How to Spot a Great Franchise

Thinking to buy a franchise? Like many Australians perusing the vast landscape of businesses on offer, knowing which franchise to buy can seem like an exciting yet truly overwhelming task.

IBISWorld’s franchising market research report (October 2015)1 states that the sector currently employees 570,000 people with revenue of $172 billion. That is nothing to sneeze at, and the upward trend is set to continue through to 2020. With over 13 years in franchising, across marketing, field support and senior management, editor and founder of Franchise Buyer, Glenn Walford, has connected many sellers and buyers to franchise brands. 

The one question he still gets asked over and over, “What’s the best franchise to buy?” Family, close friends, acquaintances and people he meets almost daily in the course of running the business continually implore him for the golden answer. Here is the secret — it is never as simple as many would expect. The most important thing is you really need to enjoy what you end up doing. “My belief is that this makes ‘work’ much easier if it is enjoyable.”

Speaking frankly, Mr. Walford says, “Owning and running a business for many, in my view, is a very personal thing. Some claim that they see it purely as an investment — but that’s not me, so I can’t really relate to that thinking and approach.”

Armed with this question, we spoke to several experts in the franchising industry to find out how you can spot a great franchise. Some of the answers will no doubt shine some light on the way you approach searching for the best business for you.

Set-up costs, industry specific lender (finance) In our interview with First Class Capital National Franchise Recruitment Manager, Greg Prussia, he states that the level of investment is a key deciding factor. Prospective franchise partners want to know if it is affordable to get in and exactly what the business is. 

Spectrum Analysis Managing Director, Peter Buckingham, reinforces this key point, “If you want to impress potential franchisees, it costs money — and that is why God invented banks. [I’m] Very sick of hearing from undercapitalised Franchisors with a great idea, and looking start a business on the smell of an oily rag — and their first couple of Franchisees’ money.” Knowing the set-up costs is crucial to help you make an informed decision. Depending on your budget and lending capabilities, it is well worth planning out your current budget, financial and contractual arrangements. 

If a low-barrier business is viable for you, GroutPro franchisor, Geoff Biddle, recommends reviewing franchises with “low entry cost, low overhead, low competition, low or fixed fees and high earning potential.”

For others, discussions with industry-specific lenders may help you narrow down your focus — if affordability is a primary concern for you. FRANdata Australia CEO, Darryn McAuliffe, explains, “Smart brands recognise the importance of good relationships with lenders to help prospective franchisees buy a franchise. A growing number of franchises now provide independent reports to make life easier for both lenders and franchisees. Snap Fitness, Chocolateria San Churro, Zambrero, Mr Rental, Lenard’s and Pandora are all good example of quality brands making life easier for their franchisees obtaining finance.” 

Not sure which industry is for you? Mr. Buckingham has further sound advice. “A good franchise is something you like doing. If you like the outdoors, think pool cleaning, lawn mowing and gardening — if these appeal the most. If you are a computer nerd, think indoors, computers and social media. If you are an animal whisperer, think dog wash and grooming. I believe it definitely helps to align your business to your passion or at least something you like doing. Funny why it is always hard selling franchises for rubbish bin cleaning!” 

Mr Walford believes a valuable lesson learnt from a fellow senior manager of a franchise brand also ties into knowing where your genuine motivation lies. While looking to purchase a business for his wife, his colleague shared,“I’ve been looking for ages for a good business, and we just can’t seem to find one at the moment.” The conversation remains a vivid reminder, as it indicates why going about your search the wrong way can lead you nowhere in a hurry. “My thinking on an approach to finding a business has always been to focus your search on a business that does something that you actually like to do — something that interests you.”

Rules and regulations For those concerned more about the rules and regulations of the franchise world — i.e. breakout clauses, can you sell it on if it does not work, clarity around contractual arrangements and with compliance do you have to adhere to the Franchisor’s rules (for example, purchasing your own brand of coffee beans if you are a mobile coffee van) — Mr. McAuliffe’s industry insights will help put things into perspective: 

“The Australian franchise sector is very well regulated, operating under a Franchising Code of Conduct overseen by the Australian Competition and Consumer Commission (ACCC). This code has recently been updated and many quality franchise brands have assisted prospective franchisees to quickly confirm their documents are up to date through the Australian Franchise Registry.” 

The ACCC replaced the old Franchising Code on 1 January 2015 and prospective franchise partners can subscribe to the Franchising information network to receive emails on developments, changes, resources, events and enforcement action. McAuliffe adds, “Great franchise brands care about reputations, not just their own but the whole franchise sector and every franchisee operating under their brand. Franchise Council of Australia membership and registration with the Australian Franchise Registry are two excellent indicators that brands are serious about their reputation and that of the franchise sector.”

While the maintenance of brand image and the franchise industry is crucial for growth and integrity, many people chose a franchise for the after-sales service and support network. Being left to fend for yourself can be a daunting prospect. 

A franchise with strong systems, infrastructure and people management can help alleviate initial reservations. With extensive experience in supplying services to franchises on location and site analysis, Buckingham’s perspective is all about leadership in the franchise sector. When you are looking to choose a franchise, review what the CEO or principal has achieved, specifically “whether you want to hitch your wagon to their horse. 

Good franchise systems invest in proper systems, be that in site selection, territory planning or strategic network planning — a good franchise system has a plan. The poor systems we see start out on a low budget, and the initial work is often not done.” A well-structured and systemised franchise business will ensure you can hit the ground running. 

As Mr Walford has experienced, “all the rest of the fundamentals of the business, of course, need to follow that.” Therefore, whether you start looking for a franchise or any business based on cost, industry, brand, systems or support network, knowing what gets you up every morning is a good first step. 

To help start your search, Mr McAuliffe’s suggestion will help you quickly separate the wheat from the chaff: “Quality franchise brands have nothing to hide and are generally willing to share detailed information packs to help prospective franchisees quickly determine the suitability of the brand.” To give you a bit more of a competitive searching edge, our industry experts share their sought-after insights.

Steve Finn - Co-founder, Finn franchise Brokers

 “I think a great franchise has a strong and proven customer acquisition program. If you’ve got more customers than you can handle, you’ll probably have a great business.

Grant Garraway - Director, The Franchise Shop 

“It’s only a great franchise if you can do successfully what the franchise does — don’t like raw fish, don’t buy a sushi bar! It is a great franchise when the existing franchise owners tell you they would buy it now, knowing what they now know. A great franchise is one which is tomorrow’s trend, not yesterday’s. Don’t buy a wagon wheel manufacturing business; buy a personal hovercraft business.”

Phillip Chapman - Director, Lease1 

“Quite often, the due diligence on the lease is overlooked, particularly where the Franchisor holds the head lease. An independent review and audit of the lease is critical!”

Mark Wood - Kleenit (franchisor) 

“The opportunity to grow your territory by adding extra income streams and not being limited to just the main core business is a great benefit to those who are entrepreneurs. That way they can soon earn extra income, put on extra staff, etc., and their business becomes stronger and safer, as it isn’t so reliant on one income stream.”

Darryn McAuliffe - CEO FRANdata Australia 

“Great franchise brands provide strong initial training to ensure the success of new franchisees and effective ongoing support to keep them and the overall brand successful. It is worth asking them to outline exactly what they do and then validate that with some existing franchisees.”

Peter Buckingham, MD, Spectrum Analysis

“I listen to Phil Ruthven [founder of IBISWorld] who has been preaching for 30+ years that we should do what we do best and outsource what we either do not want to do or don’t like doing. This has generated a huge number of opportunities in the service sector, many which have become franchises. Whether it be lawn mowing, gardening, car or dog wash, there is potential for someone to make a business out of it and offload what they don’t like doing to someone else. Seems to me the service businesses are the biggest growth sector we are currently seeing.”

Jonathan Payne, MD, Xpresso Mobile Café (franchisor) 

“Look for franchises that have won industry awards — i.e. aim for a franchise system that has the balls to ask their franchisees for anonymous feedback and ask tough questions about the system they are a part of. If the system has won awards, it’s because the system works and the franchisees are happy. Simple as that really.”