Looking to invest in a franchise. Then our Buying a Franchise podcast is for you. Join us as we go through all of the franchise basics and help you on your journey to finding your dream franchise. Here at Inside Franchise Business, we acknowledge the traditional owners of country throughout Australia. We pay our respects to elders past and present.

Amie (00:30):

Hello and welcome. My name is Amie Later, and this is the Buying a Franchise podcast, vital listening for anyone interested in buying it’s in the process of buying a franchise as usual, I’m joined by Sarah Stowe, editor of Inside Franchise Business, Australia’s leading franchise hub to help us guide through everything we need to know about the franchise buyer’s journey. Welcome Sarah.

Sarah (00:54):

Hi, Amie. Great to be here to chat more about franchising.

Amie (00:58):

Indeed. So today we are tackling doing the research. Basically how someone looking at a possible franchise investment actually goes about researching the business.

Sarah (01:08):

Uh that’s right now, this is a great topic because doing your homework before you commit is absolutely crucial. It doesn’t really matter about the scale of the project, whether it’s a small budget, conscious part-time business or a full scale, major investment, no-one wants to waste their time and money on a dud initiative.

Amie (01:26):

That’s very true. So the first thing that is really important to consider is, I suppose, whether or not franchising is actually for you and no doubt we’re gonna be having that discussion about this, um, that topic in another podcast, but let’s assume that someone that’s listening, you’ve reached that point. What’s next?

Sarah (01:47):

Deciding where to direct your interests is important. And by that, I mean, considering what kind of business you would like to buy and in what industry.

Amie (01:55):

Okay. How do you even start to work this out? If I think about my experience, I’m in publishing, but I would wanna do something different if it was to be my own business. So how would I know what to look for, um, where to start the search?

Sarah (02:08):

Well, if you were looking for a particular industry, um, a simple Google search or using the Inside Franchise Business website can bring up any businesses that fit your criteria. But if you want to try your hand at something new, then you need some direction and most, um, most potential franchises will be drawn to particular industries, but some may have a wide selection to choose from. So how do you decide? You really need to be analytical and emotional at the same time in your approach.

I would say the first decision you need to make is to decide, uh, excuse me, to decide whether you want to be an owner-operator or a hands-off investor. Now, the latter still needs to be involved, particularly in the early stages of the business. But with time, the business will be operated by a manager and your time will be spent on the business opportunities, not the operational side.

So if you’re an investor may be looking more for a business, whether revenue and return on investment are high considerations and where the franchisor of course will allow an investor to own a franchise.

If though you want to be hands on and, and most franchisees are, and most franchise want that too. You are going to need to be passionate about what you are doing. So I think very carefully about how you wanna spend your days. Um, for instance, do you want to just work weekdays? Are you happy to be in the food sector, where there are long hours, evenings and weekends, which are just part of the business model? Or would you prefer to be working with children, perhaps a job outdoors is, um, more in your line of, um, more like what you would like to do, um, in the future.

So I think all of these are helpful to direct your search, even though you may actually change your mind in the process and discover a whole new industry that excites you.

Amie (03:50):

You mentioned the analytics side too. What’s involved in doing this research?

Sarah (03:56):

Well, this is, this is crucial and it’s about researching a sector. So it’s reading as much as you can about the trends, about potential for growth, getting to recognise some of the pain points and opportunities in the years ahead, um, and they will provide some useful insights.

Now, a lot of this can be easily done online, doing a Google search, which will throw up independent reports and surveys and point you towards industry bodies that can be a good source of information.

Um, and I’ll put a plug in here at Inside Franchise Business magazine we provide some of these insights, um, in our quarterly publication, regular marketing reports. So that’s a simple way to become familiar with a sector.

Amie (04:36):

Okay. And I know you probably wanna move on to researching the kind of business, but if you can just pause here for a second, you talked about pain points and opportunities. What kind of things might come up there?

Sarah (04:49):

Uh, it will depend on the industry of course, but, um, let’s take the hospitality sector. Right now there is a shortage of staff for many hospitality venues and that’s forcing restaurant operators in many cases to increase wages. So it’s important to find out whether that’s going to be a long term issue, whether more overseas workers are expected to come to Australia and if this will resolve the problem.

 

Staying in the food service industry, there’s also a question of rents and how much these are expected to rise. So typically the kinds of things that can affect the industry are things that impact on expenses, wages, rents, the cost of goods and services and so as these can prove to be pain points for a business owner, it’s good to get a sense of whether these are likely to rise or fall.

 

But there are also societal trends. If you think about the impact Covid has had on how we shop and dine, the rise of takeaway and home delivery, all these shape what will happen in the industry in the future. Some sectors are particularly impacted by demographics. For instance, the aging population means there is a burgeoning demand for aged care, in different forms, making it a sector that has plenty of potential. It’s also an industry that is affected by regulatory changes. Other examples include mortgage broking and real estate.

So if you can find out what’s in the pipeline and what kind of impact any new rules will have on the sector, you’ll be able to make a well informed decision on whether it’s right for you.

Amie (06:10):

Yeah, that makes sense. Okay. So let’s get back on track with, if I’m looking for a franchise, how do I find a business that’s going to be suitable for me?

Sarah (06:20):

Well, this is all about doing your homework on a specific brand or brands, if you’ve shortlisted two or three. You need to consider things such as a strong, ongoing demand for the service or product. Of course, a brand’s website can provide a lot of positive information about the business, and that will always be a starting point, but you will have more questions.

You’ll want to find out if the business is investing sufficiently in technology to keep up with developments. Does it have a customer app? How streamlined are the business processes? Um, other questions will be what training is on offer, um, and will it provide you with the skills that you need personally to operate the business? What sort of backup and support does a franchise all provide franchisees?

It’s important to find out that and, and consider whether you would be comfortable with the level of support that’s on offer. Look at the marketing and the advertising and the social media; do you think it’s done well? You can also of course, research what customers think of the brand. Um, a Google search will uncover customer reviews and media reports. It is important to remember though that dissatisfied people tend to be more vocal.

Amie (07:24):

Very, very true. <laugh>

Sarah (07:28):

Um, then there’s also the alignment of the business values and the culture with your own, your own kind of goals and, and, um, vision. You have to think about whether you would be proud to be a franchisee in this brand. Do you feel comfortable with the vision of the CEO or do you know about the leadership team and their style of leadership? All of those questions, um, there’s not a right or wrong answer, but you need to find out what those answers are and whether that suits what you want out of a business.

Amie (07:58):

Okay. And so I would imagine other franchisees would be a good source of this kind of information too.

Sarah (08:05):

Yeah, that’s, it’s a good point. And, and a prospective franchisee has specific rights when it comes to this. The franchisor must provide a franchise buyer with the names and contact details of existing and former franchisees. So this is a great opportunity to find out what running the business is really like.

Amie (08:25):

If you’ve been provided those details, how do you know they’re being honest, wouldn’t there be a temptation to talk about, you know, the good things I suppose, unless of course they’re like, um, those that are vocal on Google and have had a bad experience.

Sarah (08:41):

Yeah. I, I mean, it’s a good point. I guess there’s a bit of smart thinking that has to go into this. Expert advisors suggest checking in with as many franchisees as possible to get a good range of responses from businesses that are all different, even though they’re all in the same network. Mm-hmm <affirmative>. Um, so you wanna speak to people who have been operating their own business for years, as well as new franchisees.

And if you speak to plenty of franchisees, you’ll almost inevitably find some who are really successful and some who are, who just aren’t achieving what they want, but that means that the responses you get will paint a pretty thorough picture, you’ll get an allround perspective, um, of what franchisees think.

Amie (09:18):

Okay. Do you have any tips on how best to approach franchisees, how best to approach that conversation to get the knowledge that you need?

Sarah (09:28):

Yeah. Yeah. There, there are a few tips, Amie, I mean, start by researching them online, using social media platforms, just to find out what you can about them and their business so you’ve got an understanding of, um, who they are.

The next step is obviously to chat with them and if you can do this face to face, that’s always best, but of course it’s not always possible. So a Zoom meeting, um, would be the next best thing.

And it sounds silly, but always make an appointment. Um, it’s, it’s really important. These are, these are busy, um, business owners. So be professional about it.

The Franchise Relationships Institute does a lot of work with franchisees and it’s founded, Greg Nathan suggests you don’t just turn up or, or phone and expect a franchisee to focus on your questions. His advice is that it also will take time for franchisees to open up and that’s a good sign. They want to know who they are talking to about what might be quite frankly, commercially sensitive information. So building trust is really helpful. Um, and it’s probably best to start by revealing a few things about yourself before you start asking your questions.

Amie (10:32):

Okay. So to the point of questions, are there any in particular that are helpful for potential franchisees to ask?

Sarah (10:39):

Ask how they got involved in the business, um, and, and whether it’s met their expectations. It’s useful to ask about their opinion of the leadership team too, as well as what it’s, what’s been the best thing about being in the franchise network.

Um, another great question to ask is, you know, with the experience you’ve had as a franchisee, would you still join the franchise?

Amie (10:58):

And what happens if you don’t like what you, what you hear? So if the, if the feedback is negative.

Sarah (11:04):

Well, let’s, let’s be honest. I think we’d all be a little suspicious if franchisees had only good things to say about their franchisor, um, because there will always be a decision that someone doesn’t like, uh, or if their business isn’t going well, they may blame the franchisor.

So it’s important to put negative responses in context because not all pessimistic comments should be interpreted as red flags. And I think that’s why speaking to a wide selection of franchisees really exposes a diversity of responses from business owners who are at different stages of their business.

What is helpful to see is if there’s a pattern of complaints or dissatisfaction among the franchisees you speak to, um, that really could be a red flag. And, and that would be something you should follow up.

Try and find out a little more about why a franchisee feels so strongly about the problems they’ve outlined and uncover, if you can, how the franchisor deals with these concerns.

Um, you know, the, the, the truth is that every franchise will have problems, but it’s good to know how the franchisor responds to these and how they respond to franchisee complaints and what actions are taken. And put yourself in the franchisee issues. Would you feel comfortable with this approach if you were the unhappy franchisee?

Um, I think it’s only fair really to go back to the franchisor with, um, any, uh, negative elements and get their side of the story, get their side of the story too, um, and see how dismissive or helpful they are in their response. It, it all goes to painting a picture of the overall business.

And I would say just, you know, don’t be put off by a few negative comments, no franchise is perfect. Put them into context and just consider how they apply to your own situation.

Amie (12:40):

Okay. So where else can someone doing this research term for help?

Sarah (12:47):

Uh, of course we’d love people to use all the easily accessible information on our website franchisebusiness com.au, um, as we’ve got, we would, we would, as we’ve got a library of podcasts features and of course the, the Franchise Handbook. Um, but in addition, there are some websites which can provide general information about franchising.

There’s the ACCC, which is a national regulator of consumer and competition laws. Then there is the Franchise Council of Australia, the FCA, which is the peak business organisation, and both provide information designed, designed to help potential franchisees, make good decisions about a future business venture. There’s also, um, the Australian, um, uh, FRANdata Australia also runs, um, a website where you can, uh, look up certain businesses and see if their, uh, information has run past, uh, financial institutions. So that’s a good one to look at too,

But of course, once you have chosen a brand and started the inquiry process, it’s critical to take a laser-like approach to the information that will come your way. You’ll be given some crucial documents by the franchise or including a franchise agreement and a disclosure document.

Now these are going be heavy reading, there’s really no disguising that. Um, my advice would be to persevere. Unfortunately, some franchisees don’t take the time to read this though.

Amie (14:10):

Um, so in what ways can it backfire Sarah?

Sarah (14:14):

Well, it’s like any contract, if something goes wrong, people turn to a contract to see what the relevant clauses say about the issue. But if you don’t know what’s included and you don’t know what the boundaries are, you might be, you might have made poor decisions and, and found yourself on the wrong side of the argument. Um, so that can cause disputes with a franchisor. It can even become an expensive and disruptive exercise if, if a dispute escalates.

Amie (14:37):

No doubt. So if you read these documents, um, and you don’t understand something, which, you know, I think would be a fairly regular occurrence, what do you do?

Sarah (14:48):

There are two things that you should do. One is to run the documents by a lawyer, preferably someone who is well versed in franchising. And, and honestly you should do this anyway, even if you think you’ve grasped all the points. The reason for this is that franchising is a specialist area of business, and then experienced franchise lawyer will be able to spot any anomalies or raise concerns about any troublesome clauses.

The second thing you can do is go back to the franchisor for clarifications. It’s important that you make a note in writing or even better get the franchisor to write down anything that might influence you to buy the business. That’s just a safety net in case there is a disagreement down the road over what was said.

Amie (15:26):

Now you mentioned a franchised lawyer… isn’t that an expensive exercise to get a lawyer involved when you’re just seeking clarity of information?

Sarah (15:36):

Yeah, look, it can be a cost that franchisees don’t want to take out of their limited resources. And, and that’s quite completely understandable, um, when there are so many other payments they have to make.

But in truth it is shortsighted. Um, professional advice, professional, independent advice can reduce the risks you take by buying any business. Um, and if things go pear shaped, a franchisee could list significantly more money, then they would have invested in legal advice upfront.

Amie (16:02):

Yeah. And I know if you are, if you are using a franchise lawyer, they know everything that they need to look for. Um, and it, I feel as it’s just a really important part of the process. So when you’ve done all the homework, what happens if your advisor cautions you against the business?

Sarah (16:22):

Ah, yes. Well that does happen. And sometimes people follow the advice and sometimes they go with their gut instinct. Um, either way what’s important is to go through what the experts refer to as the due diligence process. And that’s just a fancy term for the research that we’ve been talking about. And understand the reasons why you have been advised against the investment.

At the end of the day it’s the franchise buyer’s decision. It’s just important to remember though that because an opportunity sounds good on paper or because you love the brand it doesn’t mean that it will be right for you.

Expert advice is always don’t rely solely on information provided by your franchisor.

You know, skimping on your thorough and independent research could be an expensive mistake. You know, opt for peace of mind. Get the data or advice that backs up your purchasing decision. So in addition to getting legal advice on the documents, I would highly recommend turning to a franchise- friendly accountant who can unpick the financial costs and the viability.

Amie (17:22):

That’s another cost or top though, isn’t it?

Sarah (17:25):

It is, but it isn’t uncommon for new franchisees to buy into a business and really not understand the figures or the impact of the slight alteration in the outlined costs or income, um, or income can have on the, the business overall.

If they then find themselves struggling financially after a few months or a year, they have to take steps to fix up the problems. And that’s much more stressful. It’s time consuming and it’s much more expensive than it would have been to seek advice in the first place. It doesn’t mean a business isn’t viable. It just means you need to understand all the parts of play before you sign to take it on.

Amie (17:59):

Wow, well, Sarah, this has been very insightful and in depth in terms of what we need to do when we are researching whether a franchise is right for us. Thank you so much, Sarah, for these pointers. Now we did mention some resources, a fair few, actually, and as usual in the show notes below, we’ve got links and references if you wanna follow this further and get more in depth information before you continue your journey to buy a franchise.

As with everything and franchising, there are crossovers and connections with other topics. So don’t forget to check out crucial podcasts, including the franchise agreement, the Franchising Code of Conduct and the disclosure document.

And if you need a little inspiration, have a listen to our Spill the Biz series ,interviews with founders and leaders in Australian business. Thank you for listening.

(18:49):

Thanks again for listening to our Buying a Franchise podcast. Each episode, we uncover more tips and expert advice to streamline your franchise journey. So don’t forget to subscribe and as always visit franchisebusiness.com.au to download your free Franchise Handbook and access even more great franchising info.