by Simon Lord
last updated 25/07/2017
YOUR BUYERS GUIDE
by Simon Lord
last updated 25/07/2017
People who pick up Franchise New Zealand magazine in an office, café or waiting room often tell us, ‘I didn’t realise just how many businesses were franchised,’ or ‘I didn’t realise that xyz company was a franchise.’ In fact, New Zealand is the most franchised country per capita in the world, with over 630 different franchised brands and around 37,000 franchised outlets or operators.
Next time you’re driving through town, see how many franchises you can spot among the shops, cafés, food outlets and the commercial vehicles on the road. I guarantee there will be more than you expected – and I also guarantee you won’t have spotted them all because franchises cover all types of industries from retail to plumbing, from fast food to finance.
So how does franchising work? Well, the basic idea is that the initial creator (the franchisor) develops a business format and an operating system which has some advantages over other existing businesses in the market. The franchisor then replicates the business in other geographic areas by granting the right to another person or company (the franchisee) to operate the same business system under the same name. This right is usually granted for a fixed term.
The franchisor gains his or her income from initial and ongoing fees paid by the franchisee. In return, the franchisor must provide a variety of services to encourage the continuing profitability and growth of the franchisee's business. The franchisee receives their income from marketing a desirable product or service under a desirable brand name.
This basic approach – which is called business format franchising – has proved to be one of the most dynamic forms of marketing and distribution ever invented. While Apple and Google have become global leaders through developing new inventions, McDonald’s and Subway have managed it through applying the franchise model in traditional markets.
The model offers obvious benefits for franchisees: proper and highly-specific training when you first start your business; ongoing support to help you manage it well; the buying power that comes from a lot of small businesses banding together; marketing and advertising muscle; having a franchisor to research and develop profitable new products and services rather than having to work it all out for yourself; and so on.
But with so many different types of franchise around, how do you choose between them all? Here’s our guide to some of the types of franchise available today. Which will light up your life?
Nearly all small business owners find that they are working from home at least part of the time. Cloud-based accounting means it’s often easier to handle some tasks away from work, and online monitoring technology makes it possible even for multi-unit business owners to keep an eye on what’s happening at their various sites.
Some franchises are designed to be home-based. Services such as lawnmowing or cleaning mean being based at home but working elsewhere, while others such as building inspections, business coaching and kids’ tutoring programmes mean doing some work at home even if not meeting clients there.
If you don’t need permanent premises or staff, if you have space for the stock or equipment you’ll need, and if you are able to visit clients or have a suitable space for them to visit you, there are many advantages in being home-based. The major ones include no rent, flexibility of hours, the possibility of working with a spouse or partner and the ability to offset a fair proportion of your home costs against the business for tax purposes. The downside is that you’ll need proper office space, you’ll want to be able to ensure freedom from interruptions sometimes and you may find it hard to get away from thinking about work.
If you’re attracted by the idea of a home-based business, it’s worth looking for a good franchise. But beware: there are plenty of dubious ‘Make $$$$ working from home’ adverts on the internet with no real substance behind them. Use our list of questions to help you sort the genuine from the scams.
Having business premises makes it easier to keep work and home separate. If you’re in retail, the right premises will also deliver a steady stream of potential customers to your door, while if your business is office-based or more industrial, it will enable you to employ staff or house the specialist equipment you need. If you want to have a larger business, then you’ll need premises to work from.
Taking on a lease is a major commitment, but a good franchisor will guide you through the process to help get you the right size of premises in the right location and on the right terms. In retail, not all new shopping centres attract the numbers they expect, and even in successful malls not all sites are created equal. Premises will probably be your biggest cost after staff, so it pays to get it right at the beginning especially as the cost of shopfitting means it’s more expensive to move than would be the case for, say, an office or workshop.
Some franchises like Stirling Sports operate very successfully in malls where the high customer numbers more than justify the high lease costs. Equally, many successful retail franchises operate outside the malls where they make a big point of being destination outlets serving local communities – The Cheesecake Shop, Burger Wisconsin and Stihl Shop being three very different examples. It all depends on the business model of the franchise in question.
If you don’t like being stuck in the same spot all day, think about buying a mobile franchise. Although mobile franchises are often called ‘man-and-a-van’ businesses, they can just as easily suit women – and many mobile franchises allow you to work together with your spouse or another family member.
They come in two forms: those that are mobile because they have to be (providing cleaning, courier, or building services to homes and workplaces), and those that are mobile businesses because they can take a traditional product or service such as coffee, car repair, bookkeeping or carpet retailing to new customers.
Mobile franchises tend to have lower costs than those which operate from fixed premises, and they have the advantage that you can go to where the customers are, rather than having to wait for customers to come to you. In many cases, they can provide a very satisfactory income depending on the hours you put in. However, opportunities for growth can be restricted unless you can leverage your time by employing others and operating more than one vehicle. In some cases you may be able to employ or sub-contract others to use your vehicle when you are not working yourself.
In most man-and-a-van type franchises, you are only earning when you are working. A franchise can increase your work time by handling many of the routine tasks for you such as advertising, answering the phone, dealing with suppliers and even, in some cases, invoicing and debt collection.
If you’re looking for a way of making some extra money, or don’t want to give up the day job yet, a part-time franchise can be a great way to get into your own business. Although some opportunities suggest you can earn a full-time income from a part-time job, to be successful you always have to work hard and put in the additional hours.
Part-time franchises have their good points and bad points, but you can enjoy flexible hours that allow you to work around childcare, school days or school holidays, while many people enjoy being able to start early or late and have the rest of the day free. They can also suit people taking early retirement or redundancy.
Most part-time franchises require less money to start up than full-time ones, or will allow you to start small and increase your investment later. Having a regular source of income apart from the franchise may make it easier to find funding.
Many home services franchises can initially be run part-time, including home cleaning and lawnmowing. Some food and beverage franchises, such as coffee carts or food stalls, can operate part-time during the week with additional days at weekends – you can even employ staff to make the most of these opportunities. These are a good example of the type of business that can be grown as you become more comfortable with the routine.
One of the most popular part-time franchises is commercial cleaning, which allows new franchisees to keep their day job and do an additional four or five hours in their own business every evening. As you grow more confident, you can take on more customers and start employing staff. That increases your earning power without increasing your hours, and paves the way for a move into a full-time business.
In the last few years, environmentally-friendly products and services have moved into the mainstream. Consumers are actively looking to make better choices, and companies want to be ‘seen to be green’. The tipping point has been reached and franchises have responded to the opportunity.
Eco-friendly franchises fall into three main categories:
1. Existing companies that have worked to make their service more environmentally-friendly in order to appeal to customers, companies and corporates with ‘green’ policies. Commercial cleaning companies have been particularly active in this area, especially with increasing sensitivity around the use of chemicals in the home and workplace.
2. Those that have established new companies based on green products like e-bikes or services like furniture restoration. In some cases, these may prove to have immediate appeal; in other cases, consumers may require education and conversion to the benefits. Buyers need to be careful to confirm the market for these in New Zealand where our niches are smaller and our environmental concerns different from those in other countries. Services that work overseas, such as waterless car washing, may not find an obvious market here despite the environmental advantages.
3. Franchises that specialise in home and building improvements to make them more healthy and/or energy efficient. These include companies that specialise in supply and/or retro-fitting or double glazing, wall and roofing insulation, solar energy and heating products.
If you are looking at an eco-friendly franchise, it’s important to do your homework to differentiate between a real benefit and a fake one, and between a long-term trend and a short-term fad. After all, you may want to do your bit for the planet – but you want your business to be sustainable, too.
Food & drink
The same applies to the food business. Food and beverage is one of those sectors that has the great advantage that no-one has yet been able to deliver its products via the internet. Promoting food over the net, though, has become big business and the top food franchises all have sophisticated apps and social media strategies to keep their customers loyal so if you’re choosing a food franchise, you need to make sure they’re staying up with the play (see our special report on fresh new food ideas).
Eating out is perhaps one of the most trend-conscious sectors of all. Restaurants and cafés have seen their menus explode as they’ve tried to keep up with the demands for low fat, gluten-free, sugar-free, fair trade, organic, paleo or whatever. Again, it’s important for the potential franchisee to distinguish between a franchise that can move with the times to meet changing markets and one that might just be focussed on the latest fashion. Just as today’s McDonald’s is a very different place from 10 years ago, so are most of the other successful franchises, too – and the pace of change will only increase.
The cheapest way to get into the food and drink business is via mobile franchises that can take their products to workplaces, high-traffic sites or events. Vending franchises require more investment but can often be worked part-time once established. Beyond that, opportunities vary from hole-in-the-wall or kiosk locations to high streets, food courts, malls and stand-alone outlets with a hundred or more seats.
If you choose a food franchise, be prepared for long hours particularly in the early days. Larger units will require a team of full- and part-time staff, meaning leadership skills are vital, and you’ll need good financial and management skills to stay on top of those all-important food costs. But if you can do that, food franchises can be very rewarding – and many are ideal for those seeking to build a larger business by owning multiple units.
Although many people might think of franchising as consisting of owner-operator businesses, multiple-unit (or ‘multi-unit’) franchising is increasingly popular as evidenced in the Franchising New Zealand Survey 2017. It’s what happens when a franchisee runs two or more outlets, and it’s surprisingly common. For example, several McDonald’s franchisees own four or more restaurants, and many petrol stations are now operated by multiple franchisees who might own 10 or 20 outlets in the same region. Even in the service sector, it’s not uncommon for franchisees to own multiple territories, while in retail the same franchisee might own two or three outlets in neighbouring areas.
It’s not necessarily restricted to a single brand, either; some multi-unit franchisees own outlets of more than one brand. As long as the brands aren’t in competition, and the franchisors are happy, this can work very well. In fact, some franchisors actually operate ‘sister brands’ like Speedy Signs and EmbroidMe, or Mexicali Fresh and Burger Wisconsin.
Becoming a multi-unit franchisee is a very different proposition from operating a single unit. One or two units may come naturally; managing four or five takes a different level of hands-off management skills. Read more about this here. But if you have those skills, franchising can help you build a bigger business faster than you would ever achieve on your own.
Talking of management skills, one of the advantages of franchising is that it offers business opportunities of many different types. Experienced executives, managers and sales-people can find a franchise suited to their skills just as easily as someone who wants to mow a lawn or own their own café - although those can be options, too, if you want a change of direction.
There are opportunities in business coaching, logistics management, property management, home building, finance and plenty of other areas. For someone used to working in a larger company, buying a franchise can make the transition to self-employment much easier by providing proven systems to follow as well as colleagues to discuss issues and ideas with. Many white collar franchises offer the chance to work from home and enjoy flexible hours, so they can suit people taking early retirement or redundancy as well as those who just feel ready to sack the boss.
You might also consider developing your own business as a regional or master licensee, developing a national chain and helping others grow their own businesses. This will be a much larger challenge, especially if you are importing an established franchise system from overseas. In this case, it’s important not to pay too much – many international franchisors over-estimate the potential of their systems in New Zealand or under-estimate the time it will take to become established. It’s therefore important to carry out a proper feasibility study and create an entry plan with the help of locally-based experts before committing yourself.
Invest in yourself
In fact, no matter what type of franchise you’re considering, it’s important to do more than ask ‘How much does it cost?’ and ‘What experience do I need?’ Do your research – we recommend putting in an hour of research for every $1000 that you plan to invest. Talk to the franchisor and ask lots of questions, and talk to other franchisees who are already running the same business. But don’t try to do it all yourself: above all, take proper legal and professional advice from a franchise-experienced lawyer and accountant who can help you make the right decision.
As we said at the beginning, there are around 630 franchises in New Zealand operating in almost any industry you can imagine. Whether you’re looking for something home-based or office-based, retail or restaurant, part-time or full-time, there’s certain to be something to suit your abilities and your goals. You might not even know it exists yet, but once you start looking, you’ll find more bright ideas than you expected – and at least one to light up your life. Just take your time to find the perfect opportunity for you.
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