5 QUESTION VITALS
Whatever the cost, every investment in a franchise requires careful consideration.
Here are five important questions to ask, as suggested by franchise consultancy DC Strategy CEO Suzanne Jarzabkowska and colleague Neil Soares, general manager…
1. WHAT IS THE TOTAL COST?
The franchise fee is the cost of getting into the business, but there may be other essential outlays such as special equipment, stock or a vehicle. Some franchisors charge for training, legal costs and administration.
“This can add up to a significantly higher figure than the one advertised,” says Jarzabkowska. “All costs should be broken down and listed in the disclosure document. If they aren’t, the franchisor is in breach of the Franchising Code of Conduct.”
2. IS EVERYTHING AS IT SEEMS?
However keen you may be to contain your costs, you should never stint on due diligence.
“It doesn’t matter whether you’re investing $20,000 or $1 million, this is money you don’t want to lose,” says Jarzabkowska. “From a commercial perspective, you need to know the numbers stack up, and from a legal perspective that you understand the risks and have taken steps to contain them.”
The Franchising Code of Conduct advises franchisees to take advice from professionals with franchising expertise. “Altogether, you should not have to pay more than a couple of thousand dollars,” says Jarzabkowska. “That is money well spent.”
3. WILL YOU RECEIVE SUFFICIENT
Some franchisors are so determined to keep down costs they underestimate their own ongoing costs.
“Professor Lorelle Frazer of Griffith University estimates that it costs about $8000 for a franchisor to find each franchisee,” says Soares. “When you add extras such as induction and training there may not be much left to generate the revenue needed to support a growing network and help new become established.”
4. ARE YOUR EXPECTATIONS REALISTIC?
It costs money to live, and it could be a while before you earn enough from your new franchise to cover your bills.
“You need to be very clear about when your business will start turning a profit, and what that profit is likely to be, so you can calculate how much you need in the bank to cover your day-to-day outgoings,” says Soares.
5. HOW HARD WILL YOU NEED TO WORK?
Jarzabkowska recommends asking the franchisor for up-to-date financial data from other franchisees or corporate locations. “You can then calculate how many goods or services you have to sell on a daily or weekly basis in order to be profitable,” she says.
“Any franchisor will tell you that the most successful franchisees are prepared to work hard, especially when they’re starting out, so you need to know what’s expected of you.”