last updated 15/09/2019
NEED A HAND? How to get into your own business
last updated 15/09/2019
How do you decide whether a business opportunity is right for you? Here’s a guide to working it out with links to all the resources you need to make the right decision
It’s the dream of many people to own their own successful business, but it’s not easy – after all, if running your own business were easy, everyone would be doing it. That’s why franchising is such a popular option.
When you buy a franchise, you get a known brand to promote you, proven systems and processes to follow and the benefits of group buying on everything from products or ingredients to insurance. You are also trained in how to run every aspect of the business efficiently, and have ongoing support to help you achieve maximum profitability.
In New Zealand, there are over 630 different franchised brands and 37,000-plus franchised outlets. It means that there’s a massive choice available to you, whether you want a brand new start-up or an existing business; something part-time or full-time; office hours or evenings; mobile, fixed or home-based; working alone, with family or with staff; city-based or regional. The only question is: How do you choose?
Here’s a guide to help you answer the big questions and break the process down into bite-size chunks. In each case, we’ll cover the basics, then direct you to relevant articles on our free website that go into each area in more detail.
Learn how franchising works
Although most people have heard of franchising, few really understand how it actually works. The basic principle is that someone develops a business format and an operating system which has some advantages over existing businesses in the market. By franchising, this person (called the franchisor) then replicates or clones his or her business in other geographic areas by granting the right to another (the franchisee) to operate the same business system under the same name. It’s important to note that this right is usually granted for a fixed term, not forever.
The franchisor gains income from an initial fee paid by the franchisee to gain access to the franchise brand, training and systems, and from ongoing fees paid by the franchisee. These ongoing fees, which may be calculated in a number of ways, also pay for ongoing training, coaching and mentoring for franchisees. There are limitations, though – for example, a franchisee may have to be open certain hours and sell only certain products or services (a McDonald’s franchisee couldn’t suddenly decide to sell pizza).
Here are some useful articles which explain more about franchising and offer some examples:
What type of franchise would suit you?
If you think that buying a franchise would help you achieve your business, financial and personal goals, then you first have to work out what type of business you want to own.
You’re going to be spending most of your waking hours thinking about and working in your business, especially in the first couple of years, so it needs to be something that you enjoy. That might be something related to your previous experience, or it might involve a complete change.
If it’s related to your previous experience, be aware that owning your own business is very different from working for someone else, and may mean learning more skills. You might be great at sales, but what do you know of business management, for example? A franchise is a good choice, because it will give you training, support and systems in those areas.
If you’re going for a complete change, you might want to follow a passion (eg. for food, fitness or education), or you might be motivated by a change of lifestyle (eg. getting out from behind a desk to mow lawns or moving from the city to somewhere with less traffic and lower house prices). You might even be seeking a semi-passive or recurring income opportunity.
Whatever the goal, look for a business where your skills will become real strengths. Do you prefer working by yourself or leading a team? Are you a ‘hands-on’ person or a ‘hands-off’ person? Are you a night owl or an early bird? If you’re an early riser, a late night pizza business isn’t for you. If you like a lie-in, you won’t enjoy being a baker.
Here are some articles to help you think about what’s available, what might suit you and help you work your way through the maze:
What can you afford?
Franchises are available in a huge range of industries, and vary in cost accordingly from under $5000 to over $1 million. You may have savings or investments to draw upon, an inheritance, a redundancy payment or a Lotto win. In many cases, though, franchisees require some sort of additional finance. This could be funding from a family member or a bank.
What matters is not how much you have to spend, but how much debt your new business can afford to service. Don’t try to borrow more than your business can repay – lack of capital kills a lot of businesses. Many franchises will insist on your having, say, 50 percent of the start-up costs in cash. Believe them – if they say you can’t afford their franchise, you can’t. They don’t want you to fail any more than you do.
Decide what your own goals are. If you operate them properly, most franchises should provide a fair wage for the hours you put in, a return on investment and a potential capital gain when you sell them. What do you realistically want to achieve in each of these areas? Can your chosen franchise deliver it?
You can only answer all these questions by careful research, and an honest evaluation of your own situation. Here’s how to start:
Evaluate the options
After going through the first three steps, you should have a pretty clear picture of the sort of business you are looking for, and the level of investment you can afford. The Franchise Directory at the back of this magazine lists almost 300 different franchise opportunities. It’s a great place to start, and to make it even easier the online version is searchable by brand name, industry type and investment level.
For any business to succeed, it must provide a product or service that people actually want, at a price they are willing to pay, and which delivers a profit to the business owner after all costs are taken into account. Crucially, the level of profitability must be high enough that both the franchisor and franchisee can make a fair income from the business.
Here are three articles that will help you evaluate the options available to you and avoid disappointment:
Ask questions – get answers
Having found some opportunities that look promising, contact the franchisors and ask for more details. Don’t be nervous about this; good franchisors are not just interested in selling you a business. They want someone who fits into their culture as well as having the drive and commitment to succeed. Generally, they will send or direct you to more information and, if you have the qualities they are looking for and are interested in exploring further, will invite you to a meeting. The further you get into the process, the more detailed the information you will receive.
Through open and honest communication with the franchisor right from the start, you give yourself the best chance of finding a franchise where you will feel at home. For this reason, you shouldn’t hesitate to ask questions. Many years ago, we developed a list of questions that potential buyers might want to ask franchisors, and we’ve been adding to it ever since. We’ve come up with some questions to ask their franchisees, too – after all, the franchisees are the ones who are already living the business that you are considering. Go through these questions and mark the questions most relevant to your own situation, then make sure you get the answers:
Will it make money?
Although there are many reasons for wanting to buy your own business, one thing is certain: no-one goes into business to lose money. This means looking at lots of figures, which is why you need to invest in a professional advisor to analyse the figures, minimise the risk, look after you, educate you and, eventually, to help you set up the business in the best possible way to suit your individual circumstances.
If you are buying a new franchise, franchisors should be able to provide you with figures based either upon the performance of an existing franchise or company-owned outlet, or with figures based upon an average of stores.
If you are looking a buying an existing franchised outlet, there should be lots of information available on its trading history, including Profit & Loss accounts, a Balance Sheet and a Cashflow Report.
Don’t cut corners – get professional advice
Before making up your mind, there’s one further stage to go through: getting the details of your potential purchase checked out by an accountant, a lawyer and, if you are seeking finance, a banker.
It’s important that each of these professional advisors should have franchising knowledge, as it is a specialist area and an inexperienced advisor may either miss or misunderstand some element. Franchise specialists know what to look for, and will probably have background knowledge of the franchise you are considering buying. That could help reassure you, or save you making a mistake. In either case, it will be money well spent.
There are three key parts to having a successful franchise business, and two of them are set in stone before you even open your doors on the first day. These are:
- Choosing the right business.
- Having a clear understanding of what the business involves.
If you follow the above steps and follow the advice in the articles referred to, you stand the best possible chance of getting these right. The third step is making it all work, which will take dedication, hard work, and listening to the advice of your franchisor team. You could even become a high-achieving franchisee – but that’s another story.
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