PKF Carr & Stanton, Hastings, New Zealand
29 Jul 2016
Statistics tell us that starting a new business can be risky with almost half of all start-ups failing within the first year. Issues around capital, cashflow, and establishing systems all come to mind, which is why franchises have established themselves as a good vehicle for the budding entrepreneur to start their own business venture.
The attraction of entering into a franchise business that is packaged and ready to go versus the uncertainty of an independent start-up is worth its weight in gold. Not convinced yet? Check out our top 7 reasons why franchises are a worthwhile consideration.
1. You are buying a proven formula. It's all about systems and anyone who has experienced the consistency of a meal from a fast food restaurant can surely appreciate the systems involved in creating such uniformity. When you buy into a proven franchise concept, you avoid many of the major hurdles new start-ups face because the franchisor has already ironed out the kinks in the systems and laid a solid foundation. A good franchisor will have everything systemised and ready for you , a ‘paint-by-numbers’ business essentially - from marketing and branding to site selection, HR and software. Just consider what it would take (and how long) to set up your own business that could earn an immediate income stream.
2. Larger franchise companies offer in-house lending or assistance attaining financing. Due to tightening lending practices, many franchise companies are now offering in-house financing for part or all of the total start up investment. Within the main banks there are now specialists who are dedicated to franchise funding. According to Dean Madsen, Senior Franchise Manager from Westpac, the backing of a solid franchisor eliminates unnecessary time seeking approval from lenders on things like franchise agreements and business forecasts. Rather the focus is on you and what you bring to the table as a franchisee.
3. A franchise provides a built-in support system. If you need help negotiating the terms of a lease, if your POS system is acting up again, or if you want to offer a special promotion and need advertising and design assistance, the franchisor can provide the help and support. Equally important, is the relationship between franchisees and the support they can offer each other. Good franchisors understand that there are exponential improvements that take place when franchisees are well connected and sharing best practices.
4. You can be your own boss (almost). You can call the shots, manage the schedule, and can run the show, although some franchisors have strict rules around opening hours and the like. It's not quite the same as being an entrepreneur, but it's the next best thing and if you follow the business system and use the support systems in place, your chances of being your own boss for a longer time will increase.
5. Some low-cost franchises have strong ROI. Most franchises promise a solid and strong client base and fast pay-back period but that is where it is important to talk with your accountant about the reality. A lot of low-cost franchises might promise the world, but it's important to know if they will deliver. We recommend getting out and talking to current franchisees about their experiences with the franchise and what their margins really look like.
6. Name recognition is what consumers look for, especially in a recession. Consumers generally frequent those businesses which they are most familiar and comfortable with. Also during a recession consumers are more inclined to go with what they know. Having instant access to a recognised brand provides a built-in security blanket and marketing punch. It's all about name recognition and consistency, and consumers want the safety and comfort of a familiar brand.
7. The chance of success is much higher. Bottom line: A franchise is more likely to succeed than an independent start-up and the security of investing in a proven concept is worth the cost. With a franchise, the chances of success are dramatically increased because you have the support of the system and the franchisor has already taken most of the risk. That's what you're really paying for.
Despite all of the benefits, the franchise model is not for everyone. Taking direction from someone else and following a predetermined business formula isn’t everyone’s cup of tea. However, if you are seriously considering a franchise, as with any other business decisions, please take the time to seek some independent advice.
Aaron Tyro is an Associate at PKF Carr & Stanton and has helped many clients grow their businesses and achieve their financial goals.
Many of his clients are franchisees and his in-depth knowledge of tax planning, management accounting and succession planning, has helped them succeed.
If you are considering a franchise, Aaron invites you to contact him via email or phone 06) 876 8124 for a complimentary discussion about the opportunities and challenges.
For more information on how our services can help your business get in touch.