Resources from the Business Victoria seminar on the pros and cons of buying a franchise.

2. 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

3. 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

4. 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

5. Franchising Trends cont.
Strong growth in ‘outsourcing’ household activities
 Meals (food retailing)
 Cleaning
 Gardening
 Home maintenance
 Car maintenance
 Child minding
 Pet care

6. 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)

7. 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

8. 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
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9. 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

10. 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

11. Step 1: Evaluating Yourself

12. What is your Motivation?
Job satisfaction
Independence
To make money
Improve Lifestyle
To provide jobs for the
family
Career security
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13. 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

14. 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

15. 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?

16. 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’?

17. 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

18. 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

19. 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

20. 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

21. Step 2: Evaluating a Franchise
Proposal
Page 12

22. 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

23. 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

24. 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

25. 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
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26. 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

27. 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

28. 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

29. Step 3: Seeking Professional
Advice
Page 18

30. 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

31. Important Documentation
Franchising Code of
Conduct
Disclosure Document
Franchise Agreement

32. Key People
Solicitor
ACCC
Industry
Associations
Existing
Franchisees
Financial
Institution
Accountant /
Franchise Advisor

33. 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.
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34. 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

35. 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

36. 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

37. 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?

38. 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)

39. 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
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40. 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

41. 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

42. 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

43. 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

44. 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

45. Questions?
Thank you for attending
Check out
business.vic.gov.au/events
for more workshop information