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BUYING A FRANCHISE
Presented by
Brian Mayoh
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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.
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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”
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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
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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
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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
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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?
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What are you looking for?
Job satisfaction IndependenceMoneyLifestyleNecessityTo provide jobs for the familyCareer Security
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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?
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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
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Checking out the fine print
Franchise Agreement
Key termsCostLengthTerritory - ExclusivityObligations of franchisor/franchiseeTermination & post termination
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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
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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
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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?
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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
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Business structure and planning
Type of business structure
Accounting systems
Monitoring your performance
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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
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Financing the franchise
Can I afford the franchise?Personal fundsExternal finance sourcesLeasing / CHP / Chattel Mortgage - of fitout,
equipment etc
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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
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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
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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
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Questions???????
We hope you have enjoyed the
Seminar
Presented by
Brian Mayoh
HILL MAYOH