5 QUES­TION VITALS

Inside Franchise Business - - Industry Spotlight -

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

SUP­PORT?

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.”

fran­chisees

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.”

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