DON'T MAKE THE MISTAKES I DID

I'll start with the uncomfortable version of my own story, because it's the one worth telling.

I've seen franchising from almost every seat at the table. I started out in operations at McDonald's, where I learned just how much discipline sits underneath a system that looks simple from the outside. I've since run an accounting practice, two recruitment businesses, a business coaching franchise, and now a franchise consulting business, Franchise Ready, working alongside franchisors across Australia on exactly the recruitment and due diligence problems I'm about to describe.

None of that experience stopped me from making the mistakes below. If anything, it should have made them less likely, which is exactly why I think they're worth sharing honestly rather than glossing over. 

Over the years I've owned eight franchises. Three of them failed. When people ask why they expect a story about a bad economy, a difficult landlord, or a franchisor who let me down. The real answer is less flattering: I wasn't hands-on in any of them. I put management in to run the day-to-day while I focused on other things, and I treated ownership as something closer to a passive investment than a job.

The problem is that franchising, at its core, is built on a simple premise that an owner-operator will do a better job running the business than an employee will. When you remove yourself from that equation, you're not really running a franchise anymore; you're hoping someone else will run it as if they own it, and very few people ever do.

That mistake compounded because it wasn't isolated to one business. I was spread across eight different brands with no shared systems, no consistent economics, and no team capable of holding it all together. Every business had its own operating rhythm, its own reporting, its own culture, and I was trying to oversee all of it without ever being deeply embedded in any of it.

I hadn't built the infrastructure, the people, the systems, the financial visibility that multi-unit ownership actually requires. I was multi-unit in name and under-resourced in reality.

MUMBOs

I want to be clear about something, though, because this isn't an argument against growth. Multi-unit ownership isn't the problem; it's genuinely the growth engine of franchising globally. In the United States, more than 54 percent of all franchised units are now controlled by multi-unit operators, and that share has been climbing steadily for over a decade.

Within a single brand, a multi-unit franchisee can be enormously successful, because they can replicate the same processes, the same training, and the same culture across every site, and they can afford to invest properly in the people running each one.

At the more sophisticated end of the US market, there's now a recognised category of operator the industry calls MUMBOs – Multi-Unit, Multi-Brand Operators. These are franchisees who run multiple locations across several different brands at once, but who do it with serious financial backing, experienced management teams, and the systems to match.

Greg Flynn's Flynn Group is the standout example: it operates around 2,600 franchised restaurants across seven major brands, including Applebee's, Wendy's, Taco Bell, Pizza Hut, Arby's, Panera Bread and Planet Fitness. Operators at that level aren't hobbyists collecting brands; they're professional business builders with the capital and the people to run each one properly, and in many cases, they run tighter, more profitable operations than the franchisors themselves.

That's precisely the difference between what I did and what actually works. My mistake wasn't taking on multiple brands, it was doing it without the team, the systems, or the focus that made it sustainable. Flynn didn't get to 2,600 units by being distracted across seven brands with no infrastructure; he built the infrastructure first and let the scale follow it.

This matters for New Zealand right now, not just as a historical lesson. In a tighter lending environment, with cautious consumers and cash flow under more pressure than usual, the cost of getting the ownership structure wrong is higher than it was a few years ago, for franchisees and franchisors alike. A single-unit owner who isn't hands-on, or a multi-unit owner without the systems to support their spread, has far less room to absorb a slow quarter than they would have in easier conditions. The margin for error has simply shrunk.

The due diligence I should have done

So how does a franchisee avoid ending up where I did? It comes back to due diligence, and specifically, doing more of it than feels comfortable.

In Australia, the Franchising Code of Conduct requires a franchisee to be given the disclosure document and franchise agreement, and to wait a minimum of 14 days before signing, followed by a further 14-day cooling-off period after signing during which they can still walk away.

New Zealand's own franchising conventions, while less prescriptive in law, work on the same principle: the ‘courtship’ period between first meeting a franchisor and signing an agreement can reasonably take anywhere from a month to a year, and if you feel rushed at any point in that process, that alone is worth treating as a warning sign.

New Zealand has no dedicated franchising disclosure legislation. Disclosure only becomes a hard requirement for franchisors who are members of the Franchise Association of New Zealand (FANZ): its Code of Practice and Ethics obliges members to give prospective franchisees a disclosure document at least 14 days before signing and the franchisor is required to update it annually.

Although New Zealand franchisors are not legally obliged to practise disclosure, it is best practice. My recommendation to any franchisee questioning a non-FANZ member franchisor is to ask why they are not members, and why they don’t follow disclosure obligations? It could be a red flag!

Responsible franchising dictates that franchisors should be open and honest in their dealings with franchisees so the franchisee knows what they may be getting themselves in to.

Watch for the same handful of red flags regardless of which country you're buying into. Being pressured to sign quickly is one. A heavily discounted franchise fee is another, quality franchisors know what their opportunity is worth and where it sits against competitors, so a steep discount deserves a direct question about why, rather than gratitude for the bargain.

A franchisor who is reluctant to hand over the proforma agreement and disclosure document until you've been thoroughly pre-qualified is not necessarily acting in bad faith, but it is worth asking why, and when you will be given access.

What are the costs?

On the financials, go deeper than the headline franchise fee and royalty rate. Every franchise business has a business model built on three things: what it costs to make or deliver the product, what it costs to sell it, and how pricing and payment are structured and a credible franchisor should be able to walk you through all three without hesitation. In practice, cost of goods and labour typically make up 55 - 65% of revenue in most franchise businesses, and that ratio is where a business is won or lost.

Ask for actual labour reports, rosters, and a quality cost report showing projected versus actual cost of goods, the gap between the two will tell you a great deal about how well the business is genuinely controlled, not just how well it's marketed to prospective franchisees. Mature franchisors should also be willing to show you how their network performs across the lower, middle and upper quartile of franchisees, so you can see a realistic range of outcomes rather than just the best-case story.

And then there's the one I know most personally: capital. In several franchise businesses I've been involved in, franchisees went in undercapitalised, and it affected not just the business but their financial and mental wellbeing. It happens because optimism gets the better of good judgement, people underestimate what it actually costs to operate and overestimate what the business will generate in its early months.

One franchisor I worked for made it a hard requirement that every franchise owner maintain a minimum of three months' working capital at all times, reported monthly. That single discipline prevents more failures than almost anything else I've seen in this industry.

The other side of the table: selection over sales

Now to the other side of the table, because franchisors carry just as much responsibility for getting this right, and I include myself in that criticism.

In my current business, we've had three franchisees who didn’t work out. Some of that came down to undercapitalisation on their part, but a good deal of it came down to selection on ours. Like a lot of newer franchisors, we were keen to grow the network, and when you're keen to grow, it's easy to quietly lower the bar on who you let in.

A prospect who is enthusiastic and has the funds available starts to look like a good enough reason to say yes, even when something about the fit isn't quite right. It's a mistake I see across the industry constantly, and I've made it myself: treating recruitment as sales, when it should be treated as selection.

An effective, qualified franchisee selection process is not optional extra polish on a franchise system, it's foundational to it. Having the funds to buy in should never be the deciding factor.

The strongest franchise systems use a genuine selection process: a behavioural profiling tool that maps the attributes of their best-performing franchisees, a structured recruitment pathway with clearly defined stages, and an on-the-job evaluation where a prospective franchisee spends real time working inside an existing location alongside a current franchisee and a member of the franchisor's team. That exercise does more to reveal whether someone will actually run the business well than any interview or business plan ever will.

It goes both ways

It's worth remembering that this process is meant to run both ways. A good discovery process should leave the prospective franchisee with just as clear a view of whether they're suited to the brand as it leaves the franchisor with a view of the candidate. When franchisors treat recruitment purely as a sales funnel to fill and measuring themselves on conversion rates and unit growth rather than on the quality of the fit then both sides lose.

The franchisee ends up in a business that was never right for them, and the franchisor ends up managing a struggling location, an unhappy franchisee, and the reputational cost that ripples through the rest of the network when other franchisees see a poor placement play out.

Franchisors also need to apply the same capital discipline to their franchisees that I've described above for franchisees to apply to themselves. If someone can only just scrape together the minimum investment with nothing left in reserve, approving them anyway because the network needs the growth is a decision you are very likely to regret, for their sake as much as yours.

It costs far less to walk away from a marginal candidate at the recruitment stage than it does to manage them out of the network eighteen months later.

The decision is the due diligence

The uncomfortable truth sitting underneath both sides of my story is the same: due diligence and proper selection aren't bureaucratic steps to get through on the way to the real decision. They are the decision. Whether you're a franchisee evaluating an opportunity or a franchisor evaluating a candidate, the quality of that process determines the outcome far more than enthusiasm, timing, or how badly either party wants the deal to happen.

I got that wrong more than once, on both sides of the relationship. I'd like New Zealand franchisees and franchisors to get it right the first time.