 2004 to 1,160 in 2014) Strong growth in ‘buying a job’, ‘mobile’ and ‘at home’ franchises Full employment in Australia – difficult to find suitable franchise candidates Difficult to find suitable sites at economic rates
  3. 3. Franchising Trends cont. Where are the franchise opportunities;  43% in retail (17% food and 26% non-food)  15% in domestic, administration and support services  11% in ‘other services’ (e.g. personal services, pet care, auto repair and IT services)  7% in rental, hire and real estate services  6% in education and training See the Franchise Council of Australia’s franchise business directory at: www.franchisebusiness.com.au
  4. 4. Franchising Trends cont. Strong growth in ‘outsourcing’ household activities  Meals (food retailing)  Cleaning  Gardening  Home maintenance  Car maintenance  Child minding  Pet care
  5. 5. Franchising Trends cont. Strong growth in ‘outsourcing’ non-core business activities;  Building / cleaning maintenance  Financial services  Accounting / administration  Computing / IT  HR / Recruitment  Property services (leasing / rental)
  6. 6. Purpose of the Workshop Help you make a more informed decision on whether to buy a franchise Help you to determine the right type of franchise for you
  7. 7. The Business Format Franchise A Franchise has the following key elements; an agreement the right to use a brand / trademark access to a business system and / or marketing system initial and /or ongoing fees payable Page 6
  8. 8. What are the Advantages? Access to an entire ‘proven’ business concept Franchisor’s knowledge and experience Access to a known brand Exclusive access to product / territory Initial and ongoing training / support Bulk purchasing power Product / service development Group marketing activities Part of a group – share knowledge and experience Reduced risk of proven model Easier to access finance (in some cases) Page 7
  9. 9. What are the Challenges? The control of the franchisor Having to abide by the Operations Manual / Systems Frustrations of being part of a group Different personalities may affect your business Restrictions on selling the franchise Up-front and ongoing fees
  10. 10. Step 1: Evaluating Yourself
  11. 11. What is your Motivation? Job satisfaction Independence To make money Improve Lifestyle To provide jobs for the family Career security Page 8
  12. 12. Franchising might not be right for you if you . . . 1. think franchising is the same as running your own business 2. are not willing to follow systems 3. have unreasonable expectations (on the franchisor) 4. don’t have the support of your partner / family 5. lack of business confidence 6. are complacent and have the wrong aptitude Page 8
  13. 13. Have you also considered . . .? Affect on lifestyle / hours of work Financial risks – there are no guarantees of success! Discipline and temperament to follow a system Partner’s input into decision Willingness to move family for the right opportunity Growth / exit plans
  14. 14. Franchise ownership vs Independent business ownership 4 Questions to ask yourself: Can you operate in the industry successfully without being part of a franchise group? What are the benefits of joining the franchise group? Am I too ‘entrepreneurial’ to be a franchisee? Am I prepared to follow the systems of the franchisor?
  15. 15. What industry do you want to be in? More than 40% of opportunities are in the Retail Sector  Is retailing for you?  Do you like dealing with customers?  Do you like managing staff? Do you want to leverage off your own skills / industry expertise (or are you open-minded on opportunities)? Are you buying ‘yourself a job’ or a ‘business’?
  16. 16. What funds do you have available to invest? Set a budget and stick to it Are you willing to put the ‘house on the line’ (if needed)? Have funds available to cover working capital, prepayments and security deposits Some larger franchise systems have preferred financing arrangements and internal recruitment programs Page 10
  17. 17. How much do you need to invest? Anywhere from $20,000 - $500,000 +  65% of franchise opportunities are under $100,000  20% are $100,000 - $250,000  15% are $250,000 + Page 10
  18. 18. How much do you need to invest? (cont) Investment Required Type of franchise Up to $20,000 * Supplementary Income Businesses * At Home Businesses $20,000 - $50,000 * Supplementary Income Businesses * At Home Businesses * Mobile Businesses * Service-based Businesses $50,000 - $100,000 * Mobile Businesses * Service-based Businesses $100,000 - $250,000 * High-end Mobile Businesses * Low-medium Shop Front / Retailing Businesses $250,000 - $500,000 * Shop Front / Retailing Businesses * Premium Retailing Businesses $500,000+ * Premium Retailing Businesses * Established Premium Retailing Businesses (with goodwill) Page 10
  19. 19. How much do you need (or expect) to earn from the franchise? Everyone will be different How much are you earning now? Can you afford a lower income as the business builds up? Seek a minimum 25% + return on investment (plus salary / drawings for investments of $200,000+) Return on investment for lower investments (i.e. less than $100,000) may need to be higher Do the sums! Page 11
  20. 20. Step 2: Evaluating a Franchise Proposal Page 12
  21. 21. Typical Fee Structures in Franchise Systems The initial investment in a franchise will generally include a one-off ‘Franchise Fee’ which may range from $30,000 to $70,000 In most franchise systems Franchisees are charged ‘royalty fees’ and ‘marketing fees’ on an ongoing basis Page 11
  22. 22. Typical Fee Structures in Franchise Systems - cont Royalty fees in retail businesses generally vary between 5%-8% of weekly sales (for serviced-based, mobile or at- home businesses it is generally 8%-15%) Marketing fees generally vary between 2-5% of weekly sales *Note: these fee structures are indicative only. The way in which fees are charged will depend on the franchise model and will vary from franchise to franchise. Page 11
  23. 23. Key Elements of Successful Franchise Systems Saleable and attractive franchise package  Well presented  Well developed marketing / BD strategies  Thorough training package  Product / service with genuine appeal  Strong advocacy from franchisees Page 12
  24. 24. Key Elements of Successful Franchise Systems cont. Strong / successful management team Proven track record in the business Concept can be easily replicated – ie adequate sites and territories available Profitable and happy existing franchisees Exclusive products, equipment, knowledge Successful marketing strategies Page 12
  25. 25. Key Elements of Successful Franchise Systems cont. Well developed manuals and systems Adequate resources dedicated to training and supporting franchisees Well established criteria for site selection and territories Rigid franchise selection process The concept is not a fad! Page 12
  26. 26. Other Considerations in Evaluating a Franchise System Speak to franchisees Visit sites – see how it works Spend time in the business Clearly understand what training and support the franchisor will provide Page 15
  27. 27. Other Considerations in Evaluating a Franchise System Try to be objective, not emotional Research, Research, Research (websites, local market, competitors) Always ask yourself: “Can I do this successfully myself without being part of a franchise group?” Page 15
  28. 28. Step 3: Seeking Professional Advice Page 18
  29. 29. It is essential … Preferably from people experienced in franchising That you seek professional advice from suitably qualified legal and financial practitioners before proceeding with any form of business agreement
  30. 30. Important Documentation Franchising Code of Conduct Disclosure Document Franchise Agreement
  31. 31. Key People Solicitor ACCC Industry Associations Existing Franchisees Financial Institution Accountant / Franchise Advisor
  32. 32. Franchising Code of Conduct Introduced in 1998 to regulate the franchise sector Administered by the ACCC Know your rights Mandatory disclosure of information. Read and understand the Code. Code revised in 2010 with increased disclosure requirements for franchisors. Page 19
  33. 33. Disclosure Document Must be given to a prospective franchisee. It provides;  Franchisor details  Franchisee details  Policies, terms and conditions  Trademark, patent, design or copyright details  Site Selection / Territory details  Financial information – investment required / earnings information Page 20
  34. 34. Franchise Agreement  Initial services  Continuing services  Trade names, trade marks and copyright  Territorial rights  Period of the agreement  Initial and continuing obligations  Operational controls  Sale of business  Asset protection  Dispute mediation  Termination Must be given to a prospective franchisee. It provides; Page 21
  35. 35. The Franchise Recruitment Process The recruitment process is governed by the Franchising Code of Conduct A Disclosure Document must be issued at least 14 days prior to entering into an agreement Ensure you seek independent professional advice on the disclosure document and franchise agreement
  36. 36. The Franchise Recruitment Process cont. Carefully consider;  How professional is the franchisor? (eg franchise kits, website, interview process)  How rigid is their franchise recruitment process?  Have they done their due diligence on you?  Are they desperate?
  37. 37. The Franchise Recruitment Process - cont Just because you have the money doesn’t mean you have the right Speak to Franchisees! The franchise recruitment process generally takes around 6 weeks at a minimum (then a suitable site may have to be found)
  38. 38. Retail Leasing The Retail Leases Action 2003 is the major governing legislation for retail leasing in Victoria Landlords must provide tenants a ‘disclosure statement’ and a proposed lease agreement at least 7 days prior to a lease is signed A disclosure statement details aspects of the lease such as rent, ongoings and other obligations Page 22
  39. 39. Retail Leasing cont. The lease may be held by the franchisor or the franchisee Generally, the franchisor will have discretion in the franchise agreement as to whether they hold the lease Franchisees should obtain advice from a solicitor prior to entering into a lease / sub-lease of a premises
  40. 40. Before signing a lease consider the following: The term of the lease and options to renew Rent and the basis of rental reviews Outgoings or shared operating expenses Obligations to repair/maintenance The disclosure statement Permitted use Assignment of the lease
  41. 41. Taking the Next Step . . . Complete the; Evaluation Checklist Personal Action Plan Buying a Franchise Flow Chart Prepare a Business Plan (covering a marketing plan, operational plan, workforce plan and financial management plan) *For Business Planning guidance refer to Small Business Victoria’s ‘Business Planning Basics’ Seminar Page 27
  42. 42. Don’t forget … …Don’t forget to fill out the evaluation sheet at the front of the book! See the Participant Workbook for Self- evaluation, Personal Action Plan, Buying a Franchise flow chart
  43. 43. Small Business Mentoring Service Business mentors help you to identify a clear direction for you and your business. Business mentors can also advise you on how to: conduct market research price and/or cost your products or services develop an effective marketing strategy use other business management tools To arrange a session with a business mentor go to: www.sbms.org.au
  44. 44. Questions? Thank you for attending Check out business.vic.gov.au/events for more workshop information

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