How to avoid pitfalls and succeed in franchising

The Franchising New Zealand 2012 Report revealed some knowledge-sharing and marketing options are not as good as they could be. Photo / Thinkstock

If you feel you might be ready to buy a franchise, do your homework first, advises Susan Flint-Hartle.

What skills and experience do you need to be a successful franchisee?
Some franchises seek former chief executives or middle managers. Others prefer someone "raw" who can be moulded into their system. Marketing and sales backgrounds rarely go amiss. According to the Franchising New Zealand 2012 Report franchisors are looking for passion, integrity and money from franchisees. The report recommends measurable qualities like experience and suitability to the task and encourages building franchisee capability after an agreement is signed. Franchisees need to enjoy working with other people because they will have to manage employees and help them perform their work to a high standard. Building customer goodwill in order to gain loyalty and trust, and a desire to connect with the community and network effectively, are also important.

Generally a franchisee follows procedures that have been tested and found to be successful so the willingness to listen and learn is key, but also to ask for help when needed. The fact that risk is reduced because the franchisee is not alone is a major strength of franchising. An ability to keep an eye on the business' finances and to work hard will accompany success in a franchise.

What level of finance is required?
Cash flow lending partly secured against an existing or new franchise business is often available, especially where the franchise system has a good business model, a strong brand and a proven track record.

Buying a franchise is a significant investment requiring capital ranging from $30,000 for an established small service business to more than $500,000 for a top-line cafe or retail outlet. Banks and franchisors look for solid prospects and those franchisees who put a strong case will be likely to attract financial backing. A bank with a specialist franchise unit, like Westpac, will understand the issues because they have full details on how particular franchise systems operate. They require the franchisor to provide system benchmarking and demonstrate the level of support they offer.

What are some of the things you should ask when choosing a franchise business?
Do you know this franchise system and is the brand easy to recognise? Are they a member of the Franchise Association of New Zealand? Is there demand for the product or service and will you be able to grow the business in the coming years? How much competition is there? Does the business suit your talents and capabilities? Is the support offered by the franchisor extensive?

Speak to others already in the business and find out if they are happy and get professional guidance from a franchise adviser.

How are marketing ideas and business knowledge shared within franchises?
The Franchising New Zealand 2012 Report revealed some knowledge-sharing and marketing options are not as good as they could be. Many New Zealand franchisors are slow in making effective use of social media like Facebook, LinkedIn and blogs to broaden their marketing and communications reach. A surprising number do not use intranets to communicate with their franchisees.

Sharing knowledge requires time set aside apart from the usual staff training sessions and visits to franchisees by field support teams. The best franchisors will investigate new products and service improvements and aim for a positive approach to sustainability.

Susan Flint-Hartle is a senior lecturer in Massey University's school of economics and finance and author of the Franchising New Zealand Report.