Miriam Steffens
March 26, 2012
The Age
BE YOUR own boss, run your own show — for many a dream that seems too daunting to achieve on their own in the jittery economic climate.
Franchising presents itself as an attractive option for those looking to start their own business, yet still want the benefits that come with being part of a bigger organisation offering established brands, management experience and strategic support.
As job losses mount, the franchising sector, which contributes $128 billion to the economy, is seeking to encourage more people to take the plunge. Over the weekend, about 5000 visitors were expected to attend an expo in Sydney bringing together prospective franchisees with the industry.
Seeking to counter headlines of powerful franchises ripping off operators, the pitch is clear: “[Franchising] genuinely is one of the few situations in business where the partners’ relationship is symbiotic,” says Franchise Council of Australia executive director Steve Wright.
The opportunities seem evident — working with experienced companies, running brands that have already proven successful, getting administration back-up and tapping economies of scale when it comes to product supply and marketing. It’s also often easier to get bank funding for a franchise than for starting up a stand-alone business with an unknown risk profile.
But some franchisees warn that the dream of being your own boss can turn into a nightmare, citing a power imbalance in favour of the franchisor, who owns the brand, directs operations and often controls the pricing of key supplies. Franchise fees are usually pegged to franchisees’ sales turnover, not to their profitability.
Australian Competition and Consumer Commission chairman Rod Sims told the sector last year that he had “observed both the early promise and, in some cases, the unfortunate reality”. The ACCC received 645 franchising complaints in 2011.
To enter a franchise successfully (median retailing start-up costs lie at $275,000), it’s important to talk to as many working and former franchisees as possible to find out about the business, recommends Lorelle Frazer, of the Asia-Pacific Centre for Franchising Excellence at Griffith University. Running a franchise can involve 60-plus-hour weeks, and means adhering to a strict franchise system rather than being a freewheeling entrepreneur.
Proper due diligence could take up to six months, and should involve advice from a franchising accountant or lawyer.
Experts say key issues to check include past financial reports and the performance of other outlets, any litigation the franchisor might be involved in, and fees payable, such as contributions to a marketing fund.
Most agreements run for five years, without guarantees they will be extended, says Professor Frazer.
“You need to work out: at the end of five years, will I have received my return on investment so that I would be prepared to walk away?
“If you think that’s not doable, you shouldn’t [sign up].”
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