what
makes a
sucessful franchise? ...
by: Jamelle Wells
Through
franchising a small business can become a multi-national
organisation. Kentucky Fried Chicken, McDonalds, the
Holiday Inn and The Body Shop are just a few examples
of franshise success stories.
However
franchising growth has slowed in Australia since the introduction
of the new Franchising Code. According to David Acheson
from the Franchise Council of Australia, the peak industry
body, while franchise outlet numbers are up, overall turnover
and jobs are slightly down.
"This
contrasts strongly with a one percent turnover growth over
the previous four years and 400,000 new jobs created. We
strongly support the code but the cost of compliance and
increased administration have been widely blamed for this
result"
The
new code which applies to all franchise agreements made
after October 1st 1998, has introduced compulsory requirements
and offers increased protection to potential or existing
franchisees. It incorporates issues such as termination,
dispute settlement and disclosure of information.
There
are currently almost 50,000 franchised outlets in Australia
with 24 percent of these operating overseas and a further
27 percent planning to do so within the next three years.
Franchise systems turnover is currently $76.6 billion and
franchises employ 651,900 people.
Good Reasons To Franchise Your Business
By
franchising your business you're expanding it using the
resources of other people. They copy what you're doing,
but can give customers in their local area personal attention.
Because they're seeking to build a business for themselves
franchisees usually work hard and are motivated but they
also need supervison and enouragement.
If
you franchise your business there are fees for the training
and advice you provide along with an ongoing royalty. Outlets
may or may not get goods from you and most franchise contracts
are for five to ten years.
In
franchising your business you can exercise as much control
as you like, depending on your franchise agreement. You
could for example oversee the designs for outlets, agree
on the location and supervise the shop fitting. You can
also train people to run the oulet the way you'd like it
run and create operations manuals.
Accordng
to Acheson royalty payments vary depending on the type of
business. The franchise usally pays you a percentage of
gross sales, with the average six percent of gross sales
weekly or monthly. However Acheson says one of the main
mistakes businesses make when franchising is trying to do
too much too soon.
"To
franchise your business you need to make sure its well established
with clear systems in place. You also need to take the franchise
outlets one at a time and get them well underway before
moving on to the next. Once an outlet is set up, its sucess
rate is two two and a half times greater than that of other
SMEs because it will be replicating something thats already
tried and tested".
Tips For Franchise Success
- Meet with
a professional franchise expert. He or she will objectively
look at what your business and assess what your business
has to offer. They'll also assess your company image
and management style.
-
-
With
the help of the franchise expert do a commerical audit
of your business. This should include a check on registration
of your business name, written operating procedures
and accounting practices.
-
Develop
a marketing strategy which should include the franchise
model. Decide what the franchise system will be called
and what support systems will be provided for franchisees.
-
Decide
on an initial franchise fee and an ongoing management
fee structure. Time the franchise launch and develop
an expansion plan for at least the next three years.
-
Prepare
all documents before meeting with the first potential
franchisees.
-
Have
a solid contract and an operations manual setting out
the rules and regulations of the franchise.
-
Be
selective in choosing the right franchisees.
*Contact the Franchise Council Of Australia to obtain
a copy of the Franchisers Manual
*Consider
a course in Franchising. The Franchise Council offers a
six level correspondence program.
*Obtain
advice from your solicitor, accountant and bank manager.
Citibank and the Commonwealth Bank both have tailored loans
for franchisees and franchisors.
*Go
to franchising expos and seminars
*If
you're looking at franchising your business advertise in
trade magazines, talk to the media about your product and
let existing customers know of your plans
*Speak
about what you do at a local Camber Of Commerce meeting
*Promote
franchising opportunities for your business on letterheads
and leaflets.
Good Reasons To Take On A Franchise
Buying
into a franchise is a good way to start a business because
you're buying into something that's been road tested. Most
SMEs fail because of lack of money, expertise and training.
If you buy into a franchise these come as part of the package.
You can pick up information on trading patterns, shop layout,
ideal locations and overheads to watch out for.
However
you really do need to check out a franchise thoroughly before
you buy into it. Remember that there have been enough past
grievances against franchisors to warrant the new franchise
code. Do your homework on the success of the franchise you're
buying into and check out some of its outlets in person.
Acheson says before buying into a franchise you need to
consider whether or not you will be happy working according
to someone elses rules and regulations.
"While
the franchise requires your own hard work and initiative
you are still running it according to someone elses system.
Some people go into business for themselves to be able to
entirely do their own thing. You're not on your own running
a franchise"
Acheson
says the success of large frachises such as McDonalds is
partly due to the lengthy training period franchisees go
through and also to the excellent marketing strategies these
organisations have.
If You're Thinking Of Buying Into A Franchise
- Ask yourself
if you can work according to someone elses rules and
systems
-
-
Choose
the industry carefully and talk with existing franchisees
in your area of interest.
-
Do
your homework on the group you're thinking of buying
into. Obtain their disclourse document and check it
thoroughly.
-
Obtain
legal and accounting advice.
-
Ask
yourself if you'll like working with the franchisors
staff. These are the people employed by the franshisor
who will be working with you for long periods of time.
Ask yourself whether or not you have family support.
Not just moral support but also in terms of physical
hours in case of sickness
-
Ask
yourself if you have a history of success in dealing
and interacting with people
-
Buying
into a franchise is a large investment. Don't underestimate
the planning, capital and operating committment involved.
Allow at least twelve months to plan and consult with
experts.
Franchise Growth
Areas
Acheson
says one of the main growth areas in franchising is home
services such as cleaning, gardening, babysitting, pet walking,
house sitting and pool care.
"With
more double income families, people are prepared to spend
money on home services to secure some time. Companies such
as Jims Mowing and VIP Services each have over a thousand
franchisees".
Car
Servicing is also a major growth area ranging from Carwashes
to windscreen replacement services. As more SMES spring
up there's a higher incidence of outsourcing. This is creating
franshising opportunities for printing companies such as
Kwik Kopy and Snap, along with courier companies such as
Fastway.
Fast
Food has been a growth area for many years and continues
to do well. People are more than happy to pay someone else
to prepare their meals.
A Case Study
Peter
McKenzie and Vicki Balks purchased their Kwik Kopy printing
franchise in Sydneys Neutral Bay three years ago. Both previously
held senior teaching positions with the Department Of Education
and decided they wanted a change.
"There
was a lot of restructuring in education at the time and
we'd both turned 40 and decided we wanted to do something
different" says Balks.
The
couple looked at a number of franchises including food outlets,
but say they eventually took out a 15 year lease with Kwik
Kopy because of the support structure it offered and its
solid reputation.
Kwik
Kopy is the worlds largest and most successful printing
franchise. Its been operating in Australia and New Zealand
for 17 years with 110 centres now in Australasia. Each month,
more than 60,000 businesses use the services of Kwik Kopy
for their document design and production. Balks says several
months were spent looking at franchise options and obtaining
legal and accounting advice before applying for a bank loan
to make the purchse.
"After
the initial setting up, things really snowballed. We now
employ seven other staff and our clients range from SMEs
to large companies. home offices, and advertising agencies".
According
to Balks the growth of the business is largely due to the
support received from their franchisor.
"A
Business Development Consultant works with us closely, giving
advice on financial matters and equipment. We're visited
by the consultant once a month and we can get advice over
the phone any time we need it." Balks says the best thing
about being involved in the franchise is having the challenge
of running their own business but at the same time knowing
there are support mechanisms. The biggest problems this
Kwik Kopy franchise has faced to date include cash flow
shortages, finding the right staff and lack of business
nous.
"Our
teaching backgrounds didn't equip us with enough of the
skills we needed to run a business, we've had to learn a
lot on the job" says Balks.
Through
franchise seminars and training the pair have learnt the
importance of fast and efficient service, competitive pricing,
and the need to constantly upgrade technology. Asked if
its ever been a problem fitting into someone elses system
Balks says no because they realise that the system does
work and has a successful track record.
