Every year, thousands of Australian business owners purchase franchising rights from an existing franchise or start a franchise of their own.
Notwithstanding, buying a franchise can be a good option when going into business, the reality is that a lot of new business ventures, including franchises, fail.
This article provides you with six considerations to assist you make the decision about whether to buy into or start up a franchise.
Consideration 1 – Skills & Knowledge
Every business is unique. They operate in their own geographical and socio-economic area, in their own particular location (street front or otherwise), in the prevailing economic conditions and with prospective customers who also have a unique set of skills and knowledge.
The question for you is, “do I have the necessary understanding, knowledge and skills to operate this particular business?”
Consideration 2 – Due Diligence
Assuming I do have the necessary understanding, knowledge and skills, is this particular franchise business a viable option. How long has been operating for? Has it been operating profitably during the most recent years? Is it vulnerable to new players coming into the market? Does it have a good and secure client/customer base?
The question for you is, “does this franchise business have a good track record and future?”
Consideration 3 – Financial Resources
During the start-up phase of a franchise business cash flow is tight. Managing it is critical.
The question for you is, “do I have the necessary funds to see the franchise business through the start-up phase?”
Consideration 4 – Business Structure
There are many business structures that can be used to operate a franchise business as a sole trader; in partnership; using a company; or, using a trust. However, the business structure you choose should be the business structure that is best for you and your family and your business. It should consider, at the very least, tax minimisation, asset protection and the ability to introduce new “business partners” to the business if you wish.
The question for you is, “Which business structure should I use?”
Consideration 5 – Accountancy Advice
In our view this is a “no-brainer”. You do. Ideally, you will have had your accountant review the financials of the business as part of you undertaking the due diligence, and to advise on the purchase price.
The question for you is, “Do I engage an Accountant?”
Consideration 6 – Legal Advice
Perhaps not surprising, our view is this is also a “no-brainer”. You do. Again, ideally this will have been done as part of the due diligence. Lawyers are able to advise on the security of certain business contracts which might be relevant to the value of the goodwill in the business, including contracts with suppliers, customers and in relation to the business premises. Of course, lawyers are critical to making the agreements/contracts related to your business, enforceable.