BUYING A FRANCHISE

Presented by

Brian Mayoh

What is Franchising?

A method of distributing products or services

The granting of the right by a franchisor to a franchisee to operate a business using a trade mark and a business system

The franchise agreement specifies such things as the period of time, the territory and the initial & ongoing fees etc.

Franchising in AustraliaSome 1100 Franchisors (1998 = 693)

57% increase in number systems since 2002 (=700) 74,000 franchised outlets – av. 67 per Franchisor Approx 4,800 new units per yearEmploys some 413,500 people - av.5.6 per outlet $130 billion turnover per yearAge of Franchisors – 15 yrs in business, 9 as a Franchisor

3 times number of systems per capita than USA1/3rd no of franchised outlets per capita than USA2% of franchisees in serious dispute25%+ Australian Franchisors franchising overseasSurvey by Griffith University “Franchising Australia 2008”

Types of FranchisesProduct and Trade Name Franchise Petrol, Coca Cola, Motor vehicle

Business Format Franchise Most common form of franchising “Operate It Yourself Business System” Franchisor provides entire business system +

advice, guidance training and assistance Operations Manual

Benefits for Franchisees

Brand names and reputation (goodwill) Reduced risk of business failure Established business methods Proven product or service Site selectionTrainingLaunch assistance and continuing supportGroup purchasing benefitsReduced cost of national or regional advertisingOngoing research and new product development

Restrictions on Franchisees

The franchisor has ultimate controlThe need to abide by the rulesThe need to be a team playerYou can only sell to an approved buyerOngoing commitment to pay royaltiesLack of control over corporate directionRelationships with franchisor and their staffThe lifecycle of the concept

How to select your franchise

The process starts with YOU

Critical self assessment prior to investigating specific opportunities

What are your strengths & weaknesses?Do you want to use familiar skills or try

something totally new?

What are you looking for?

Job satisfaction IndependenceMoneyLifestyleNecessityTo provide jobs for the familyCareer Security

Basic questions to ask yourself

Does self employment suit you? Can you manage people? Are you prepared to work long hours? Are you prepared to risk your assets? Can you build relationships, sell? Are you a team player? Will this impact your lifestyle and family? What kind of business is for you? Managerial or

physical labour?

Franchising Code of Conduct

Mandatory Code introduced in 1998

Wide definition of franchise agreement

Provides a cooling off period

Disclosure requirements for franchisors both prior to and after the grant of the franchise

Checking out the fine print

Franchise Agreement

Key termsCostLengthTerritory - ExclusivityObligations of franchisor/franchiseeTermination & post termination

Contents of Disclosure Document

Information re the franchisor company and its directors, shareholders and executive officersPerformance of franchise systemIntellectual propertyObligations of agreementMay contain earnings and projectionsFinancial viability of the Franchisor

Legal and other advice

Prospective franchisor should obtainSpecialist legal and accounting advice

Prospective franchisee should obtain Independent accounting advice – is there a $ in it?

Independent business advice – a mentor

Independent legal advice

Steps in the journey1. Initial Investigation

meet franchisor, discuss franchisees

2. Accounting / Financial Advice Initial Meeting – bring in docs, discuss system, further research?,

finance required – determine, discuss alternative business structures Further Research – answers to specific questions, email outcome Business Valuation, negotiate & agree a price – if an existing

franchise Financial Analysis / Profit & Cashflow Budget – with

comprehensive notes - complete as req’d 2nd Meeting – go through Analysis / Budget – proceed to next step? Assist in negotiating with Franchisor? Obtaining Finance?

Steps in the journey… cont

3. Bank Finance - Submit Budget with business plan

4. Legal Advice – if there is a $ in it & you have the finance

5. Business Structure – acquire & register with relevant authorities once the above is finalised

Business structure and planning

Type of business structure

Accounting systems

Monitoring your performance

Cost of the franchise

Consider the total cost of your investment Franchise Fee Fit out or equipment Working capital Training Opening Promotion Assignment Fee?? Legal Fees Rental bonds Stock Office supplies/computers

Financing the franchise

Can I afford the franchise?Personal fundsExternal finance sourcesLeasing / CHP / Chattel Mortgage - of fitout,

equipment etc

What’s in it for me?

Undertake critical review of operating costs and profitability scenarios

Prepare your own business plan

Prepare a worst case scenario

Assess the real rate of return on your investment

Life As A Franchisee

In business for yourself, not by yourselfPart of a groupOngoing direction and guidanceBe prepared to accept changeEnhanced ability to sell a brand name businessFinancial rewards due to personal effortsContribute to the system

Useful sources of information

Franchise Council of Australia (FCA)www.franchise.org.au

Franchising Magazines

Government Agencies such as Office of Small Business & ACCC www.business.gov.au

Questions???????

We hope you have enjoyed the

Seminar

Presented by

Brian Mayoh

HILL MAYOH