KEY POINTS:
Are franchises expensive to set up and run?
They range in price depending on the type of business. Some franchise entry levels for service oriented systems can be as low as a few thousand dollars, whereas large and established opportunities in retail can be many hundreds of thousands, as they often include the cost of premises fit-out, stock, leased premises and goodwill. There is a business to fit almost any budget - just as critical is the question of whether you have the right attributes, expectations and drive to 'fit' the business that interests you.
Why shouldn't I just start up my own business?
It is broadly accepted that independent start-ups have a failure rate of up to 85 per cent in the first three years of operation. With franchising this is almost reversed, with up to 85 per cent of franchises succeeding and staying in business during the same period. In a good franchise system you can be buying into a proven system of operation, support, branding and marketing plans and a network of like-minded owners. It is important for purchasers to undertake detailed due diligence when considering a franchise - researching systems in place, documentation, talking to existing franchisees, gaining disclosure documents, market analysis, ensuring it is a member of the Franchise Association.
How protected will I be from a new franchise setting up in my area offering the same thing?
It is good to ensure you have professional support and advice when assessing a business. In many franchise agreements there will be reference to and detail on the protection of areas or the introduction of more systems. It is important to understand what rights you and the franchiser have as the system expands and that detail should checked and tested with your legal adviser prior to purchasing.
Why are franchises becoming so popular?
It often offers a proven system preferred by many lenders, making it easier to access than other options. It also offers the ability for franchisers to expand without the level of capital cost often associated with expansion.
What input will I have into local advertising or marketing?
This will differ from system to system. Some allow local initiative, while others will have it all handled centrally. This should be questioned during the buying process.
What are common mistakes when buying a franchise?
Not undertaking enough due diligence on the franchise system. Care should be taken in regard to systems exported into NZ as they may have requirements that do not meet the Franchise Association's code of practice for NZ.
What are the most important things I should find out before getting involved with a franchise?
Is the system a member of the Franchise Association, and does its documents reflect the codes of practice and ethics for membership? Visit www.franchiseassociation.co.nz Due diligence is key and try to leave few stones unturned.
