What do franchise buyers really want?

Following on from the 2022 survey, Franchise New Zealand media and the experienced researchers at Franchize Consultants have again explored the profile, expectations and decision-making journeys of prospective franchisees.

We surveyed visitors to the Franchise New Zealand website who had expressed interest in buying a franchise, or had already bought one. Thank you to everyone who responded – it was a lengthy online questionnaire with 30 questions, some of them quite intrusive, so it was a big commitment on their part. Here are some of the highlights from the results, which we hope will help you, inspire you or reassure you, as you start your own journey in franchising.

Why buy a franchised business?

The number one reason our respondents gave for buying a franchise is greater income and wealth-building potential, followed by better life balance, making a career change and having more flexibility and greater control over their own lives.

Respondents identified lots of other good reasons, too: more security and stability; achieving a personal challenge; building something to pass on to the children; achieving greater satisfaction; and providing employment for family.

The desire to create a better work-life balance has reduced from 40% in 2022 to 30% in the latest survey, with more people focused on achieving greater satisfaction. This time, 12% of respondents were facing redundancy rather than 5% in the more stable work environment of 2022, when many organisations nationwide were yet to feel the economic and political pinches of the last few years. 

The benefits of franchising

While a sizeable proportion of our respondents had previous business ownership experience, the three main benefits of buying a franchise as opposed to starting an independent business remain unchanged from 2022:

• Having a proven business model
• Using an established and recognised brand name
• Having start-up and ongoing support and training

Even if your system is newly franchised, it’s important to provide as much evidence as you can as proof of operational strength. Can you demonstrate how well established is your brand in the areas you already operate in and what has given it that strength and level of recognition?

In addition, support and training remain key factors in the appeal of franchising, with prospective franchisees looking forward to learning how to run a business and receiving support and brand power with marketing activities.

Where are you coming from?

We asked: 'What is your current situation, or was your situation prior to purchasing a franchise?'

Most respondents are currently working, whether in full-time employment, part-time employment or some form of self-employment. A small proportion, around 13%, said that they are not working and are ready to invest.

This indicates that most potential franchise buyers will be actively comparing the pros and cons of their own employed situation with what a franchise may offer. New accounts of redundancies and job losses are also changing the landscape with every week that passes. As Westpac's November 2024 Quarterly Economic Overview points out, 'it's only in recent months that we’ve seen a shift to outright job losses'.

 

Where will you go?

Geographically, the location of prospective franchisees mirrors the country’s population with 39% of the sample considering operating a franchise in Auckland and 15% in the Waikato. A further 10% are considering a franchise in Canterbury, a market which is looking less bullish than two years ago.

Bearing in mind the constant stories about people escaping Auckland, we asked: 'Did you move or would you consider moving to another region to take up the right franchise opportunity?' 39% indicated they'd be willing to move for the right opportunity.

If you are willing to move or able to choose where you live, there are many good reasons to look at opportunities around the country – see Where Do You Want to Be?

Who are you going into business with?

According to our survey, just a quarter of prospective franchisees are considering buying a franchise alone, while the vast majority intend partnering with someone else – either with their spouse/partner (47%), another family member (11%), a business partner (5%) or friend (5%).

Working Together, the new franchisees will be a team with more skills and experience than a single individual, and may allow each partner to play to their strengths – for example, the 2024 Supreme Franchisees of the Year and co-owners of Landmark Homes Taupō, have divided responsibilities so that Steven Painter concentrates on building and quality control while Gerry Schumacher handles the accounting and some sales. 

Note also that some franchise models allow for the partner’s time to be variable, or to be phased in as the business becomes more established.

Business sector and new or established?

Prospective franchisees are interested in a wide range of business industries although service-type businesses, food-based retailers and cleaning businesses are most popular. 79% of respondents mentioned only one category, indicating that most prospective franchisees have a clear focus on the type of business they want to invest in. 

More prospective franchisees are leaning towards a greenfield (new -28%) versus an existing outlet or unit (resale - 21%). Around half (51%) of prospective franchisees are open to either new or already established franchise outlets or units, as indicated by the no preference and don’t know categories. 

Again, this points to the importance of a franchisor being able to give evidence of their proven business systems – if someone is buying a greenfield site, the system and your operational support must be robust enough to give confidence to the buyer.

When prompted with the possibility, 49% of the prospective franchisee sample indicated it is important that their chosen franchise system offers multi-unit investment opportunities, potentially reflecting the high level of people management experience in the sample. 

Investment and income expectations

A small 19% of prospective franchisees expect to make a loss or breakeven during the first year of their franchise operation, while 27% of prospective franchisees expect to earn between $50,000-$99,999 in the first year.

Once established, 52% of prospective franchisees expect to earn at least $100,000 each year.

Whether these expectations are realistic or not will depend on a number of factors. Understanding the likely financial returns, particularly during the initial start-up period, is important during the due diligence process to ensure that buyers have realistic expectations and won’t get alarmed by initial losses or made over-confident by seeing the money come in. Consult a good accountant – preferably a franchise specialist – before purchasing the business (see Will It Make Money?).

As to how much prospective franchise buyers expect to earn, that varies according to the level of investment. In general, the higher the investment, the more you might expect to take out of the business, whether as profit or wages. If prospective franchisees intend to invest more, they also expect it will take longer to investigate a business before being granted a franchise.

Talking to franchises

Over two-thirds of prospective franchisees (69%) indicated they will talk to at least one existing franchisee in the system before making a final decision and 20% indicated they will talk to at least five.

Getting feedback from existing franchisees in the system should be an important part of the due diligence process; however, a concerning 31% of the prospective franchisee sample have indicated they would not be talking to any existing franchisees.

See 50 Questions to Ask Franchisees for more information on why existing franchisees are an important resource for any buyer.

Sources of advice

As you might expect, accountants and lawyers are the key sources of advice for prospective franchisees while bankers, consultants and business brokers are also consulted before the purchase.

Given the importance of the decision that any prospective business buyer is making, and the potential impact it will have on their family, their finances and their future, the figures of 65% for accountants and just 51% for lawyers are quite worrying and well below the levels of expertise being consulted several years ago. We would encourage all franchise buyers to take proper professional advice as part of their due diligence. Signing a business contract without taking legal advice is rarely a good idea!

Key reservations about buying a franchise

Finally, we asked people what their biggest reservation was about buying a franchise. Not surprisingly, the most mentioned theme (by 31% of respondents) was the cost of the initial investment and funding, followed by concerns about income levels and return on investment. Here are some of the respondent's comments:

"Initial capital requirements.“
"Still saving a deposit for a loan."
"I’ll need to service my current debt. I’m not sure if I’ll be able to earn enough.“
"Being ready to take a risk.“
“NZ economic conditions.“
“My knowledge in handling a business because I don't have prior experience.”

These concerns are understandable, which is another reason for getting good advice before making any decision about buying a franchise. Funding is available, but buyers need to make sure they have all the information they need before approaching a bank to improve the chance of getting what they need – see Funding a Franchise Business.

In conclusion, a lot of the factors that will increase the confidence of a prospective franchisee relate to a better understanding of proven business models and reducing the perceived risk. Some respondents mentioned better access to case studies – and of course at Franchise New Zealand media we specialise in telling the stories about the franchisees and support people within franchise systems who can give just that reassurance from an evidential perspective.

“The findings of the research speak to the need for franchisors to provide good information because prospective purchasers can be narrowing their preferences for a particular franchise quite quickly,” concludes Dr Callum Floyd of Franchize Consultants.

About the survey

Findings from this year’s New Zealand Prospective Franchisee Survey were released in November 2024, following a period of research from May to September, using a database of individuals who had indicated interest in purchasing a franchise opportunity using the Franchise New Zealand website. All information received from the 161 respondents was treated in strictest confidence and anonymised for the purposes of reporting.

There were 30 questions covering a range of areas including motivations and appeal, interests and preference, investment and income expectations, the research and decision-making journey and respondent demographics. Results and interpretation of the data were presented by Dr Callum Floyd of Franchize Consultants Ltd and Sally Knight of Franchise New Zealand media, at a webinar hosted by the Franchise Association of New Zealand in late November 2024. 

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