last updated 07/12/2023

Employees or Franchisees?

last updated 07/12/2023

Franchising isn’t just for big businesses, suggests Tereza Murray. It can be a viable alternative to the hassle of employing staff – and if you want to be self-employed, a small franchise can offer some real benefits

Are you looking to expand your small business? If so, you might be dreading the thought of employing people and having to deal with staffing issues, no-shows, discipline, compliance, PAYE, KiwiSaver and all the other minutiae that come with being a boss – not to mention the horrors of New Zealand’s complex Holidays Act. Big companies cope by having specialist departments for HR, payroll and all the other functions, but small-medium businesses have to do it all themselves.

Is there a better way? Well yes, there can be. While many people think of franchising as something that only big companies do, it can be applied on a smaller scale, too. Because each franchised business is locally-owned and operated, with the franchisee in charge and on the spot, franchises enjoy a much flatter management structure than big companies.

Franchisees bring their own capital to the business, too. That’s why, in recent years, it has emerged as a more practical and sustainable growth model for many smaller businesses than the traditional approach of opening and staffing new locations, or adding more service vehicles.

Hire employees or appoint franchisees?

There’s another reason to consider franchising as an alternative to employing more staff. As we’ve seen in recent years, good employees have been difficult to recruit and even harder to retain, especially in the trades and service businesses where many positions demand industry qualifications and/or skilled labour.

The demand for skilled workers has risen, intensifying the competition and raising the cost of recruiting and retaining competent employees. Employees now wield more influence in negotiations relating to remuneration, benefits, and flexible work arrangements. And employees can leave at short notice, giving owners the headache of re-hiring and re-training new people. That costs money, time and focus that most small business owners just don’t have. Consequently, franchising has emerged as a solution to tackle many of these obstacles.

If you franchise your business, then yes – it will take longer to set up and take more time to find the right franchisees and train them, but once they are in, they’re committed. They have invested in the brand, in the system and the business, and they have the determination and commitment to make it work for them. They will work harder, appreciate the value of their customers, and – if you’ve chosen them well and trained them well – consistently maintain a higher standard of work.

It’s worth noting that franchisees are also much more likely to stay with the business for a long time than employees. Surveys suggest that the average tenure of a franchisee in New Zealand is eight years. Imagine how much knowledge and experience they have – and have to share with other newcomers.

Start a business or buy a franchise?

Let’s look at it from the other side for a moment. Why would somebody want to buy a franchise, rather than just get a job?

Well, for many Kiwis, the idea of self-employment is appealing. No boss to report to, flexible working hours, live and work where you want, and keep what you earn rather than being limited by your hourly rate. If you do well in your own business, you might even be able to sell it for a nice tax-free capital gain when the time is right.

 But – and this is a big ‘but’ – the inherent risks and high failure rates associated with self-employed start-ups put a lot of people off. Many tradespeople, for example, venture into self-employment with high hopes but often ...

This article appears in full in Franchise New Zealand magazine (Year 32 Issue 4). You can read the whole article for free in the digital magazine here or request a free print copy here.

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